Originally published 5 November 2004

HM Treasury has published a consultation paper on implementation of the Prospectus Directive in the UK.  The Directive will require significant amendments to the existing UK legislative framework for public offers of securities and admission of securities to trading on regulated markets.

The key changes proposed are as follows:

  • the existing Public Offers of Securities ("POS") Regulations regime will be superseded in its entirety by the Directive.  These Regulations will therefore be revoked
  • Part VI and Schedules 7-11 of the Financial Services and Markets Act 2000 ("FSMA") will be extended to include public offers of securities and admission of securities to trading on a regulated market.  This means that, on any transaction requiring a prospectus, including an offer of unlisted securities, the prospectus will need to be approved by the FSA
  • the FSMA 2000 (Official Listing of Securities) Regulations 2001 relating to responsibility for listing particulars will be extended to make them applicable to prospectuses produced for public offers and for securities admitted to trading on a regulated market
  • the Listing Rules of the FSA will also be amended.  These amendments are currently the subject of a detailed consultation by the FSA (see UK corporate update, 22 October 2004).

The Prospectus Directive is a maximum harmonisation directive, which means there is little scope for discretion in its implementation.  However, there are a number of issues on which HM Treasury is seeking views:

  • Definition of public offer:  The Directive defines an offer to the public as "a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities".  The Directive also states that any subsequent "resale" of the securities, which previously fell within an exemption, should be regarded as a separate offer.  The definition in the Directive is deliberately very broad in order to accommodate different models of public offer across the EU.  However, as a result, the definition is potentially ambiguous and capable of wide interpretation.  HM Treasury therefore proposes clarifying the definition such that it does not include a communication in connection with screen trading on a regulated market, a multilateral trading facility or any market prescribed for market abuse under S.118 of FSMA 2000

  • POS Regulations:  Currently under the POS Regulations in the UK, public offers in excess of £100,000 require a prospectus to be produced and filed at Companies House, although not approved by the competent authority.  Following implementation of the Directive, these Regulations will fall away.  Under the Directive, the relevant threshold is €2.5 million.  Any public offer below that threshold is outside the scope of the Directive.  HM Treasury is seeking views on whether this threshold is an appropriate level at which the production and approval of a prospectus should be required under UK law and, if not, what form of additional UK prospectus regime should apply below the €2.5 million threshold.  Further consultation may be carried out on a potential UK prospectus regime for offers outside the scope of the Directive, with any additional legislative changes being made to coincide with implementation of the Directive
  • Offers to fewer than 100 persons:  Under the Directive, an offer of securities addressed to fewer than 100 persons in each Member State is exempt from the obligation to publish a prospectus.  HM Treasury proposes to implement this exemption on an aggregated basis calculated over a 12 month period

  • Responsibility for prospectus:  The Directive requires that "at least" one of several specified persons, including the offeror, should be identified as responsible for a prospectus.  HM Treasury proposes to implement the Directive leaving the existing UK regime for identification of responsibility unchanged

  • Qualified investors:  The Directive provides that a Member State may choose to authorise natural persons and small and medium-sized enterprises as "qualified investors" if they meet certain criteria.  Where Member States exercise this choice, offers of securities addressed solely to such persons are exempt from the obligation to publish a prospectus.  HM Treasury intends to allow the authorisation of such persons to encourage smaller issuers in approaching private investors and others when seeking to raise capital

  • Publication of a prospectus:  The Directive provides that a prospectus shall be deemed to be available to the public when it has been published in one of a number of specified ways, including publication in electronic form on the issuer's website.  HM Treasury proposes that issuers should be required to publish their prospectuses on their website.  Issuers will also be required to publish a notice stating how a prospectus has been made available and where it can be obtained by the public.

Comments on the consultation are invited by 28 January 2005.  The Directive is required to be implemented by 1 July 2005.

The consultation paper is available at:
 http://www.hm-treasury.gov.uk/media/DFE/27/DFE27339-BCDC-D4B3-16FD311B308ABF54.pdf.

This article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters.