How would you describe the general state of equity capital markets in your jurisdiction, including notable recent activity and deals?
The activity on Irish equity capital markets is much smaller than that on the UK capital markets and somewhat dependent on it, since most Irish initial public offerings (IPOs) and secondary issues have a UK component that is often much larger. In general terms, when UK equity capital markets are active, a reasonable degree of parallel activity is triggered in Irish equity capital markets. 2017 saw three IPOs on Euronext Dublin (the new name for the Irish Stock Exchange, following its March 2018 acquisition by Euronext). One of these was the largest in Europe in 2017 – the €3.4 billion IPO of AIB Bank. The other 2017 IPOs were the €270 million Greencoat Renewables IPO and the €550 million Glenveagh Properties plc IPO. There has only been one IPO in 2018, the €75 million IPO of Yew Grove REIT plc in June 2018. One further real estate investment trust IPO was withdrawn due to market conditions. Numerous projects which may result in further IPOs in 2018 are underway, but volumes are low compared to the United Kingdom. In all there have been 18 IPOs in Dublin since 2013, which implies that the first half of 2018 was less active than the average for the period.
Euronext Dublin has announced market statistics for equity trading on the two active Irish equity markets for the first six months of 2018, showing that equity market turnover amounted to €53.7 billion and total equity market capitalisation amounted to €124.9 billion. The corresponding figures for 2017 were €50.8 billion and €122.8 billion.
What recognised exchanges operate in your jurisdiction, and what are the pros and cons of listing in each?
There are three markets for listing equity securities on Euronext Dublin:
- the Main Securities Market (MSM), an EU regulated market;
- the Enterprise Securities Market (ESM), a multilateral trading facility; and
- the Atlantic Securities Market (ASM), which is also a multilateral trading facility, designed to facilitate US quoted companies seeking a Eurozone listing.
The advantages of the MSM include:
- a euro quotation;
- a liquid market with good investor eligibility coverage due to its status as a regulated market; and
- the possibility of a dual listing on the London Stock Exchange’s main market.
The advantages of the ESM include:
- a euro quotation;
- reduced compliance and disclosure requirements compared to the MSM;
- a reasonably diverse pool of shareholders and investors;
- the possibility of a liquid market; and
- the ease with which a dual admission on London’s AIM market can be achieved due to substantial regulatory convergence.
The advantages of the ASM include a Euro quotation and intended seamless connectivity with the home US market. To date, no corporation has elected to list on this market.
Reforms and case law
Are any regulatory reforms envisaged or underway with regard to equity capital markets? Has there been any recent case law affecting the markets?
In Ireland, the legal framework for securities markets regulation is based closely on EU law and the relevant EU measures have been transposed and implemented into Irish law:
- the Consolidated Admissions and Reporting Directive (2001/34/EC);
- the Prospectus Directive (2003/71/EC);
- the new Prospectus Regulation (2017/1129), the Market Abuse Regulation (596/2014) and the related Criminal Sanctions for Market Abuse Directive (2014/57/EU);
- the Transparency Directive (2004/109/EC); and
- the Markets in Financial Instruments Directive (2014/65/EU).
In addition, the Short Selling Regulation (235/2012) and the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (648/2012) directly apply in Ireland.
The Central Bank of Ireland has been appointed competent authority for most of the foregoing EU-derived law. In this capacity, the Central Bank of Ireland has issued the Prospectus, Market Abuse and Transparency Rules. All regulatory reforms envisaged or underway mirror those at EU level.
Have there been any notable recent developments in financial technology (fintech) which affect equity capital markets in your jurisdiction?
There have been no recent fintech developments which have affected the operation of equity capital markets in Ireland.
What primary and secondary legislation governs the issue and trade of equity securities in your jurisdiction?
In Ireland, securities markets regulation is predominantly based on EU law.
The EU Market Abuse Regulation (596/2014) is directly effective in Ireland. The EU Transparency Directive (2004/109/EC) has been transposed in Ireland by the Transparency Directive (2004/109/EC) Regulations 2007 (as amended) for securities admitted to trading on a regulated market in Ireland.
The Prospectus (Directive 2003/71/EC) Regulations 2005 (as amended) and EU Commission Regulation 809/2004 transposed the EU Prospectus Directive (2003/71/EC) on the prospectus to be published when securities are offered to the public or admitted to trading. The new Prospectus Regulation (2017/1129), which came into force on 20 July 2017, will repeal and replace existing EU prospectus law in phases. The bulk of the changes will apply from July 2019 although a number of changes took effect in July 2017 and will take effect this year.
The Companies Act 2014 governs the incorporation, governance and dissolution of all Irish incorporated companies, including public companies listed on an Irish equity market.
Which authorities regulate equity capital markets in your jurisdiction and what is the extent of their powers?
The Central Bank of Ireland is the competent authority in Ireland for the purposes of the law on prospectuses, transparency, market abuse and markets in financial instruments.
Euronext Dublin is the competent authority under the EU Consolidated Admissions and Reporting Directive, issuing listing rules and admission to trading rules. These impose continuing obligations on issuers to regulate access to its markets.
As market operator, Euronext Dublin issues rules for admission to the Enterprise Securities Market.
What eligibility and disclosure requirements apply for primary listing of equity securities on recognised exchanges in your jurisdiction (eg, aggregate share value, free float requirements, trading record, working capital)?
There are three equity capital markets in Ireland:
- the Main Securities Market (MSM);
- the Enterprise Securities Market (ESM); and
- the Atlantic Securities Market (ASM).
The eligibility and disclosure requirements for a primary listing of equity securities depends on where the securities are to be listed.
If the primary listing of equity securities is to be on the MSM, a prospectus must be prepared and approved by the Central Bank of Ireland (or the competent authority in the issuer’s home member state if the prospectus is being passported into Ireland). An application for admission to trading must also be made to Euronext Dublin.
The expected aggregate value of all securities to be listed must be at least €1 million, excluding treasury shares.
At least 25% of shares must comprise the free float (ie, they must be in public hands). Shares are not considered ‘free float’ if they are held by 5% shareholders or other shareholders with rights to nominate directors, employee share schemes or directors and connected persons.
Applicants to the MSM must have published or filed financial information to cover the last three years, which must include a balance sheet (that was prepared no more than nine months before the date of admission) and consolidated financial statements for its group. Such information must be audited in accordance with acceptable EU standards.
The issuer must also confirm that the working capital available to the group is sufficient for at least the next 12 months from the date of the prospectus.
If the primary listing of equity securities is on the ESM, an admission document must be prepared. This document is similar to a prospectus but does not require approval by the Central Bank of Ireland. The expected aggregate value of all listed securities must be at least €5 million.
There is no minimum free float requirement for the ESM.
A working capital statement is required from the applicant, covering the period of 12 months from admission.
If the primary listing of equity securities is to be on the Atlantic Securities Market, the applicant must be listed on the New York Stock Exchange or NASDAQ. A company can avail of a fast-track admission process if it has been listed on the New York Stock Exchange or NASDAQ for 18 months or more.
The expected aggregate value of all securities to be listed must be at least €100 million.
Applicants to the ASM must have published or filed financial information covering the last three years and a working capital statement covering the period of 12 months from admission.
At least 15% of shares must be free float (ie, they must be in public hands). As with the MSM, shares are not considered ‘free float’ if they are held by 5% shareholders or other shareholders with rights to nominate directors, employee share schemes or directors and connected persons.
Are there any exemptions from the listing requirements?
The MSM has the following exemptions:
- Where there is insufficient free float, Euronext Dublin can allow for a listing where it is satisfied that the market can still properly function;
- Euronext Dublin can admit securities where the expected aggregate value is lower than the required figure, if there will be an adequate market for the securities concerned; and
- A prospectus is not required in the limited circumstances set out in the EU Prospectus Directive (2003/71/EC). However, this will be repealed and superseded with effect from 21 July 2019.
