New Executive Orders for Prospectuses

Date 16 jul. 2012
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As a consequence of the recent years changes to the directive on prospectus[1] (the “Amending Directive”) and the regulation on prospectus[2]  (the “Amending Regulation”) under the auspices of the EC – which were both implemented in Denmark on 1 July 2012 – the two most significant Danish prospectus executive orders respectively the big[3] and the small[4] prospectus executive order have been changed in accordance therewith. Both executive orders became effective on 1 July 2012.


Not least for the sake of reducing the administrative burdens of the issuers in relation to public tenders, the monetary minimum limit for when public disclosure of a prospectus is compulsory has been raised from EUR 100,000 to EUR 1m. Offering of securities below this limit is henceforth exempt from the prospectus obligation.


However, the raised minimum limit is only one of a number of changes to the prospectus rules. In the following the most significant changes to both the big and the small prospectus executive order and to the Amending Directive and the Amending Regulation will be examined.


Changes for tenders exceeding EUR 5m (the big prospectus executive order)

Henceforward, the big prospectus executive order only applies for securities to be admitted to trade on a regulated market and for public tender of securities exceeding EUR 5m. The limit used to be EUR 2,5m. 


New format for prospectus summaries

In order of making it possible to compare prospectuses through prospectus summaries, the requirements to the format have been amended, cf. Section 16(3) of the big prospectus executive order. From now on, the summaries must be schematic with a more comparable content including in relation to key information.


The definition of the key information itself which must appear from the summary has been amended via Section 11 of the executive order. In the future, significant and appropriately structured information which is supposed to enable investors and the market to understand the most significant elements and risks of the issuer, the guarantees and the specific issuance of securities are considered key information. It is the intention that such information will make it easier for potential investors to commit themselves as to whether they will invest in the securities or not.


The Amending Regulation contains, in collaboration with the big prospectus executive order, a number of additional requirements for the prospectus summaries, including that the summaries must not exceed 7 per cent of the size of the prospectus (at the maximum 15 pages) and must not contain cross references to other parts of the prospectus.


New definition of qualified investors

The definition of qualified investors has been amended in the big prospectus executive order. The amendment is a significant expansion ensuring compliance between the definitions in the prospectus rules and in the MiFiD Directive, as regards the financial market. 


Amendments in the exceptions to the prospectus obligation

The new big prospectus executive order has amended the field of application for a number of the exceptions regarding the prospectus obligation. Firstly, this regards the group of people to whom the issuer can make an application without having to issue a prospectus. The limitation was previously set to a maximum of 100 persons, however, the number is currently 150 persons. The condition regarding information about the tender not becoming publicly available still applies.


In addition, public tender of securities with a nominal value per security exceeding EUR 100,000 is exempted from the prospectus obligation. Earlier, the limit was EUR 50,000.


Furthermore, it now appears from Section 13(3) of the executive order that financial providers who place or resell securities may use the original prospectus which has been issued by the issuer or the person responsible for the preparation of the prospectus as long as the prospectus is supplemented with an amendment. It is, however, a requirement that the issuer of the prospectus or the responsible person accepts the specific use of the prospectus in writing.


Finally, the executive order expands the exception for issuing tenders solely directed to employees so that the exception applies to all companies having their head office or their registered office in the EC or in a country with which the EC has entered into an agreement with in the financial area. An equivalent amendment has been made to the small prospectus executive order.

 

Validity

In order to improve the rule of law, the provision regarding the validity of the prospectus has been amended so that the prospectus is now valid from the approval which is a date easily verified by the Danish Financial Supervisory Authority.


Additionally, the rule of law is improved by a clarification of when the requirement of issuing an addendum and a withdrawal expires. The obligation to supplement the prospectus expires when the tender period ceases or when the trading of such securities on a regulated market has started dependent on which event occurs last. The right of withdrawal of an approval is only valid when the prospectus concerns a public tender of securities and in cases where the new circumstance, error or incorrectness occurred before the final completion of the tender and the transfer of the securities. The amendment is in accordance with the practices of the Danish Financial Supervisory Authority.

 

Amendments for tenders between EUR 1m and 5m (the small prospectus execute order)

The field of application for the small prospectus executive order has been amended so that the executive order applies for public tenders of certain securities between EUR 1m and 5m. Previously, the limits were EUR 100,000 and EUR 2m, respectively.


