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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The 2003 directive is in the course of being repealed by the new Prospectus Regulation (2017/1129), with effect from 21 July 2019. However, certain provisions have already been repealed, with effect from 20 July 2017 and 21 July 2018.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.