Procedure and timeframe
What is the procedure and typical timeframe for listing?
For the primary listing of equity securities on the MSM, the listing process usually takes approximately six months. The procedure typically involves:
- due diligence by lawyers and accountants;
- preparation of the company and its directors for transition to listed company status;
- drafting, submission and approval of the prospectus;
- satisfying the listing requirements of Euronext Dublin;
- marketing of the shares by the company and its sponsor/broker;
- completion of the issue;
- receipt of moneys; and
- commencement of trading in shares.
A sponsor is required for a listing on the MSM.
For the admission of equity securities on the ESM, the admission process can also take up to six months. The procedure typically involves:
- due diligence by lawyers and accountants;
- preparation of documents for the admission and marketing of shares;
- completion of the issue;
- receipt of moneys; and
- commencement of trading in shares.
A fast-track process is available for companies that have securities traded on one of multiple designated markets (eg, the UKLA Official List, AIM, Deutsche Borse, NASDAQ or the New York Stock Exchange). The fast-track process dispenses with the requirement to publish an admission document and can be completed in a couple of months.
The timeframe for admission on the ASM depends on whether the company can avail of the fast-track admission process. The admission process involves:
- appointing an ASM adviser;
- satisfying the conditions for admission;
- announcing the intention to float; and
- submitting the ASM admission documents.
No companies have availed of this process yet, so it is not possible to comment definitively on the timeframe for admission.
What fees apply for an application to list equity securities?
Fees vary depending on the market on which the securities are to be listed. Fees are payable both to the regulator, the Central Bank of Ireland and Euronext Dublin. A detailed breakdown of the current fees payable can be found on the Euronext website.
Listing versus admission to trading
Is there a distinction between listing and admission to trading in your jurisdiction?
There is a distinction between admission to listing (ie, on a list such as the Official List of Euronext Dublin) and admission to trading (ie, on a market such as the MSM). However, in practice both admission to listing and admission to trading are carried out and suspended or cancelled simultaneously, so no practical distinction can be made.
Are there any differences in the rules, restrictions and procedures for secondary listings of equity securities?
Where a company has a primary listing on a securities market in a jurisdiction outside Ireland it may seek a secondary listing in Ireland, which requires only that the company comply with minimum standards specified in the applicable EU measures.
Euronext Dublin regulates applications for both admission to listing as a secondary listing on the Official List and admission to trading on the MSM. There is no secondary listing option for the ESM or ASM.
Are there any differences in the listing rules and procedures for foreign issuers?
Euronext Dublin will not admit to the MSM the shares of a company incorporated in a non-EEA state that are not listed in the country of incorporation or the country where the majority of its shares are held, unless Euronext Dublin is satisfied that the absence of the listing is not due to the need to protect investors.
There are no other significant differences for a foreign issuer seeking a listing on an Irish equity market, other than requirements applicable to the presentation of accounting information by non-EEA issuers on the ESM according to International Accounting Standards or local generally accepted accounting principles. US, Canadian, Australian and Japanese generally accepted accounting principles are accepted.
Under what circumstances can a company be delisted? What rules and procedures apply?
Euronext Dublin can cancel a listing if special circumstances preclude the normal regular dealings in securities. Special circumstances would usually include a suspension of six months or more. A listing will also generally be cancelled where:
- the securities are no longer admitted to trading;
- the issuer no longer satisfies its continuing obligations; or
- the listed company completes a reverse takeover.
An issuer that wishes to cancel its primary listing on the MSM must obtain 75% shareholder approval. Cancellation of a secondary listing also requires compliance with these requirements if the listing was converted from primary to secondary in the last two years. These obligations do not apply where the issuer's shares will continue to be listed on a regulated market in another EEA state.
Initial public offerings
What are the most common structures used for IPOs in your jurisdiction, and what are the advantages and disadvantages of each?
In most cases, an IPO is structured as an offer to subscribe for new shares or an offer to purchase existing shares.
IPOs in Ireland are frequently run in conjunction with a dual listing process in the United Kingdom.
