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3 PROSPECTUS REGULATION - PROPOSED AMENDMENTS IN RELATION
TO HISTORICAL FINANCIAL INFORMATION
3.1 Introduction
The Prospectus Regulation 809/2004 concerns minimum disclosure
requirements for issuers to enable investors to make an informed
judgement on the issuer's financial status. In particular
Item 20.1 of Annex 1 to the Regulation states "audited
historical information covering the latest 3 financial years
(or such shorter period that the issuer has been in operation),
and the audit report in respect of each year" must be
included in a prospectus.
This requirement presents a problem where an issuer has a
complex financial history. For example, where the issuer has
made a significant acquisition not yet reflected in its own
financial statements or where the issuer is a newly incorporated
holding company, in order to provide accurate historical financial
information it is sometimes necessary to include financial
information produced by another entity.
On 10 August 2006, the Commission published a draft regulation
to amend the Prospectus Regulation, with a view to rectifying
the apparent deficiency in the Item 20.1 requirement in situations
such as those outlined above. The proposed amendments will
enable competent authorities to require issuers which have
a complex financial history to provide financial information
relating to entities or business undertakings which, when
that information was drawn up, were legally separate from
the issuer but which will form part of its business at the
time of publication of the prospectus.
3.2 Proposals
Where the issuer of a security requiring a share registration
document has a 'complex financial history' or has made a 'significant
financial commitment', and consequently the inclusion in the
registration document of certain items of financial information
relating to an entity other than the issuer is necessary in
order to satisfy the obligation laid down in Article 5(1)
of Directive 2003/71/EC, the competent authority of the home
Member State must require that this information is included
in the registration document.
An issuer is regarded as having a complex financial history
if:
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it was formed during the three year period
immediately preceding the date of filing of the prospectus,
and information relating to its business undertaking at
that date is included in financial information relating
to another entity;
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it has completed one or more transactions
which, individually or taken together, give rise to a
significant gross change which is not included in the
historical financial information that the issuer is required
to provide under item 20.1 of Annex 1. |
A significant financial commitment is defined as where
the issuer has entered into a binding agreement to undertake
a transaction which, on completion, is likely to give rise
to a significant gross change. A conditional agreement will
be treated as binding if it is reasonably certain that those
conditions will be fulfilled.
An agreement shall be treated as binding where it is conditional
on the offer of securities that are the subject of the prospectus
or, in the case of a proposed hostile takeover, if the offer
of securities that are the subject matter of the prospectus
has the objective of funding that takeover.
A significant gross change is defined as a variation
of more than 25%, relative to one or more indicators of the
size of the issuer's business, in the situation of an issuer,
with the exception of those situations where merger accounting
is required.
These draft proposals anticipate unusual situations. It is
not therefore possible to specify the information needed for
every conceivable case. Instead it will be a question of fact
in each case what is necessary to ensure that the investor
receives the information he requires to make an investment
decision. However, the competent authority should only require
information that is proportionate for the issuer to compile.
The competent authority shall base any request for further
information on the requirements set out in item 20.1 of Annex
I as regards the content of financial information and the
applicable accounting and auditing principles, subject to
any modification which is appropriate in view of the following
factors:
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the nature and range of information already
included in the prospectus, and the existence of financial
information relating to an entity other than the issuer
in a form that might be included in a prospectus without
modification; |
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the facts of the case, including the economic
substance of the transactions by which the issuer has
acquired or disposed of its business undertaking or any
part of it, and the specific nature of that undertaking;
and |
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the ability of the issuer to obtain financial
information relating to another entity with reasonable
effort. |
In each case where the obligation laid down in the Article
5(1) of Directive 2003/71/EC may be satisfied in more ways
than one, the least onerous method should be implemented.
The proposals include a proposed technical amendment to Item
20.1 of Annex I to clarify the historical financial information
which must be included in a prospectus where the issuer has
changed its accounting reference date during the three year
period for which such information is required. To this end,
the following sentence is to be inserted:
"If the issuer has changed its accounting reference
date during the period for which historical financial information
is required, the audited historical information shall cover
at least 36 months, or the entire period for which the issuer
has been in operation, whichever is shorter."
If you require further information on any matter covered
in this note, please contact your principal contact at Charles
Russell or Simon
Gilbert, Clive
Hopewell or Alexander
Keepin (London), Francis
Rundall, Richard
Norton, or Adrian
Mayer (Cheltenham), Catherine
Drew or Geoff
Sparks (Guildford) or Peter
Elliott (Oxford) on 0207 203 5000.
To download these articles in pdf format, please click
here
Please note that the summaries above are
a general indicative guide only. They are not exhaustive.
This information has been prepared by the firm as a service
to our clients. As it is a general guide, we recommend that
you seek professional advice before taking action. No liability
can be accepted by the firm for any action taken or not taken
as a result of this information. The firm is not authorised
under the Financial Services and Markets Act 2000 but we are
able in certain circumstances to offer a limited range of
investment services to clients because we are members of the
Law Society. We can provide these investment services if they
are an incidental part of the professional services we have
been engaged to provide.
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