On 5 April 2017, the European Parliament resolved to adopt, with amendments, the European Commission's proposal for a new Prospectus Regulation to repeal and replace the existing Prospectus Directive (2003/71/EC) and other corresponding measures.

Background

For background to the new Prospectus Regulation, read our article in the December 2015 edition of Corporate News which looked at the Commission's key proposals to revise the Prospectus Directive and our article in the October 2016 edition which covered the European Parliament's proposed amendments to the latest text of the Prospectus Regulation.

On 20 December 2016, the Permanent Representatives Committee approved, on behalf of the Council, an agreement with the European Parliament reached on 7 December 2016 on the draft Prospectus Regulation. The Parliament has now adopted the text, with certain amendments.

Key amendments

From the published provisional edition of the text, we set out some of the key amendments made to the text adopted by the Parliament on 15 September 2016 (as covered in our article) which relate to prospectuses in respect of equity securities transactions.

Exemptions

  • 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 a specified threshold over a period of 12 months. The text provides that Member States are free to set a threshold below which the exemption should apply of between EUR 1 million and EUR 8 million. Currently, the UK requires issuers to produce a prospectus for offers of securities with a total consideration of EUR 5 million and above.
  • Public offers addressed to fewer than 150 natural or legal persons per Member State will be outside the scope of the new regulation. This is the same position as under the existing regime.
  • In respect of the proposed exemptions to publish a prospectus for the admission of trading of securities to a regulated market where:
    • securities represent less than 20% (currently 10%) of the number of shares of the same class already admitted to trading over a 12 month period; or
    • shares resulting from the conversion or exchange of other securities, or from the exercise of the rights conferred by other securities, representing less than 20% of the number of shares of the same class already admitted to trading on the same regulated market (subject to certain exceptions);

the amended text provides that the above exemptions may not be combined if this would lead to the admission to trading of more than 20% of the number of shares of the same class already admitted to trading over a 12 month period. Click here to read our article in our March 2017 edition of Corporate News for background on the FCA's consultation to implement these exemptions.

EU growth prospectus

The adopted text provides that the following persons are entitled to produce an EU growth prospectus which is subject to a proportionate disclosure regime set out in the Regulation. These include:

  • SMEs;
  • issuers, other than SMEs, whose securities are traded, or are to be traded on an SME growth market, provided that those issuers had an average market capitalisation of less than EUR 500 million for the previous three calendar years; and
  • issuers, other than those referred to above, where the total consideration of the offer does not exceed EUR 20 million calculated over a period of 12 months and provided that they do not have any securities traded on an MTF and have an average number of employees during the previous financial year of no greater than 499.

Risk factors

Issuers must assess the materiality of the risk factors based on their probability of occurring and their expected negative impact. This may be disclosed in the prospectus by using a scale of 'low'. 'medium' or 'high' indicators. Risk factors must be presented in a limited number of categories depending on their nature and the most material risk factors should be mentioned first.

Next steps

The text of the regulation has been passed to the Council for approval (which may be subject to further amendments). The final text is expected to be published in the Official Journal during the course of this year and will enter into force following twenty days after its publication. The majority of the provisions will apply from 24 months following the date of entry into force.