New EU Shareholders' Rights Directive
Further to our update on 3 May 2017, the revised Shareholders' Rights Directive EU/2017/828 entered into force on 9 June 2017. EU Member States have until 10 June 2019 to transpose it into domestic law.
Some of the main changes are as follows:
- Stronger shareholders' rights and facilitation of cross-border voting: Intermediaries, such as banks, will have to ensure that they pass on necessary information from issuers to shareholders and vice versa;
- More transparency of proxy advisors: Proxy advisors will be obliged to disclose certain key information about the preparation of their recommendations and advice, and to report on the application of the code of conduct that they apply;
- Long-term engagement of institutional investors and asset managers: These investors and managers will have to be more transparent in how they invest and how they engage with listed companies. This will be based on a "comply or explain" approach. This means that if a relevant entity decides not to comply with the rules, it must provide an explanation;
- Shareholders will have a ("say on pay"): Shareholders will have the right to vote on the directors' remuneration policy at least every four years. The vote may be binding or advisory, at the discretion of the implementing EU Member State; and
- Related party transactions: Companies will be required to publicly disclose material related party transactions that are most likely to create risks for, or impact decisions of, minority shareholders.
New EU Prospectus Regulation
A new Prospectus Regulation EU/2017/1129 (the "Regulation)" which repeals the Prospectus Directive 2003/71/EC introduces new rules aimed at lowering the main regulatory hurdles that companies face when making offers to the public of their equity and debt securities or seeking to have such securities admitted to trading on a regulated market.
Some of the key changes being introduced are as follows:
- Exempting the smallest capital raisings: The Regulation will not apply to offers of securities for a total consideration of less than €1,000,000 (up from €100,000). The threshold beyond which a prospectus will be mandatory is increased from €5,000,000 to €8,000,000 in capital raised and EU Member States can set a threshold between €1,000,000 and €8,000,000 in national law;
- Creating a lighter prospectus for smaller companies: The EU growth prospectus, a new type of prospectus, will be available for SMEs, non-SMEs (with an average market capitalisation of less than €500,000,000) admitted to an SME growth market and for certain small issuances by companies with up to 499 employees;
- Shorter prospectuses and better investor information: The new Regulation will require shorter and clearer prospectuses by specifying more clearly the amount of information that is needed;
- Simplifying secondary issues for listed firms: Certain companies, with securities already admitted to trading, may benefit from a new, simplified prospectus regime for subsequent offerings and admissions;
- Fast track and simplified frequent issuer regime: Companies that frequently tap into capital markets will also be able to use an annual "Universal Registration Document" that will contain information that can be used as a constituent part of their base prospectus and faster prospectus approval times will apply; and
- Single access point for all EU prospectuses: The European Securities and Markets Authority ("ESMA") will provide free and searchable online access to all prospectuses approved in the European Economic Area.
It came into force on 20 July 2017 and will apply from 21 July 2019 with the exceptions of certain provisions:
- Article 1(3), which increases the threshold below which the Regulation does not apply to €1,000,000, will apply from 21 July 2018;
- Article 1(5) (a), (b) and (c), which prescribe that some of the new rules will not apply to certain categories of securities (including those that are fungible with securities already trading on the same regulated market and certain convertible securities) will apply from the date of the Regulation's entry into force; and
- Article 3(2), which increases the threshold beyond which a prospectus is mandatory to €8,000,000, will apply from 21 July 2018.
Irish Stamp Duty Reform
There have been some welcome developments recently in relation to Irish stamp duty. From 5 June 2017, no stamp duty is payable on transfers of shares in Irish companies that are listed on the Enterprise Securities Market ("ESM") of the Irish Stock Exchange. This exemption is intended to increase the attractiveness of such shares to investors.
The ESM is the Irish Stock Exchange's AIM equivalent, a market designed for small and mid-sized companies or SMEs, particularly those in the early stages of their development who have specific funding needs.
Separately, the Irish Department of Finance has proposed a review of the stamp duty regime relating to shares and securities issued by Irish companies in the wake of Brexit.
Currently, the transfer of such instruments is generally liable to Irish stamp duty at a rate of 1%. By contrast, the UK rate is generally 0.5%. The review will take account of competitiveness issues and consider the sustainability of the stamp duty yield in the context of Brexit.
There is currently no information on the timing of the review but it would be reasonable to hope that further reform of Irish stamp duty law will be recommended in order to make Irish incorporated companies even more attractive as IPO vehicles. In this regard, it is notable that trading in shares of Irish companies that are US listed and traded through American Depositary Receipts ("ADRs") or the Depositary Trust Company ("DTC") is generally exempt from Irish stamp duty.