Cornerstone investments are becoming a common feature of the Irish IPO market. This is where one or more investors, usually a large institutional or sovereign investor, agree to subscribe for a fixed monetary amount of shares (generally 5% or greater) in an IPO. This definitive commitment is usually given shortly before the IPO price range is announced and the prospectus is published. A cornerstone investor will invest usually at the IPO price, or a price determined by reference to it.
Procedure and timeframe
What is the procedure and typical timeframe for launching an IPO?
The timetable for an IPO will vary depending on the company involved. In the simplest case, a minimum of three months should be allowed from initiation to completion. The typical timeline is six months for a listing on the Main Securities Market (MSM), with a slightly shorter period for listing on the Enterprise Securities Market (ESM), depending on complexity and the availability of the fast-track procedure.
Common factors which can affect the timetable include:
- corporate reorganisations;
- issues arising on due diligence;
- changing market conditions; and
- the preparation of a three-year record for the business.
The first step is instruction of professional advisers. For a company to be listed on the MSM, a sponsor and an underwriter will be required. Equity sponsors are vetted by Euronext Dublin and a list of those approved for the MSM and ESM is published on the Irish Stock Exchange website.
The listing process involves:
- due diligence by lawyers and accountants;
- preparation of the company and its directors for transition to a listed company status;
- drafting, verification and regulatory review of the prospectus;
- preparation of underwriting agreement and supporting opinion/comfort letters;
- finalisation of any cornerstone subscription agreements;
- work on accountants’ supporting reports (eg, working capital, financial reporting procedures, long/short-form reports);
- satisfying Euronext Dublin’s listing requirements;
- investor roadshow/bookbuilding;
- final share pricing and allocation; and
- publication of prospectus and submission of formal application to Euronext Dublin.
What due diligence is required and advised in the IPO process?
The purpose of due diligence procedures is to:
- identify any legal issues concerning the company, its business or its industry or concerning the directors, proposed directors or senior management which may need to be reflected in the prospectus. Identification and disclosure of such issues will minimise the risk of those persons responsible for the prospectus incurring civil or criminal liability;
- assist in the drafting of the prospectus, helping the company to ensure that all material information is included and that the prospectus is accurate, complete and not misleading; and
- collect information on the company and its business in preparation for the formal verification exercise.
Although the legal review may take different forms, some or all of the following procedures may be involved:
- The reporting accountants will be commissioned to conduct an investigation and produce a long-form report on the company for the benefit of the directors of the company and the sponsor. Additional work may be needed to support the company’s statements in the prospectus on working capital and any profit forecasts; and
- The legal advisers to the company, together with other specialists, will conduct a review of important corporate records and organisational documents, including:
- minutes of meetings of shareholders, the board of directors or key committees of the board of directors;
- significant contracts with lenders, customers or other persons;
- material leases; and
- important pending litigation or threatened legal disputes with others, including government agencies.
Where the company operates in a heavily regulated industry, the legal review is also likely to encompass a review of the regulatory environment.
The due diligence investigation will normally be conducted by:
- the sponsor and other participants in the fundraising;
- the legal advisers to the company; and
- the legal advisers to the sponsor.
These parties will conduct interviews with the company’s management and undertake documentary due diligence. There is no prescribed routine or checklist for such an investigation. The elements are usually agreed on in advance in light of the issuer’s business and the type of issue.
Pricing and allocation
What rules and standards govern share pricing and allocation in the context of an IPO?
There are few rules regarding pricing and allocation in the context of IPOs as more commonly implemented in Ireland (eg, by means of a private bookbuilding exercise) other than the general restrictions set out in the Market Abuse Regulation (596/2014) regarding market soundings.
The EU regime on market soundings governs the communication of inside information as part of a process to gauge the interest of potential investors.
The bookbuilding process can take place in different forms, which can include auction and non-auction processes at fixed or variable prices. There is no Irish equivalent to the Myners Review of the bookbuilding process in the United Kingdom, but Irish regulators are likely to pay close attention to the outcome of the UK reform process and may require a simple auction process if that standard is established in UK markets.
