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Applicability and exemptions
When must a prospectus be filed? Are there any notable exemptions?
Generally, a prospectus is required for any public offer of equities and for their admission to trading on a regulated market, provided that an exemption does not apply. Notably, pursuant to the Public Offering of Securities Act and Article 1(3) of the new EU Prospectus Regulation, which already applies across the European Economic Area, a prospectus is unnecessary for a public offer with a total consideration in the European Union of less than the lev equivalent of €1 million for a 12-month period. In addition, a prospectus is not required for:
- offers solely to qualified investors or to less than 150 addressees per EEA member state, which are not qualified investors;
- offers in respect of exchange tender offers or in connection with a merger or division, provided that a document is made available, containing equivalent information as the information which otherwise will be provided in a prospectus;
- offers of new shares representing the distribution of dividends to existing shareholders, provided that they are from the same class shares and a document is made available, containing information on the terms and conditions of the offer; or
- certain offers directed solely to the managers and employees of the issuer (eg, under share (option) plans). In that case, existing shareholders have no pre-emption rights, provided that the public offer will not result in a capital increase of more than 1% within one year and any such subsequent capital increases will not result in an increase of more than 3%, if there was no standard capital increase procedure in the meantime under which the issuer’s capital was increased with at least 10%. The shares issued as a result of a public offer directed solely to managers and employees may not exceed 5% of the capital of the issuer.
Where admission on a regulated market is sought, a prospectus is unnecessary in respect of:
- securities fungible with securities already admitted to trading on the same regulated market, provided that they represent, over a 12-month period, less than 20% of the latter;
- shares resulting from the conversion or exchange of other securities or from the exercise of the rights conferred by other securities, where the resulting shares are of the same class as these already admitted to trading, provided that the resulting shares represent, over a 12- month period, less than 20% of the shares already admitted to trading; and
- securities which are offered under the exemptions from the prospectus requirement, specified in the second, third and fourth cases above provided that, in the third and fourth cases above, the respective securities which are to be admitted to trading are from the same class as those already admitted.
What must the prospectus contain?
The prospectus may be drafted as a single document or as three separate documents (ie, registration document, securities note and summary). The registration document generally contains:
- information about the issuer and its organisational structure and management;
- the risk factors to which the issuer’s activities are exposed;
- a business review of the issuer; and
- information on the issuer’s financial condition.
The securities note contains information on the terms and conditions of the public offer (including the subscription procedure) and the risk factors inherent to the offered securities. The summary must contain a brief resumé of the information provided in the other two documents.
Filing and approval procedure
What is the procedure for filing for and obtaining prospectus approval from the regulator? Can draft prospectuses be submitted to the regulator for preliminary comment?
According to EU Regulation 2016/301, the draft prospectus must be filed with the Financial Supervision Commission (FSC) in a searchable electronic format via electronic means. The draft prospectus must be accompanied by an approval request form drafted in Bulgarian and signed by a qualified electronic signature, as well as other supporting documents (eg, a certified copy of the issuer’s articles of association, the issuer’s resolution for the public offer/admission of securities to trading on a regulated market and for adoption of the draft prospectus). The FSC should acknowledge via electronic means the receipt of the draft prospectus no later than the second business day thereof.
The FSC will review the draft prospectus within 10 business days, or 15 business days for first-time issuers. After an initial review, the FSC may request the prospectus to be amended to eliminate any deficiencies. The FSC must direct the applicant to any necessary revisions to be made. The revised version of the prospectus must be submitted to the FSC for review within one month. This version must be submitted via electronic means in a marked-up version and a clean version. The FSC should review this revised version and either approve the prospectus (within an additional 10 business days, or 15 business days for first-time issuers) or decline approval.
There is no express procedure for the preliminary review of draft prospectuses by the FSC, and this is not a supervisory practice.
What types of prospectus liability can arise (eg, statutory, contractual, tort)? Which parties may be held liable?
The members of the management body of the issuer, its procurists and the offeror and the person asking for admission to trading are jointly liable for any damages arising out of untrue, misleading or omitted information in the prospectus. The officers responsible for the preparation of the financial statements of the issuer are jointly liable with the foregoing for any damages arising out of untrue, misleading and omitted data in the financial statements of the issuer. The issuer’s auditors are liable for damages arising out of the audited financial statements of the issuer. This liability derives from statute and is regarded as a form of tort liability.
There are no special rules on the liability of experts, whose expert opinions may be referenced in a prospectus.
Before launching the initial public offering (IPO) project, the persons who would be jointly liable for damages arising out of untrue, misleading or omitted information in the prospectus may enter into agreements among themselves in order to stipulate how liability, if any, will be allocated among them.
In addition, pursuant to the Penal Code criminal liability is imposed on any person who, in relation to public offer of securities, knowingly uses untrue favourable information in a prospectus or does not disclose unfavourable data which is of material importance in the making of an investment decision to acquire such securities. The penalty is imprisonment for up to three years and a fine up to Lev500.
What defences are available for liable parties?
The persons liable for the content of the prospectus may mitigate the potential risks of claims by investors by introducing full and comprehensive information in the risk sections of the prospectus for the risks to which the issuer and its business activities are exposed. A key defence would also relate to a pre-IPO due diligence as well.
It is extremely rare that cases against persons responsible for the contents of prospectuses reach the Bulgarian courts. As a result, the practicalities of the legal regime of prospectus liability in Bulgaria are still underdeveloped.
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