Resale

In Section 2(a), the small prospectus executive order contains a provision whereupon any resale of securities in the future will be considered a separate tender which - contrary to earlier – is not automatically excluded from the prospectus obligation. Instead, it is concretely to be determined whether the resale constitutes a tender of securities to the public itself in which case the tender is to be disclosed. The provision is equal to the legal position for tenders of securities according to the big prospectus executive order. 


A tender that has been excluded from the prospectus obligation can thus not per se be re-used in connection with a resale of the securities.


Withdrawal of subscription

It now appears from Section 14(2) that investors who have accepted to buy or subscribe securities can withdraw their acceptance if the issuer publishes an amendment to the prospectus as a consequence of new circumstances, material errors or incorrectness in the original prospectus. In such cases, the withdrawal must be announced within two working days following the publication of the amendment. This provision does also introduce equivalence between the small and the big prospectus executive order.


Increased duty of disclosure

As regards the content of the prospectus, it has in Section 7 been specified that issuers of securities covered by the small prospectus executive order – as an addendum to the existing requirements regarding financial, contractual and legal information of significant financial importance for the issuer – must also in the future disclose information regarding the issuers’ assets and liabilities, financial position and profit, including potential risk factors.


Exception regarding publication of prospectuses in connection with certain tenders to employees

Furthermore, the executive order extends the exception from the prospectus obligation in connection with tenders to employees. Henceforward, the exception applies for all companies having their head office or their registered office in the EC or in a country with which the EC has entered into an agreement with in the financial area. In addition, the exception applies for tenders to employees of companies which are registered outside the EC if the securities are admitted to trade on a regulated market or on a market in a third country.


Discontinued provisions

Along with the amendment of the small prospectus executive order, the provision regarding tenders of securities which were part of an emission for which there had earlier been published a prospectus were exempt from the prospectus obligation has been annulled. The amendment is introduced because there from now on is a prospectus obligation in connection with all public tenders and not only in connection with the first public tender.

 

Proportional duty of disclosure

Small and medium sized companies and companies with limited market value

With consideration mainly to lighten the administrative burdens of issuers, including in relation to the need of improving the investor protection and the extent of information which is already available to the market, small and medium sized issuers and companies with limited market value can thus choose between schemes with proportional requirements and the arrangement with full duty of disclosure. The possibility appears from article 26(b) of the Amending Regulation in which the proportional schemes can be found as an appendix.


The definition of companies with limited market value has contemporarily been amended, cf. Section 12 of the big prospectus executive order so that such companies are now companies which securities are admitted to trade on a regulated market with an average market value below EUR 100m by the end of the previous three calendar years.


Small and medium sized companies are defined in the Amending Regulation as companies which from the previous annual report as a minimum fulfilled two of the following criteria: (i) has on average employed below 250 full time employees in the latest financial year, (ii) has a balance below EUR 43m, and (iii) has a yearly net turnover below EUR 50m.


Pre-emptive subscription right emissions

On the same grounds and considerations, rules on proportional duty of disclosure for share tenders to existing shareholders who can either subscribe shares or sell the subscription right to the shares have been introduced by the Amending Directive, cf. Section 26(a).


It is presupposed that the issuer already has shares of the same class admitted to trade on a regulated market and that the issuer through a statement informs that the pre-emptive subscription right emission is directed at the issuer’s shareholders and that the disclosure level of the prospectus is reasonable in relation to the issuance type.

 

 

If you have questions or require additional information on offering of shares or the obligation to compose prospectuses, please contact attorney Dan Moalem (dmo@mwblaw.dk), attorney David Moalem (dam@mwblaw.dk) or junior associate Mattias Vilhelm Warnøe (mvn@mwblaw.dk).

 

The above does not constitute legal counselling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.


 


[1] Directive 2010/73/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2003/71/EC

[2] Commission Delegated Regulation (EU) No 486/2012 of 30 March 2012 amending Regulation (EC) No 809/2004

[3] Executive order no. 643 of 19/06/2012 concerning prospectus’ for securities, which are admitted to trade on a regulated market, and public tenders for securities exceeding EUR 5m.

[4] Executive order  no. 644 of 19/06/2012 concerning prospectus’ for public tenders between EUR 1m and EUR 5m for some securities