'Key information' and common summary format
Proportionate disclosure regime
'Qualified investor' definition
Use of prospectus by financial intermediaries
On July 3 2012 the Prospectus Revision Law was passed,(1) which:
- implements EU Directive 2010/73/EC, which amends both the EU Prospectus Directive and EU Directive 2004/109/EC, which concerns the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market;
- amends the Prospectus Law 2005 on prospectuses for securities; and
- amends the Transparency Law 2008 on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market.
The law retroactively became effective on July 1 2012.
The Prospectus Law – as amended by the Prospectus Revision Law – must be read together with the Prospectus Regulation (EU Regulation 809/2004), which was recently modified by two delegated regulations of the European Commission.(2) In addition to the changes provided for in the Prospectus Revision Law and the new EU delegated regulations, the commission will adopt further detailed provisions and permit the future update of various thresholds used in the Prospectus Directive. These changes are likely to be implemented in the form of EU regulations (rather than through directives and national laws), and are generally required to be adopted by December 31 2014, with the exception of the implementation measures relating to the form and content of the summary, which became effective on July 1 2012.
The changes implemented by the Prospectus Revision Law primarily concern the Prospectus Law and can be summarised as follows:
- The term 'key information' has been defined and the summary format has been standardised.
- The term 'company with reduced market capitalisation' has been introduced and a proportionate disclosure regime has been established for this category of company, as well as for small and medium-sized enterprises (SMEs).
- The definition of 'qualified investor' has been modified to correspond with the EU Markets in Financial Instruments Directive (MiFID) definition.
- Exemptions have been reviewed and the thresholds for certain exemptions have been amended (eg, the €50,000 threshold has been raised to €100,000).
- Use of the prospectus by financial intermediaries in case of retail cascade has been provided for.
- Withdrawal rights have been clarified.
- The requirement that an annual document be published pursuant to the Prospectus Law has been abrogated.
- Several provisions of the Transparency Law have been amended (eg, the €50,000 threshold has been increased to €100,000).
The inconsistency of the content of the summary with the definitions used in it previously made it difficult to compare various summaries related to different offers, especially if made on a cross-border basis. The Prospectus Revision Law's provision that 'key information' be contained in the summary and that the summary conform to a common standard should in future allow a comparison between various summaries of similar products and accordingly allow for the comparison of such products on their merits.
The key information should convey the essential characteristics of – and risks associated with – the issuer, guarantor (if any) and the securities offered or admitted to trading on a regulated market. This key information should be concise, simple and clear in order to give the investor a good overview of the offer.
Furthermore, the 2,500-word limit that previously applied to the summary is no longer applicable and has been replaced.
In order to allow better access to capital markets for companies with 'reduced market capitalisation' and SMEs, a proportionate disclosure regime has been applied to such offers (unless the issuer opts for the ordinary disclosure regime). The proportionate regime is also applicable to rights issues and the same rules are applicable with respect to non-equity securities issued by credit institutions. The details of these limited disclosure requirements are set out in the implementation measures, in particular the EU delegated regulation amending the Prospectus Regulation.
Although the definition of 'qualified investor' has been completely revised to accord with the MiFID definition, in practice, the overall impact of this change is likely to be minor, as most qualified investors under the amended definition were also qualified investors under the former definition. Perhaps the most important innovation of the amended definition is the possibility to share client classifications. The change means that financial institutions proposing to offer securities to a client can rely on their MiFID client classification rather than completing a separate analysis of their status under the Prospectus Law.
The thresholds applicable to exemptions for offers of securities with a denomination of at least €50,000 and offers where investors acquire securities for a total consideration of at least €50,000 will both be increased to €100,000. This threshold is no longer defined within the law, but rather through a cross-reference to the Prospectus Directive, and may be changed in future through delegated acts that allow for more flexibility. The threshold changes do not affect the implicit prospectus exemption for investments made through a Luxembourg collective venture capital investment company (SICAR). The Prospectus Revision Law also increases the threshold for offers of securities applicable to a limited number of persons that are not qualified investors from 100 to 150 persons per jurisdiction.
The Prospectus Revision Law also specifies that the exemption from the requirement to publish a prospectus for securities offered to the public in connection with a merger will be extended to cover securities issued as a result of the division (ie, demerger) of a company. However, this is subject to the condition that an "equivalent" document be prepared. A document containing the draft demerger terms may suffice, but in order to be considered equivalent, all information included in a prospectus pursuant to the Prospectus Regulation should also be included in the document relating to the draft demerger.