Types/pros and cons
What types of follow-on offering are commonly used in your jurisdiction, and what are the advantages and disadvantages of each?
There have been comparatively few follow-on offerings in Ireland. The recent secondary offerings in the Irish market (2017 and 2018) have been a mixture of placings and placings with open offers. An advantage of institutional or cornerstone placings is that they can often be executed speedily and within existing corporate authorities. While an open offer has the advantage of enabling shareholders to participate, it may involve the production of a prospectus and a significantly higher monetary and time cost to implement.
Applicability and exemptions
When must a prospectus be filed? Are there any notable exemptions?
The Prospectus (Directive 2003/71/EC) Regulations 2005 prohibit the making of an offer of securities to the public or the admission of securities to trading on a regulated market in Ireland without publication of a prospectus approved by the competent authority (ie, the Central Bank of Ireland), save in the case of the exceptions discussed below.
The 2003 directive is in the course of being repealed by the new Prospectus Regulation (2017/1129), with effect from 21 July 2019. However, certain provisions have already been repealed, with effect from 20 July 2017 and 21 July 2018.
The exceptions to the obligation to publish a prospectus in connection with an an offer of securities to the public or the admission of securities to trading on a regulated market in Ireland are stated in the Prospectus (Directive 2003/71/EC) Regulations and reflect the 2003 directive as amended to date.
The Prospectus (Directive 2003/71/EC) Regulations do not apply to securities included in an offering for a total consideration in the European Union of less than €1 million calculated over a 12-month period. Member states can choose to exempt certain offers from the prospectus obligation (ie, those with a total consideration that is less than an amount set by the member state and not exceeding €8 million), but Ireland has not yet taken this option. At the time of writing, the Irish Department of Finance is considering a draft statutory instrument to address this matter.
What must the prospectus contain?
The principle of prospectus disclosure under EU law is that it must contain the information which is materially necessary to an investor for making an informed assessment of:
- the assets and liabilities, profits and losses, financial position and prospects of an issuing company;
- the rights attaching to the securities; and
- the reasons for the issuance and its impact on the issuing company.
The form and content of the prospectus are dictated by the Prospectus (Directive 2003/71/EC) Regulations and must follow the format set out in its annexes, as supplemented by the Prospectus Rules issued by the Central Bank of Ireland.
The key elements of a prospectus include information in each of the following areas:
- the terms of the transaction;
- business description and prospects;
- operating and financial review;
- financial information;
- a working statement; and
- information such as the rights attaching to the relevant securities, material litigation, directors and officers and related party transactions.
Full disclosure of all risk factors deemed to potentially have an impact on revenues or profits must be included in the prospectus and all statements in the prospectus must be verified.
Filing and approval procedure
What is the procedure for filing for and obtaining prospectus approval from the regulator? Can draft prospectuses be submitted to the regulator for preliminary comment?
The Central Bank has published a Prospectus Handbook to facilitate the efficiency and uniformity in the prospectus approval process. The contents of the Prospectus Handbook derive from but do not replicate or replace the Irish Prospectus Regulations or the EU Prospectus Regulations.
Once the prospectus is drawn up, it must be reviewed by the Central Bank. The following is an overview of the steps involved in submitting a prospectus and obtaining approval:
- The applicant makes an initial submission of the draft prospectus, complying with format requirements, annotated in its margins or accompanied by certain prescribed checklists to indicate compliance with all applicable requirements of the Prospectus (Directive 2003/71/EC) Regulations, EU Commission Regulation 809/2004 and the Prospectus Rules.
- The Central Bank issues a reference number, the identities of the persons reviewing the prospectus and the date by which the comments on the draft will be returned.
- If the Central Bank raises comments, or if amendments are otherwise necessary, a subsequent submission of a draft prospectus is required, which must be marked up to illustrate changes made since the initial submission.
- Once a draft prospectus is approved, the approved prospectus in searchable PDF format must be sent to the Central Bank by 10:00am on the approval date.
