On 15 September, the European Parliament (Parliament) adopted amendments to the European Commission's proposal for a regulation (Regulation) to revise the Prospectus Directive 2003/71/EC (PD).
Our article in the December 2015 edition of Corporate News looked at the Commission's key proposals to revise the PD, which were published last November.
We take a look at some of the Parliament's key amendments to the original proposals below.
- The Regulation will not apply to a public offer where it is addressed to fewer than 350 natural or legal persons per Member State (currently, 150 persons) and to a total of no more than 4000 natural or legal persons in the EU (currently, there is no 'basket' threshold), excluding qualified investors and certain other investors set out in the Regulation. Additionally, no prospectus will be required where the total consideration of the offer in the EU is less than EUR 1 million calculated over a period of 12 months. Note that this is an increase from the current EUR 100,000 threshold in the PD and a further increase from the Commission's original proposal of a EUR 500,000 threshold.
- Member States may decide to exempt issuers who make a public offer from the obligation to publish a prospectus where the total consideration of the offer in the EU does not exceed EUR 5 million calculated over a period of 12 months. The amended recitals clarify that Member States should be free to set a threshold, from which the exemption should apply, between EUR 1 million and EUR 5 million as the total consideration of the offer in the EU over a period of 12 months. Offers made under this exemption must not benefit from the passporting regime; must contain a clear indication that the offer is not of a cross-border nature and must not actively solicit investors outside the Member State in which the offer is made. Competent authorities should take into account the level of domestic protection for investors when setting the relevant threshold. Currently, the UK requires issuers to produce EU prospectuses for offers of securities with a total consideration of EUR 5 million and above.
- A prospectus must include 'relevant and necessary' information which an investor would reasonably require in relation to an investment in securities in order to be able to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the issuer and of any guarantor, together with the rights attaching to the securities.
- The amendments provide that information in a prospectus may vary depending on, amongst other things, the nature and circumstances of the issuer, the type of securities, the type of investor targeted in the public offer and the relevant market on which the securities are to be admitted to trading.
- Where the prospectus relates to the admission to trading on a regulated market of non-equity securities offered solely to qualified investors, the amended Regulation provides that no summary shall be required.
- The Commission's proposals provided that the summary must be written in a concise manner and must not exceed a maximum of six sides of A4 paper. The Parliament's amendments provide that, in exceptional cases, the competent authority may allow the issuer to draw up a longer summary of a maximum of 10 sides of A4 paper depending on the complexity of the issuer's activities, the nature of the issue, the nature of the issued securities or where there is a risk that the investor would be misled without the additional information being set out in the summary.
- The summary must comprise an introduction containing general and specific warnings, including the extent to which investors could lose their investment in a worst case scenario.
Universal registration documents (URDs)
- Once an issuer has had a URD approved by a competent authority every financial year for two consecutive years (previously, three consecutive years in the Commission's proposals), subsequent URDs or amendments to them may be filed without prior approval unless those amendments concern an omission, or a material mistake, or inaccuracy which is likely to mislead the public with regard to facts and circumstances essential for an informed assessment of the issuer.
Simplified disclosure regime for secondary issues
- The draft Regulation has been amended to provide that the simplified disclosure regime for secondary issues should not only be available to issuers whose securities are admitted to trading on a regulated market or an SME growth market, but also to issuers with securities traded on MTFs, other than SME growth markets, where those markets impose disclosure requirements equivalent to those applicable to SME growth market issuers as specified under the new MIFID.
EU growth prospectuses
- A new concept of the EU growth prospectus has been introduced, where:
- issuers, other than SMEs, where the offer to the public concerns securities which are to be admitted to trading on an SME market, or
- issuers, other than those referred to above, where the offer of securities to the public is of a total consideration in the EU that does not exceed EUR 20,000,000 calculated over a period of 12 months,
will be entitled to produce an EU growth prospectus which is subject to a proportionate disclosure regime set out in the Regulation. An EU growth prospectus is proposed to be a standardised document, designed to be easy for issuers to complete, which will cover key information on the issuer, the securities and the offer.
- Risk factors should also include those resulting from the level of subordination of a security and the impact on the expected size or timing of payments to holders of securities under bankruptcy or other similar procedures. Additionally, ESMA is requested to produce guidance to assist competent authorities with their 'appropriate and focussed' review of risk factors.
- The amendments propose that, among other things, ESMA will develop a central workflow system, covering the prospectus approval process from initiation through to approval, which is designed to allow competent authorities, ESMA and issuers to manage and monitor approval requests online and across the EU.
The proposals for a new prospectus regime continue to evolve and it is clear that there is a continued focus from the European institutions on ensuring that smaller businesses have easier access to the markets – indeed, the Parliament's amendments to the Commission's draft have resulted in provisions which are intended to reduce the scope of the regime and lessen the burden of producing a prospectus, particularly for smaller issuers.
However, the new regime is by no means final. The draft Regulation remains subject to further amendments which may arise out of the trilogue negotiation process between the Parliament, the Council of the EU and the Commission. The process is expected to conclude by the end of 2016 or early 2017, before the final text is published. The Regulation will then take effect 24 months from its entry into force. ESMA's publication of its technical guidance in relation to various areas in the Regulation should also provide further clarity on the new regime.