Monday, July 11, 2011

UK Adopts Regulations Implementing Prospectus Directive Amendments Raising Thresholds

The UK has adopted regulations expanding investor and offering size thresholds and thereby implementing the amended EU Prospectus Directive. The regulations raise the number of investors to whom an offer of securities may be made before a prospectus is required, from 100 to 150 investors and amend the total size of the offer that may be made before a prospectus is required, from €2.5 million Euros to €5 million Euros The regulations effectively apply to small business, as this is the group which will benefit from the changes. The impact is deregulatory and cost-saving, by helping small businesses raise equity finance more quickly and effectively. The implementation measures were welcomed by industry following public consultation. Stakeholders noted the benefit for small companies seeking equity finance.

The Prospectus Directive provides a harmonized EU framework for the production and initial disclosure requirements of a prospectus, which companies are required to produce when making a public offering of securities, or when first admitted to trading on a regulated market. The intention of the prospectus is to ensure investor protection and that adequate information is made available to investors to ensure they understand the investment they are making. By creating an EU framework, companies are able to ‘passport’ their prospectuses, and thus their offerings, across the EU. The Directive establishes a series of thresholds which dictate when a prospectus must be produced. Below these thresholds, a prospectus is not required.

After a recent review of the Prospectus Directive, the European Commission found that, while the framework was broadly operating well, there was an opportunity to provide further simplification without compromising investor protection. Two of its amendments increase the thresholds for which a prospectus must be required: the first, being the total size of the offer, and the second, the number of investors an issuer can approach before triggering the requirement to produce a prospectus. Small companies undertaking secondary fundraising are the most likely group to benefit from these measures. Avoiding the costly production of a prospectus is estimated to save UK businesses around £12 million each year.