Both the Companies (Reporting Requirements in Mergers and Divisions) Regulations 2011 (2011/1606) and the Prospectus Regulations 2011 (2011/1668) were published this month. Below is a summary of the effect of each.
Companies (Reporting Requirements in Mergers and Divisions) Regulations 2011
The draft regulations aim to reduce the administrative burden on companies through amendments to parts 17 and 27 of the Companies Act 2006 (the Act). They detail proposals to simplify processes for mergers and divisions by taking advantage of new technology and removing over-regulation, including:
- The option to publish merger terms on a website as an alternative to the current obligation under section 906 of the Act to file a copy of the terms with Companies House.
- The option to make documents available for inspection on a website instead of at the company's registered office. An exception is made where members can only take copies of those documents from such a website and in these cases the company must also make hard copies available at the registered office.
- Amendments to the circumstances that require a company to obtain expert reports, produce supplementary accounting statements, develop or obtain a directors' explanatory report, and an amendment to section 918A on members' agreement to dispense with an expert's report. These will allow members to reach unanimous agreement on not only disapplying the need to produce an expert's report, but also a directors' explanatory statement, supplementary accounting statement and report on material changes of assets of a merging company.
In addition to the above, the Regulations make slight, technical changes in the following ways:
- Supplementary accounting statements - Proposed changes to sections 910 and 925 of the Act mean that supplementary accounting statements would be required in certain circumstances where no meeting of the company is required to approve the scheme.
- Publication of documents on company website - Amendments to the new provision set out a number of conditions members must follow to take advantage of the option to make documents available on a website rather than physically. These include, amongst other things, the provision that members must be able to retain a copy of the document available on the website (in addition to being able to produce a hard copy of it).
- Approval of draft merger terms - A new option is included for draft merger terms to be published on a website rather than filed with Companies House. This is specifically in circumstances where shareholder approval of the draft terms may not be required.
The Regulations will come into force on 1 August 2011 but will not apply to any merger or division before that date.
Prospectus Regulations 2011
The Prospectus Regulations implement part of Directive 2010/73/EU which seeks to simplify the procedure for companies making public offerings and reduce the administrative burden, while at the same time not compromising on investor protection. The Prospectus Regulations 2011 amend the Financial Services and Markets Act 2000 (FSMA) so that the threshold for which a prospectus is required is increased. This is done in two ways:
- By increasing from 100 to 150 the number of people, other than qualified investors, to whom an offer of transferable securities may be made or directed at before the requirement to publish a prospectus is triggered; and
- By increasing from €2.5 million to €5 million the limit for the total consideration of an offer within the EU for which a prospectus is not obligatory.
The amendments are likely to be most beneficial to small companies undertaking secondary fundraising. It is particularly significant given that an estimated £12 million can be saved by UK businesses annually by avoiding the production of a prospectus.
The Regulations will come into force on 31 July 2011.