- If the submission relates to admission to trading, the applicant must adhere to the procedures applicable to having the securities admitted to trading.
What types of prospectus liability can arise (eg, statutory, contractual, tort)? Which parties may be held liable?
Civil liability: statutory liability
The Companies Act 2014 imposes civil liability for any untrue statement in a prospectus or any omission of information required by EU prospectus law (as defined by the Companies Act 2014). The persons that may be held liable include:
- the company itself;
- an offeror, in the case of a secondary market transaction;
- any person applying to have the securities admitted to trading;
- the guarantor of the issue;
- the directors of the issuer;
- the promoters; and
- every person who has authorised the issue of the prospectus.
The list of responsible persons is shorter in the case of the issue of non-equity securities. The Companies Act 2014 provides a list of exemptions and exceptions from civil liability.
Civil liability: common law liability
A person who has suffered as a result of a misstatement can attempt an action for breach of contract. In the case of a fraudulent misrepresentation in a prospectus where a person suffers loss or damage, that person may take an action for the tort of deceit. It may also be possible for a person that was induced to enter into a contract to sue for damages for the tort of negligent misstatement.
Civil liability: equitable liability and remedies
Rescission of a contract may be possible where a person was induced to enter into the contract as a result of a misstatement in a prospectus.
Criminal liability: penalties on conviction on indictment
Irish law provides for penalties for conviction on indictment for offences under Irish prospectus law (as defined by the Companies Act 2014) of a fine of up €1 million, imprisonment for up to five years or both a fine and imprisonment.
Criminal liability: untrue statements and omissions in prospectus
If an issued prospectus contains any untrue statement or omits any information required by EU prospectus law then any person who authorised the issue of the prospectus (not including the Central Bank) is liable for prosecution for a Category 2 offence which carries the following penalties:
- on summary conviction, a Class A fine (ie, up to €5,000), imprisonment for up to 12 months or both a fine and imprisonment; or
- in an indictable conviction, a fine of up to €50,000, imprisonment for up to five years or both a fine and imprisonment.
The Central Bank of Ireland has powers of enforcement and investigation and can impose administrative penalties for breaches of the administrative requirements over which it has a supervisory responsibility.
What defences are available for liable parties?
A person charged with an offence under Irish prospectus law can base a defence on the following arguments:
· regarding an untrue statement, that the statement was immaterial or that the person honestly believed the statement to be true;
· regarding any information omitted, that the omission was immaterial or that the person did not know it; or
· that the making of an untrue statement or the omission of information should reasonably be excused.
What methods are commonly used to market equity security offerings in your jurisdiction?
Since the Irish market for securities is relatively small, Irish equity issues are typically marketed in a number of other jurisdictions, such as by passporting the prospectus for use in other EU member states or by availing of an exemption for unregistered offerings under the US Securities Act 1933 to offer securities for sale in the United States.
The steps to market in an equity offering typically include:
- preparation of brokers’ reports;
- taking market soundings; and
- conducting investor roadshows and individual presentations.
In the case of retail offerings, it is common to conduct a media campaign and advertising. All such methods are subject to tight regulation under the Market Abuse Regulation (596/2014).
Rules and restrictions
What rules and restrictions (if any) apply to the marketing of equity securities?
The methods of marketing an equity offering are subject to tight regulation under the Market Abuse Regulation. In secondary offerings it is important to consider the consequences of disclosing inside information and the creation of insiders. The issuer’s legal advisers typically prescribe detailed procedures for the disclosure of information and the undertakings to be given by people who become insiders.
The proper procedures for the disclosure of inside information in other circumstances, such as in the course of market soundings, is prescribed by the Market Abuse Regulation and elaborated in official guidelines published by the European Securities and Markets Authority.
To what extent is bookbuilding used in your jurisdiction, and how does the process customarily play out? What are the advantages and disadvantages of using this process?
Retail offerings have become uncommon in the Irish market. Instead, the typical equity offering takes place as a bookbuilt offering to institutional investors.
