The EU Prospectus Directive (“the EUPD”) is to be replaced by the EU Prospectus Regulation (“the Regulation”) published (after a long wait) in the Official Journal of the European Union on 30 June 2017. Here is a link to the full text of the Regulation.
The provisions of the Regulation differ from the EUPD in a number of respects. For example, under the Regulation all companies, wherever headquartered and wherever their securities are listed, will be able to rely on the new and broader exemption, from the obligation to issue a prospectus when transferable securities are offered in the EU pursuant to an employees’ share scheme.
The existing regime is unnecessarily complex, not least because the EUPD has since 2003 been given effect, by local laws, rather differently in different EU member states. By contrast with the EUPD, the Regulation will have direct effect in member states.
The Regulation enters into force on 20 July 2017. However, there is a two-year transition period before it applies, in full, from 21 July 2019.
The existing exemption, from the need to issue a prospectus when transferable securities are offered to employees or directors, applies only if the company has either:
- its head office or registered office in an EU member state; or
- securities listed on an EU regulated market.
The new exemption, from the obligation to issue a prospectus if transferable securities are offered to the public (as defined and which would include an offer to employees), applies if transferable securities are “offered to existing or former directors or employees by their employer or an affiliated undertaking, provided that a document is made available containing information on the number and nature of the securities and the reasons for and details of the offer or allotment”.
(A corresponding exemption, from the obligation to offer a prospectus if securites are to be admitted to trading on an EU regulated market, is in similar terms and applies if “the said securities are of the same class as the securities already admitted to trading on the same regulated market and that a document is made available containing information on the number and nature of the securities and the reasons for and detail of the offer or allotment”.)
Crucially, the Regulation removes the requirement, to rely on the exemption, (a) for a company to have its head or registered office in the EU and, in the case of an offer of shares not traded on an EU regulated market, (b) for the shares to be listed on a particular stock exchange. A company relying on these exemptions must still provide an information document detailing the reasons for and details of the offer and the number and nature of the securities available, although, in practice, this is not an onerous requirement.
These new exemptions can be relied upon from 21 July 2019, the end of the two-year transition period although, given that the UK is presently scheduled to leave the EU on Friday 29 March 2019, it remains unclear as to what will be the position between those two dates.
Under the Regulation, the de minimis exemption (below which no prospectus is required for either an offer to the public or an admission to trading) is set as “an offer of securities to the public with a total consideration in the Union of less than EUR 1 000 000, which shall be calculated over a period of 12 months” (Art 1, para 5). This replaces the €5-million exemption under the EUPD.
However, each member state may set a higher limit, of up to a maximum €8 million, under which an offer of securities to the public (but not an admission to trading) is exempt from the obligation to publish a prospectus. A member state intending to do so must notify the EU Commission and ESMA of the amount below which the exemption applies. The new total consideration exemptions in each member state can be relied upon from 21 July 2018. Whether the UK will confirm a limit of €5 million is as yet unknown.
Offers to fewer than 150 persons
There will still (as now) be an exemption for offers of securities to fewer than 150 people per EU member state. (A proposal to increase this number to 350 people was not adopted.) The current ‘150 persons’ exemption is reflected in s86 FSMA 2000 and extends to such offers in any EEA state.
Warning to UK companies
As the Regulation does not fully apply until 21 July 2019, and the UK may have left the EU by then, a prospectus may still be required in the case of an offer of securities in another EU member state in the period between Brexit and that date by a company headquartered in the UK or a UK-listed company if no other exemption applies.
© David Pett November 2017