A directive amending the Prospectus Directive and the Transparency Directive was published in the Official Journal of the European Union on 11 December 2010 (hereinafter "the amending Directive").[1] The amending Directive has a number of practical implications for issuers, although certain key amendments will require further implementing legislation.
The Prospectus Directive
The Prospectus Directive[2] introduced the so-called European passport for issuing institutions or issuers. A European passport means that once a prospectus has been approved by the competent authority in a Member State (which is required when securities are offered to the public or admitted to trading), it will be accepted in, or can be passported into, all other Member States of the European Union. Prior to the European passport, there was a system of mutual recognition for prospectuses in the context of cross-border offerings of securities.
The Prospectus Directive also contributed to harmonization and updating of the European rules on the drafting, approval and distribution of prospectuses. The Prospectus Directive was implemented in Belgium by the Prospectus Act of 16 June 2006.[3]
The European Commission was entrusted with assessing the application by the Member States of the Prospectus Directive after five years and, if necessary, improving on the text. The amending Directive reflects the findings of this review, which revealed the need for important practical changes.
Scope of application
The Prospectus Directive does not apply to offerings of securities where the total consideration of the offer is less than EUR 2,500,000. The amending Directive raises this threshold to EUR 5,000,000 (amended Article 1(2)(h); see also Article 15 of the Prospectus Act).
Under the Prospectus Act, a public offering with a value of less than EUR 2,500,000 can voluntarily be made subject to the harmonized rules contained in the Prospectus Directive (Article 22 §2). If this choice is not made, other less stringent rules apply. The Prospectus Act will have to be amended on this point.
In addition, the Prospectus Directive provides that offers of securities other than shares (e.g. bonds) by credit institutions where the total consideration of the offer is less than EUR 50,000,000 are, under certain circumstances, not subject to the prospectus requirement. The amending Directive raises this threshold to EUR 75,000,000 (amended Article1(2)(j)). The Prospectus Act (Article 16 §1(7)) will need to be amended accordingly.
Finally, the amending Directive gives the European Commission the power to adapt these amounts to reflect technical developments on the financial markets, including inflation.
Exemptions from the obligation to publish a prospectus
The Prospectus Directive specifies a certain number of exemptions from the obligation to publish a prospectus (see Article 3(2)).
Thus, there is no obligation to publish a prospectus in the following cases, amongst others:
* an offer of securities addressed solely to qualified investors; the definition of "qualified investor" has been adapted by the amending Directive to correspond to the list included in Annex II of the MiFID Directive, i.e. credit institutions, investment firms, insurance companies, etc.;
* an offer of securities addressed to fewer than 100 natural or legal persons per Member State, other than qualified investors; the amending Directive raises this threshold to 150 persons;
* an offer of securities addressed to investors who acquire securities for a total consideration of at least EUR 50,000 per investor, for each separate offer, or an offer of securities whose denomination per unit amounts to at least EUR 50,000; the amending Directive raises these two amounts to EUR 100,000. Once again the European Commission is empowered to adapt these amounts in light of technical developments on the financial markets, including inflation.
The Prospectus Act mentions these exemptions under the heading "non-public transactions" (opérations qui ne revêtent pas un caractère public/verrichtingen die geen openbaar karakter hebben).
The amending Directive extends the exemption for employee share schemes to issuers that do not already have securities admitted to trading on a regulated market if either:
* the issuer's head office or registered office is located in the European Union; or
* the issuer is established outside the EU and its securities are admitted to trading on a third-country market in respect of which the Commission has adopted an equivalence decision (amended Article 4(1)(e)).
Currently, third-country issuers which are not listed on a regulated market (e.g., a US issuer listed on the NYSE) are required, in the absence of another relevant exemption, to publish a prospectus for employee share schemes. It may however take some time for the Commission to adopt the necessary equivalence decisions.
Summary of the prospectus
The Prospectus Directive provides that a prospectus must include a summary. The summary constitutes an important source of information for investors and, in practice, is the most commonly read part of the prospectus. The summary must "in a concise manner and in non- technical language" set forth the general conditions of the offering, the rights attached to the securities and the risks taken when investing in securities.
Pursuant to the amending Directive, the summary must now be "drawn up in a common format in order to facilitate comparability of the summaries of similar securities and its content should convey the key information of the securities concerned in order to aid investors when considering whether to invest in such securities" (amended Article 5(2)). Further legislation will be enacted specifying the format.
The rule that no one can be held liable on the basis of the summary, unless, when read together with the other parts of the prospectus, it is misleading, inaccurate or inconsistent or does not provide the key information mentioned above remains unchanged. The summary shall contain a clear warning to that effect. The European Commission will establish a comparative table of Member States’ liability regimes (Recital 12 to the amending Directive).
Additional changes
In addition to the abovementioned modifications, a number of technical amendments and specifications will be required regarding:
* the period of validity of a prospectus: it is still 12 months, but calculated from the date of approval rather than the date of publication;
* supplements to the prospectus (amended Article 16);
* etc.
The European Commission has been given the power to adopt the necessary delegated acts in order to execute certain provisions of the amending Directive. The European Parliament or the Council may object to a delegated act within a period of 3 months from the date of notification thereof.
Transparency Directive
For the sake of completeness, it should be noted that the amending Directive also introduces certain changes to the Transparency Directive,[4] in order to bring it into line with the amended Prospectus Directive.
Entry into force
The amending Directive will enter into force on 31 December 2010. Belgium will have a further 18 months, i.e. until 1 July 2012, to implement its provisions into national law.
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[1] Directive 2010/73/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (O.J. L 327, 11.12.2010, 1-12), available here
[2] Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (O.J. L 345, 31.12.2003, 64–89), available here
[3] Loi du 16 juin 2006 relative aux offres publiques d'instruments de placement et aux admissions d'instruments de placement à la négociation sur des marchés réglementés/Wet van 16 juni 2006 op de openbare aanbieding van beleggingsinstrumenten en de toelating van beleggingsinstrumenten tot de verhandeling op een gereglementeerde markt (Belgian State Gazette, 21 June 2006).
[4] Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (O.J. L 390, 31.12.2004, 38–57), available here
