We set out below the most significant recent changes introduced by the Council of European Union to the Prospective Directive (2003/71/EC). Further guidance can be provided on request.
- Copies of the text adopted can be found HERE.
- A note of the press release made can be found HERE.
- To download a full copy of this Legal Comment, follow this link:
Legal Comment – Prospectus Directive PDF
1. Prospectus Summaries
Prospectus summaries will be regarded as a key source of information for retail investors with a requirement for the summary to now contain key information relating to the nature and risks of the issuer, the guarantor together with the relevant securities being issued. Further information including the terms of the offer, details of the admission itself together with the reasons for the offer and how proceeds will be utilised are also considered as key factors and would need to be included within the body of the summary. Providing a clear and concise snap-shot of the summary is the main objective.
Furthermore, summaries should have a common format by ensuring that equivalent information always appears in the same position in the summary, which will allow investors to compare similar products. The liability regime in relation to summaries has been expanded, since liability may now arise where the summary does not provide (when read together with other parts of the prospectus) the required key information. This may present difficulties for issuers with complex products or securities as the existing 2,500 word limit for summaries has not been increased.
2. Proportionate Disclosure for Rights Issues
A new “proportionate disclosure” regime will also be introduced. The new disclosure regime will apply to rights issues and offers where such shares to be offered are of a similar class to those currently traded on a regulated market. It must be appreciated that this regime will only be available if the issuer itself has not disapplied statutory pre-emption rights and, therefore, will most probably have limited application within the UK – commonly such rights are generally disapplied.
The good news is that a shorter form of the prospectus will be required for pre-emptive issues. If a UK issuer was making an offer pursuant to the pre-emption provisions contained in the Companies Act 2006, it is hoped that the reduced disclosure obligations would enable that issuer to produce a prospectus more quickly and cost-efficiently.
Such change is welcomed and would reflect the recommendations that have been made by the UK Rights Issue Group relating to the use of short-form prospectuses and rights issues.
It is intended that separate guidelines will be provided as to the application and details of the new regime.
3. Supplementary Prospectuses and Withdrawal Rights
The period during which the publication of a supplementary prospectus may be triggered will end on the latter of the close of the offer or admission to trading. Furthermore, investor withdrawal rights will now apply to public offers only and will be exercisable within two working days after the publication of a supplement (although a longer period may be set by issuers).
4. Employee Share Schemes Exemption
Participation by employees in company share schemes is particularly important for small and medium-sized enterprises; therefore, the requirement for a prospectus to be published for offers made to existing or former directors or employees has been removed. The former position provided an exemption only to those companies whose shares had already been admitted to trading.
5. Other Prospectus Exemptions
To encourage further private placements the definition of “qualified investor” will be aligned with the definitions of “professional client” and “eligible counterparty” used in the Markets in Financial Instruments Directive (2004/39/EC) (MiFID). It is anticipated that this change will reduce the costs associated, together with the complexity, of private placements enabling investment firms to rely on existing lists of professional clients and eligible counterparts.
Another amendment to be introduced will be the current 100 persons rule, being increased to 150 non-qualified persons per member state.
The total consideration exemption from having to apply the Prospectus Directive will be increased from €2.5 million to €5 million (calculated over a period of 12 months). Likewise the exemption for offers of non-equity securities issued in a continuous or repeated manner by credit institutions where the total consideration is less than €50 million calculated over a period of 12 months has been amended to increase the threshold to €75 million.
Offers made to investors who acquire securities for a total consideration of at least €100,000 (formerly €50,000) are exempt, and offers to acquire securities with a denomination of at least €100,000 per unit (formerly €50,000) are also exempt.
6. Use of Prospectus by Intermediaries
Financial intermediaries reselling securities may use the issuer’s prospectus during the term of its validity (which is now 12 months from the approval of the prospectus), provided that the issuer has consented by written agreement. In the absence of such consent, the intermediary would need to publish a prospectus itself.
It is our understanding that two aspects of the amending Directive will be implemented sooner by the UK government. These two aspects are:
1. the total consideration exemption from having to apply the Prospectus Directive will be increased from €2.5 million to €5 million; and
2. the amendment to the public offer exemption to publish a prospectus which increases the number of persons per Member State to 150.
Our Corporate team will continue to monitor the progress and implementation of the amending Directive and we anticipate that most of the clarifications and amendments will have positive effects for issuers and offerors of securities in particular to small and medium-sized enterprises.
If you require additional information in relation to the amending Directive or wish to discuss any capital markets issue, please contact Jeremy Orrell on 0844 391 5829.