Status update: the Prospectus Regulation 2017
Notwithstanding the uncertainty surrounding the timing and ultimate destination of Brexit, European legislation continues to apply to capital markets in the UK.
In this regard, the Prospectus Regulation 2017 (the Regulation) is due to come fully into force from 21 July 2019 and will therefore apply to prospectuses vetted by the FCA.
Two key provisions of the Regulation came into force early, being: i) the increase in the exemption for an admission of shares of the same class as shares already admitted to the same regulated market from 10% to 20%, which has applied since July 2017; and ii) the ability to apply a total threshold below which a prospectus is not required for an offer of securities to the public, which has applied since July 2018 with the level in the UK being set at €8m. The key further provisions coming into force and which will apply to any prospectus published on or after 21 July 2019 are:
1. Prospectus summaries
The current requirement for a tabulated summary will disappear. In its place, issuers will have more discretion to decide on what information should be summarised.
Largely, the new requirements are based on Key Information Documents which certain issuers have had to produce in recent years.
There are still mandatory content requirements including: i) an introductory warning rubric; ii) key information on the issuer such as financial information and material risk factors (limited to 15 such risks); iii) key information on the securities; and iv) key information on the offer, such as use of proceeds.
The new style summary will be restricted in length to seven A4 pages and, as currently, cannot cross-reference to other parts of the prospectus.
2. Content requirements
The content requirements for a prospectus are subject to some change. The current requirement that the prospectus contains "the necessary information which is material to an investor" will remain an over-arching obligation. However, this has been extended to include the reasons for the issue and its impact on the issuer. The general circumstances of the issuer is a further factor which will need to be considered.
3. Risk Factors
Under the new regime, risk factors will need to be specific to the issuer and its securities and be material to investors in order to cut down on the number of boilerplate and generic risk factors in prospectuses. The risk factors must be set out in a number of limited categories.
The issuer may (but is not required to) classify risk factors within each such category by using a scale of low, medium and high, although issuers may be unwilling to so to avoid later problems if a risk factor previously flagged as “low” turns out to be significant.
4. Reduced disclosure regime
(a) Secondary issues
Given the Market Abuse Regulation (“MAR”) applies to listed issuers and provides an on-going disclosure regime, the Regulation brings in a reduced disclosure prospectus for secondary issues for any issuer which has been listed on a regulated market or an SME growth market for at least 18 months. In the UK, AIM and NEX Growth are classified as SME growth markets.
The mandatory information required in such a prospectus will include:
- annual and half-yearly financial information published over the 12 months prior to the date of the prospectus (which can be incorporated by reference);
- pro-forma financial information (if applicable);
- profit forecasts and estimates (if any are in the market);
- a summary of information disclosed under MAR over the 12 months prior to the prospectus;
- risk factors; and
- a working capital statement, capitalisation and indebtedness statement, a disclosure of relevant conflicts of interest, related-party transactions, and details of major shareholders.
In addition, it is further proposed that this reduced disclosure regime will also apply to an issuer seeking a move from an SME Growth Market to a regulated market where the issuer has been listed for at least two years.
(b) EU growth prospectus
The second aspect of the reduced disclosure regime is to provide streamlined content requirements for secondary issues undertaken by:
- SMEs not traded on regulated markets (SMEs being entities with a sub-€200m market cap over the previous two years or meeting certain employee, balance sheet and net turnover thresholds);
- issuers, other than SMEs, whose securities are traded on an SME growth market, with a sub-€500 million market cap over the previous three years; and
- other issuers so long as they are not traded on an MTF and with fewer than 500 employees where an offer of securities to the public in the EU does not exceed more than €20 million calculated over a period of 12 months.
5. Review by regulators
Currently, once an IPO prospectus is submitted to the FCA, they have 10 business days to review the initial draft and then aim for 5 working days to review each subsequent submission. From 21 July, the FCA will have 20 working days for the initial review but have not yet confirmed what their stated aim for subsequent submissions will be.