In the case of an offering on a regulated market such as Euronext Dublin’s Main Securities Market (which requires the publication of a prospectus), the process typically begins with a pre-marketing phase, during which bookrunners approach their institutional clients and make presentations on the issuer.
After intention to float is announced, an unapproved ‘pathfinder’ prospectus is used for formal investor roadshows. During this period, the bookrunners look for commitments to build the book for the ultimate placing. A final prospectus is published prior to closing and admission, at which stage the size of the placing will have been finalised (and the size of any proportion to be taken by underwriters will be determined).
Bookbuilding is viewed as being more efficient and less costly than retail offering. It gives an issuer more control over pricing and its shareholder base.
Role of advisers
Adviser roles and responsibilities
Describe the role and responsibilities of the following advisers in the context of equity securities offerings, including how their relationship with the issuer is formalised (eg, through terms of agreements):
Banks and underwriters (or bookrunners) in an Irish equity offering are responsible for advising on financial aspects of the issue, such as timing, size and market. They also take responsibility for marketing the issue, principally during the period immediately preceding the publication of a final prospectus. The underwriter or bookrunner will be engaged under an underwriting agreement setting out the commitment and a set of representations and warranties.
In an equity offering on one of the Irish equity markets, the issuer will engage a ‘sponsor’ (ie, for the Main Securities Market) or ‘ESM adviser’ (ie, for the Enterprise Securities Market) under a letter of engagement. This adviser acts as the principal liaison between the issuer and the exchange, and in an equity offering will also represent the issuer with the Central Bank of Ireland in the prospectus review process.
An auditor will be engaged under a letter of engagement in an equity offering to provide accounting information for use in the prospectus (and any pro forma statement that may be needed in the circumstances) and a series of reports required in connection with the prospectus (eg, the working capital report and the financial position and prospects report).
Lawyers are engaged under a letter of engagement in an equity offering to draft and advise on the principal documents in the offering, such as:
- the prospectus (and its verification);
- the engagement letters with other advisers;
- placing letters;
- subscription agreements; and
- legal opinions and comfort letters in connection with the issue of the prospectus.
(d) Any other relevant advisers?
An issuer in an Irish equity offering will also engage a corporate registrar for the maintenance of its share register and relationships with security depositories and settlement systems. In addition to a general appointment for day-to-day matters, this adviser will be engaged under a specific letter of engagement for each equity offering.
What continuing obligations apply to issuers of equity securities? What are the penalties for non-compliance?
An Irish-incorporated issuer becomes subject to a variety of continuing obligations, depending on the market on which its shares are admitted to trading. Aside from the prospectus and market abuse rules, the issuer will become subject to the rules of the market on which it is admitted, such as the Main Securities Market (MSM) Listing Rules or the Enterprise Securities Market (ESM) Rules for Companies, both issued by Euronext Dublin.
These continuing obligations cover the following:
- continuing compliance with listing conditions;
- rules on the notification or shareholder approval of significant transactions and related party transactions;
- enhanced reporting requirements for the annual report; and
- compliance with the UK Corporate Governance Code and Irish Corporate Governance Annex (for the MSM only).
The penalties for non-compliance are public censure by the exchange or suspension or cancellation of the listing. In the case of compliance with the UK Corporate Governance Code, issuers are also subject to review and analysis by proxy advisers, who may recommend a vote against a particular resolution or the re-election of directors in response to non-compliance.
Selected reporting and governance rules apply to issuers with shares admitted to trading on a regulated market (including the MSM, but not the ESM). These include the Irish rules to implement the EU Transparency Directive (2004/109/EC) and the EU Shareholders’ Rights Directive (2007/36/EC).
The Irish Takeover Panel Act 1997 Takeover Rules govern bids for Irish-incorporated issuers listed on recognised stock exchanges. The application of the takeover rules continues for five years after a company is listed on a recognised stock exchange. The takeover rules govern the making of bids for public companies, including:
- the announcement of an offer;
- the terms of an offer; and
- restrictions on the ability of a target company to take actions to frustrate a bid.