Furthermore, the Prospectus Revision Law extends the exemption from publication of a prospectus for offers of securities to directors and employees (eg, an employee share or stock scheme) to unlisted companies or companies that are listed only outside the European Economic Area.
The Prospectus Revision Law confirms that financial intermediaries may use a prospectus established by the issuer to make a resale of the same securities in the secondary market (ie, a 'retail cascade'), provided that the issuer consents in writing to such use. In future, financial intermediaries may therefore no longer be required to establish a separate prospectus in case of resale of securities in the secondary market. However, such financial intermediaries making public offers under the retail cascade regime must still comply with all applicable laws.
In addition, irrespective of the responsibility of the issuer or the person that draws up the prospectus, financial intermediaries reselling and placing the securities could be subject to liability according to their national law. Where the issuer consents to the use of its prospectus in this way, it will remain liable to those investors for the content of the prospectus. If the issuer does not consent, the financial intermediary will be unable to rely on the prospectus and will have to publish a new prospectus itself to make offers of securities to the public. However, the exact form of the consent needs to be further clarified.
Any material mistake or inaccuracy in information included in the prospectus should be mentioned in a supplement to the prospectus, which must be approved and published in the same manner as the original prospectus and within seven business days of publication of the prospectus.
Investors that have already agreed to purchase or subscribe to the securities before the supplement is published have the right to withdraw their acceptance within two business days of publication of the supplement. If the supplement is published after the final closing of the offering period or after the period in which trading of such securities on a regulated market occurs, the right to withdraw an acceptance will be applicable only if:
- the prospectus relates to an offer of securities to the public; and
- the new factor, mistake or inaccuracy arose before the final closing of the offer and the delivery of the securities.
The previously mentioned two-day period for exercising the right of withdrawal may be extended by the offeror and in such case must be stated in the supplement.
It seems that according to the Prospectus Revision Law, the right of withdrawal is applicable only to public offers. Thus, no withdrawal right will apply in the case of an admission to trading of securities subscribed only by qualified investors or where the securities have a denomination of at least €100,000 (and where no public offer has been made and thus a prospectus exemption applies).
Pursuant to the Prospectus Law, issuers whose activities were admitted to trading on a regulated market will provide at least annually a document that contains or refers to all information that they have published or made available to the public over the preceding 12 months. The article setting forth this requirement also mandates that issuers refer (at a minimum) to the information required by EU Directive 2004/109/EC.
Since the implementation of the Transparency Law, the requirement for the annual document under the Prospectus Law has become redundant, and the Prospectus Revision Law confirms that an issuer that presents this information in accordance with the Transparency Law – and in a manner which is easily accessible on its website – is deemed to have fulfilled its publication requirement.
The amendments made by the Prospectus Revision Law are generally welcome and should improve the operation of the Prospectus Law and the ability of issuers to offer and admit securities to trading in the European Economic Area. Securities offers made by smaller issuers should in future become less burdensome through the introduction of a proportionate disclosure regime for SMEs. Although the impact of the changes to the Prospectus Law concerning large offerings might appear less significant at first glance, some of the amendments will make the overall process slightly more efficient (eg, through the possible use of delegated acts to adjust thresholds), while others will eliminate some of the uncertainties that exist under the Prospectus Law, such as the risk of withdrawal rights in an institutional offering.
Unfortunately, some of the changes, such as the retail cascade provisions, still need to be clarified through implementation measures or guidance from the European Commission or the European Securities and Markets Authority (which has already accordingly updated the frequently asked questions section of its website).
The Luxembourg regulator (the Commission de surveillance du secteur financier) reacted immediately to the Prospectus Revision Law through the publication of a new circular clarifying the applicable procedure for submission of files in accordance with the law. The Luxembourg Stock Exchange also adapted its rules and regulations (to align certain thresholds in relation to the euro multilateral trading facility market to the new €100,000 threshold, among other reasons).
For further information on this topic please contact Josée Weydert, Isabelle Lux, Jan Krupski or Ann Blaton at NautaDutilh Avocats Luxembourg by telephone (+352 26 12 29 1), fax (+352 26 68 43 31) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com).
(2) EU Regulation 486/2012 amending EU Regulation 809/2004 regarding disclosure requirements and the format and content of the prospectus, base prospectus, summary and final terms; and a new EU regulation of June 4 2012 amending Regulation 809/2004 regarding information on the consent to use the prospectus, information on underlying indexes and the requirement for a report prepared by independent accountants or auditors. It is assumed that this delegated regulation will enter into force in September 2012.
The authors wish to thank Noemi Gemesi and Emmanuelle Valding for their contributions to this update.
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