For “frequent issuers”, the Regulation creates a new regime whereby a “Universal Registration Document” (URD, essentially a shelf registration document) can be submitted. If an issuer has an URD approved in two consecutive years, subsequent URDs can be filed or amended without prior approval, and a prospectus using such URDs benefits from an approval process of 5 working days.
For more information, please contact Paul Arathoon.
Our thinking
Paul Arathoon
Charles Russell Speechlys advises on Trident Royalties’ US$28m Placing
Trident Royalties plc is a growth-focused mining royalty and streaming company.
Paul Arathoon
Charles Russell Speechlys advises Avation plc on £7.5m secondary placing
Headquartered in Singapore, Avation plc manages a fleet of aircraft which it leases to airlines across the world.
Martin Wright
The Corporate team's involvement in Fishawack Health’s acquisition of PRMA featured in Yahoo! Finance USA, Markets Insider and Morning Star
Martin Wright and the Corporate team provided legal support on the acquisition of PRMA Consulting.
Adrian Mayer
Charles Russell Speechlys, Strategic Partners of the Asoko Insight West Africa's Family-Owned Business Report
The report is the most comprehensive study of Family-Owned Businesses throughout West Africa.
Jessica Arrol
Jessica Arrol quoted by Real Deals on the implementation of SFDR
SFDR aims to remove greenwashing and promote transparency in reporting ESG, but GPs and LPs are experiencing its flaws.
Andrew Collins
Charles Russell Speechlys advises Shore Capital as nominated adviser, broker and bookrunner on £56.5m fundraising for Helios Underwriting Plc
Helios is an AIM-listed investment company offering investors growth and returns from exposure to Lloyd’s.
Mark Howard
Charles Russell Speechlys advises Content+Cloud on acquisition of Sipcom
The acquisition establishes Content+Cloud as a global service provider to UK businesses.
David Coates
Charles Russell Speechlys advises shareholders of Douglas & Gordon Estate Agents on its sale to Foxtons
Established in 1958, Douglas & Gordon is a London-based, family owned independent estate agent.
Helen Coward
Mixed news for corporation tax payers in today’s Budget
The announcement brings good news for the short term - and bad news in the longer term for corporation tax payers.
Chris Putt
Lord Hill Listing Rules review: a breath of fresh air
Jonathan Steele
The firm's role in advising Dentex on the acquisition of The Essex Smile Centre reported by Business Money
The sale of The Essex Smile Centre to Dentex Healthcare Group Limited has been completed.
Elliot Michaelson
EMI share options, Covid-19, and Brexit – where are we now?
What are the new measures to employers operating EMI schemes that have been affected by the pandemic?
David Coates
Charles Russell Speechlys advises Exeter Property Group on its acquisition of two property SPVs from the Tritax group
Exeter Property Group is one of the largest real estate investment managers focused on acquiring, developing and managing properties.
Daphne Cheung
Getting your due diligence right: top tips for first-time sellers
David Coates
Charles Russell Speechlys releases H2 2020 deal highlights
Our highlights over the past 6 months are now available.
David Coates
Charles Russell Speechlys advises the founders of The People Development Team (PDT Global) on sale to LTG plc
The People Development Team is a leading provider of online diversity and inclusion training and consultancy services.
Andrew Collins
Charles Russell Speechlys advises N+1 Singer on £10m return of capital
Zytronic plc is a UK-based manufacturer and developer of touch sensing overlay products.
David Hicks
David Hicks writes for Tax Journal on debt releases between companies with common shareholders
The current trading environment is causing many companies to consider releasing wholly or partly recoverable inter-company debts.
Daniel Rosenberg
Charles Russell Speechlys advises Canadian toymaker Spin Master on acquisition of iconic Rubik’s Cube®
The Rubik's Cube® became a commercial success after it launched globally in 1980.
Victoria Younghusband
Market Abuse Regulation update: January 2021
We highlight the recent changes to the Market Abuse Regulation (MAR) .