Changes to the prospectus regime take effect from 20 July 2017 and are aimed at making it simpler and less expensive for companies to access and raise money in the capital markets.
The EU Prospectus Regulation has completed its passage through the EU legislative process and will be implemented in stages over the next two years. The first provisions to take effect will apply from 20 July 2017.
The aims of the new regime are straightforward: to improve access to finance for companies and to simplify information for investors. Overall, the changes should give more flexibility for companies to raise capital either without publishing a prospectus at all or using a more streamlined document.
What is changing from 20 July 2017?
- Main Market companies can currently admit further shares without publishing a prospectus provided they represent less than 10% of the same class already admitted to trading (over a 12 month period). From 20 July this will be increased to securities representing less than 20% of the same class (over a 12 month period).
- Main Market companies can currently admit shares resulting from conversion or exchange of other transferable securities to the same market without publishing a prospectus. From 20 July a cap will be introduced so that the exemption only applies (subject to certain relaxations) where the resulting shares represent less than 20% of the shares of the same class already admitted to trading (over a 12 month period).
What happens next?
Further changes (applying to AIM companies, Main Market companies and unquoted companies) will take effect from 21 July 2018:
- Small capital raisings of up to EUR 1 million (in total over a period of 12 months) will be exempt and no prospectus will be required. This is an increase from EUR 100,000 under the existing regime and significantly increases opportunities for very small offerings and crowdfunding projects.
- The threshold at which a prospectus is mandatory for offers to the public will be raised from EUR 5 million to EUR 8 million (in total over a period of 12 months). Member states can decide to exempt offers below this threshold from the requirement to issue a prospectus. Currently in the UK, an offer of securities does not require the issue of a prospectus for offers below EUR 5 million (in total over a period of 12 months). It will be a matter for HM Treasury to decide whether to increase this exemption threshold (there has been no statement yet as to whether this will be the case). Offers relying on this exemption will not benefit from the EU passporting regime.
The remaining changes being introduced by the EU Prospectus Regulation will take effect from 21 July 2019. Details of the other key changes were set out in our earlier update: The new Prospectus Regulation: easier, faster and cheaper?
How will Brexit impact implementation?
The EU Prospectus Regulation has direct effect in the UK. Until exit negotiations run their course the UK remains a full member of the EU and must continue to apply EU legislation. It is likely that any EU legislation which applies in the UK at the point of exit will effectively be frozen into UK law, continuing to apply until such time that the UK decides which EU laws to amend, repeal or retain. The UK may have left the EU before the final provisions of the EU Prospectus Regulation take effect in July 2019 and it is not clear whether these will be implemented in the UK. We anticipate that, at least for an initial period, the UK will adopt similar provisions to put UK companies on an equal footing and allow them to benefit from the cheaper, more streamlined regime and any available passporting rights.