Introduction

The Prospectus Directive [2003/71/EC], as supplemented by the Prospectus Regulation (EC No. 809/2004) provides for a single regime throughout the EU governing the content, format, approval and publication of prospectuses. The Prospectus Directive requires a prospectus to be published where either an offer of securities is made to the public or securities are admitted to trading on a regulated market. The Prospectus Regulation prescribes the form and content of a prospectus required by the Prospectus Directive. For a general overview of the Prospectus Directive, please see our publication entitled ‘The Prospectus Directive’ at: http://www.cummingslaw.com/publications.

One of the key strategic priorities of the Capital Markets Union (CMU), a flagship initiative of the European Commission, is a review of the Prospectus Directive, as the amount of administrative, human and financial resources needed to draw up prospectuses make it costly and administratively burdensome for SMEs (small and medium-sized enterprises) and start-ups to produce. The aim of the Commission is to improve the effectiveness of the Prospectus Directive and lower burdens on small firms, which should make it easier for companies to raise capital throughout the EU. The Commission therefore published a consultation paper on the review of the Prospectus Directive in February 2015.

Following its consultation, the Commission has adopted a legislative proposal for a new Prospectus Regulation which is intended to repeal and replace the Prospectus Directive along with its corresponding implementing measures (including the current Prospectus Regulation). A brief summary of the legislative proposal is set out further below.

The Prospectus Directive [2003/71/EC], together with the Prospectus Regulation (809/2004), provide for a single regime throughout the EU governing the content, format, approval and publication of prospectuses. Key elements of the Prospectus Directive include:

  1. a requirement for a prospectus to be published where either an offer of securities is made to the public or securities are admitted to trading on a regulated market;

  2. harmonised disclosure standards for prospectuses, and a requirement for prospectuses to be approved by the relevant competent authority;

  3. a requirement to include a summary of the prospectus;

  4. a choice as to the format of the prospectus;

  5. a requirement for a supplement to be published if any significant new factor arises or a material inaccuracy in the prospectus is noticed between the approval of the prospectus and the closing of the offer or commencement of trading; and

  6. a number of exemptions to the requirement to publish a prospectus.

The Prospectus Regulation prescribes the form and content of a prospectus required by the Prospectus Directive.

Proposed Prospectus Directive

The Commission published its proposed amendments to the Prospectus Directive in December 2015. The European Parliament has since resolved to adopt amendments to the new Prospectus Regulation, which it published in September.

The key changes introduced by the European Commission are as follows:

  1. scope of the prospectus obligation- the introduction of a higher threshold to determine when companies must issue a prospectus. Under the Regulation, no EU prospectus would be required for capital raisings below €500,000, as opposed to the current €100,000 threshold). Member States will be able to set higher thresholds for their domestic markets and will also have the choice to exempt offers of securities to the public from the prospectus requirement under the Regulation, provided that the offer is only made in that Member State and the total consideration of the offer is between €500,000 and an amount which cannot exceed €10 million, calculated over a period of 12 months;

  2. specific disclosure regime for SMEs- the introduction of a "lighter prospectus" for small and medium-sized enterprises. The proposed disclosure regime for SMEs would allow such companies to draw up a distinct prospectus in the case of an offer of securities to the public provided that they have no securities admitted to trading on a regulated market. The prospectus schedules for such companies (which will be set out in detail by delegated acts) will focus on information that is material and relevant for companies of such size. All SMEs with a market capitalisation below €200 million (which represents an increase from the current limit of €100 million) would qualify for this new regime;

  3. specific disclosure regime for secondary issuances- the introduction of a new, simplified prospectus for companies that are already listed on the public market that want to raise additional capital by a secondary issuance. The new disclosure regime for secondary issuances would apply to offers or admissions concerning securities issued by companies already admitted to trading on a regulated market or an SME growth market for at least 18 months. In such cases, the ‘alleviated prospectus’ will only contain minimum financial information covering the last financial year and will include information on inter alia the terms of the offer, use of proceeds, risk factors, board practices, directors’ remuneration, shareholding structure or related-party transactions;

  4. prospectus summary– the introduction of a new prospectus summary, which is closely modelled on the key information document required under the PRIIPS Regulation. As well as the introductory section containing warnings, there will be three main sections in the summary covering key information on the issuer, the security and the offer/admission respectively;

  5. universal registration document (URD) - the introduction of an annual universal registration document, which is an optional "shelf" registration mechanism for use by companies that frequently access the capital markets. The URD contains all the necessary information on a company that wants to list shares or issue debt. Issuers who regularly maintain an updated URD with their supervisors will benefit from a five day fast-track approval when they wish to issue shares, bonds or derivatives; and

  6. single access point for all EU prospectuses. It is intended that ESMA will provide free and searchable online access to all prospectuses approved in the EEA.

European Parliament amendments

The main amendments adopted by the European Parliament to the draft Prospectus Regulation proposed by the European Commission are as follows:

  1. Scope - the Regulation shall not apply to offers of securities to fewer than 350 persons per Member State and to a total of no more than 4,000 persons in the EU (other than certain investors), or to offers with a total consideration in the EU below €1 million, calculated over a period of 12 months;

  2. Exemptions - Member States can decide to exempt offers from the prospectus requirement provided that the total consideration of the offer in the EU does not exceed €5 million, calculated over a period of 12 months;

  3. Prospectus summary - in exceptional circumstances, a competent authority may allow an issuer to produce a longer summary of up to 10 sides of A4-sized paper when printed (instead of six) where the complexity of the issuer's activities so requires. No summary will be required for a prospectus relating to the admission to trading on a regulated market of non-equity securities offered solely to qualified investors; and

  4. EU growth prospectus - the Regulation introduces the concept of an EU growth prospectus for the proportionate disclosure regime set out in Article 15. Such prospectuses will have reduced content requirements and be in a standardised format:

Next Steps

The proposed Regulation will be discussed and adopted by the European Parliament and the Council of the EU under the co-decision procedure. A number of delegated acts will also need to be adopted by the Commission, and draft regulatory and technical standards and guidance will need to be developed by ESMA in respect of various provisions of the Regulation.

Conclusion

The Prospectus Directive is generally not applicable to most hedge funds, private equity funds or real estate funds, as they tend to fall within one or one or more of the exemptions provided by the Prospectus Directive, such as offering to qualified investors only (i.e. professional clients or eligible counterparties) or setting a minimum subscription of more than €100,000, for example. The new Prospectus Regulation is therefore unlikely to affect funds falling within the relevant exemptions. It will, however, affect funds already subject to the Prospectus Directive, such as those available to retail clients or whose shares are admitted to trading on a regulated market.