Market abuse provisions
Rules and restrictions
What rules and restrictions are in place to combat market abuse and insider trading? What are the penalties for breach of these rules?
The EU Market Abuse Regulation (596/2014) governs market abuse and insider trading on a uniform EU-wide basis. It has a broader scope than the market abuse directive that preceded it, since it is now addressed to issuers with securities admitted to trading on both regulated and non-regulated markets. For the Irish markets, this means that the regulation applies to issuers with securities admitted to the MSM, ESM and Atlantic Securities Market.
The Market Abuse Regulation includes definitions of ‘inside information’, ‘insider dealing’ and ‘market manipulation’. It also prescribes a disclosure regime that obliges an issuer to inform the public as soon as possible of inside information which directly concerns that issuer. Exceptions to this obligation are available in limited circumstances.
Irish implementing law imposes the criminal penalties of imprisonment for up to 10 years and fines of up to €10 million, together with administrative fines and public censure. In addition, a right of civil action is available to persons suffering damage caused by a breach of the market abuse regime.
What tax liabilities arise in relation to the issue and trade of equity securities in your jurisdiction?
Companies capital duty has been abolished in Ireland and the issuance of shares does not give rise to Irish stamp duty.
Stamp duty of 1% arises on the acquisition of shares in an Irish incorporated company (except for shares which derive their value from non-residential property, which can sometimes be subject to 6% stamp duty). The duty is payable on the higher of the consideration payable or the market value. It is not payable on the acquisition of shares which are admitted to trading on the Enterprise Securities Market (ESM).
Capital gains tax
To the extent that any gain arises on a disposal, capital gains tax may apply and the applicable rate in Ireland is 33%, payable by the transferor. Any tax liability arising will be payable as part of the company’s corporation tax liability. However, a liability to capital gains tax should not arise to non-resident shareholders on the disposal of listed securities or unlisted securities which do not derive their value or the greater part of their value from Irish land, buildings or mineral rights.
Value added tax Value added tax does not arise on the sale of shares in an Irish company.
Generally, Irish resident companies must withhold tax at the standard rate of tax (currently 20%) on dividend payments or distributions they make. However, there are a broad range of exemptions to this rule. For example, non-resident companies that are resident in the European Economic Area or a country with which Ireland has signed a double tax treaty may receive a distribution from an Irish tax resident company without the operation of dividend withholding tax.
How can these tax liabilities be mitigated?
Stamp duty There are numerous reliefs and exemptions from stamp duty, depending on the circumstances of the transaction. For example, ‘associated companies’ relief applies on certain transfers of property between Irish or non-Irish associated companies. Companies are ‘associated’ for the purposes of the relief where:
- one company directly or indirectly owns at least 90% of the ordinary share capital of the other company; or
- a third company owns at least 90% of the ordinary share capital in both.
This 90% test also applies to profits available for distribution and assets on a winding up. However, there will be a clawback of the relief granted where the companies do not remain associated two years after the transfer.
A further example is that Irish tax legislation provides relief from stamp duty in the case of reconstructions or amalgamations of a company. However, precise documentation must be put in place to ensure that the relief is available. The relief applies where one company acquires at least 90% of the issued share capital of another company in exchange for the issue of new shares in the acquiring company.
Irish stamp duty legislation provides an exemption from stamp duty on the transfer or agreement to transfer an ‘American depositary receipt’, as defined. A condition to the exemption is that the depositary receipt must be dealt with on a recognised stock exchange in the United States or Canada or represents stocks or marketable securities which are so dealt in.
There is an exemption from stamp duty on the transfer of stocks or marketable securities admitted to the ESM, operated by Euronext Dublin.
Capital gains tax
There are a number of reliefs available in respect of capital gains tax. As noted above, a liability to capital gains tax will not typically arise to non-residents on the disposal of listed securities or unlisted securities which do not derive their value or the greater part of their value from Irish land, buildings or mineral rights.