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5 PROPOSED AMENDMENTS TO THE PROSPECTUS AND LISTING RULES
On 6 October 2006 the Financial Services Authority ("FSA")
published consultation paper (CP06/17) proposing changes to
the Listing and Prospectus Rules. The FSA are proposing to
amend certain rules where they "prevent the market from
operating as efficiently as it might otherwise do". The
changes are predominantly deregulatory in nature, expressed
to be in line with the FSA's long term objective to become
a 'principles based' regulator. The principal amendments are
as follows:
5.1 Prospectus Rules
The proposed changes include:
PR2 - Drawing up the Prospectus
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It will be possible to incorporate information
into a prospectus by reference to documents which have
been approved by the competent authority of another Member
State in addition to those approved by the FSA (the case
now). |
PR3 - Approval and publication of prospectus
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It will not be necessary to send a copy
of the application form and relevant board resolutions
with a prospectus submitted for approval. Written confirmation
only of the number of securities to be allotted will suffice.
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It will be necessary to file and make available
a supplementary prospectus to the public as soon as possible
after the relevant event. |
PR4 - Use of language and third country issuers
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Guidance will be provided as to which languages
are customary in the sphere of international finance,
by reference to major international capital market zones.
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PR5 - Other provisions
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Wholesale issuers (issuers of non-equity
transferable securities whose denomination per unit amounts
to at least €50,000 or an equivalent amount) will
be able to file an annual information return which may
be incorporated by reference, into subsequent prospectuses. |
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Property companies (including Property Collective
Investment Undertakings) incorporated in the Channel Islands
and the Isle of Man will now have to prepare valuation
reports to RICS standards. |
5.2 Listing Rules
The proposed changes include:
LR2 - Requirements for listing
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The Listing Rules will make it clear that
an admission to listing cannot be conditional. |
LR3 - Listing application
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New proposals will make the listing application
procedures more user friendly, transparent and cost-effective,
e.g. issuers wishing to rely on an exemption will be able
to state why in the application form rather than in a
separate written submission. |
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Board resolutions authorising an issue will
no longer be required; instead such resolutions will be
kept in the company's records for at least six years. |
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The circumstances in which securities may
be "block listed" will be clarified. |
LR4 - Listing Particulars for professional securities
market and certain other securities
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Full provisions regarding the requirements
for the provision of final terms on an offer (which were
inadvertently omitted by the FSA in July 2005) will now
be provided. |
LR5 - Suspension, cancellation and restoration of listing
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Approval for cancellation of a listing is
to be required from ordinary shareholders only. A company
wishing to cancel its listing in respect of securities
other than ordinary equity securities (preference shares,
warrants, options, convertible securities etc.) need only
make an RIS announcement 20 business days in advance of
cancellation. |
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A company which wishes to cancel a secondary
listing of its securities within 2 years of the conversion
of its primary listing must seek prior shareholders' approval.
This is an anti-avoidance measure to prevent a company
moving its primary listing without shareholders approval,
and then cancelling the secondary listing. |
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No shareholder approval will be required
for a cancellation of listing where a takeover has been
effected by a scheme of arrangement under s425 of the
Companies Act 1985. |
LR6 - Additional Requirements for Listing Equity Securities
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Shares of the same class held in non-EEA
states will be considered for the purposes of a listed
company meeting the requirement that 25% of its shares
must be in public hands. |
LR8 - Sponsors
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A sponsor will now be required where a company
applies for listing using a document equivalent to a prospectus
(rather than a prospectus itself) in a takeover or merger
situation.
A sponsor declaration will be required on further issues
where the working capital statement is qualified. |
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A sponsor is to notify the FSA when control
of the sponsor changes or there is a restructuring, resulting
in a re-organisation of personnel involved in the provision
of sponsor services. |
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The FSA will not undertake a fundamental
review of the sponsor regime in 2007 as originally stated,
but will maintain a regular review of the regime, making
changes considered necessary from time to time. |
LR9 - Continuing Obligations
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The current ongoing obligation which requires
demonstration that a company controls its assets will
now be formally codified. |
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The guidance note that all circulars must
be sent to overseas shareholders will be deleted (the
FSA states its sympathy with expensive or onerous registration
and regulatory requirements in some jurisdictions). However,
companies will have to be able to justify not sending
documents to overseas shareholders. |
The Model Code
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The Model Code will refer to "persons
discharging managerial responsibilities", rather
than the current "employee insiders". However,
"employee insiders" will remain subject to the
provisions of the Market Abuse Directive. |
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The default position for clearance for dealing
when either the Chairman/CEO are not available will be
clarified. |
LR10 - Significant Transaction
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New shareholder approval will be required
on class 1 transactions where the consideration is increased
by 10% or more. This is to address the frequently asked
question of what a "material" variation to a
transaction is (and which would therefore require shareholder
approval). |
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On the announcement of an agreed
or contemplated reverse takeover, it will be presumed
that there is insufficient information on the target and
suspension will be necessary, but this presumption can
be rebutted, and the FSA should be consulted early on.
Chapters 10 and 11 - Joint Ventures |
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The operation of the uncapped consideration
provisions in Chapter 10 will be limited, such that only
transactions which would fall as class 2 will be treated
as class 1 transactions if they have an element of uncapped
consideration. A class 3 transaction with uncapped consideration
will be treated as class 2. |
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The FSA will relax its approach on joint
ventures (but it is not proposing rule changes) to be
more receptive to the argument that joint ventures are
ordinary course of business. |
LR11 - Related party transactions
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Loans granted to directors permitted under
section 337 of the Companies Act will be exempt from the
related party rules. |
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Clarification on criteria used to determine
whether a related party transaction was a revenue transaction
in the ordinary course of business will be provided. |
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Simple shareholder approval will be required
for placings to a related party; the current LR11 Annex
1R2(2)(b) will be deleted. |
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Transactions executed strictly on the terms
agreed at the time the counterparty was not a related
party, will not fall in Chapter 11. A new rule will cover
this situation, and will also clarify that a joint venture
exit in accordance with its terms will not be treated
as a related party transaction. |
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The "substantial shareholder"
definition will be amended to exclude situations where
a company exercises control only by virtue of managed
investments. |
LR13 - Contents of Circulars
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Where a Class 1, related party or significant
buy back circular includes pro forma financial information,
that information will be required to conform with the
Prospectus Directive Regulations. |
The consultation period will close on 5 January 2007 and
a Feedback/Policy statement is due to be published in the
second quarter of 2007.
A copy of consultation paper CP06/17 can be found at: http://www.fsa.gov.uk/pubs/cp/cp06_17.pdf
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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