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Public Companies Update September 2005
3 PROSPECTUS DIRECTIVE UPDATE
The Committee of European Securities Regulations ("CESR")
published a consultation paper on 6 July 2005 setting out
a possible amendment to the EU Prospectus Regulation, which
came into force on 1 July 2005. This consultation related
to historical financial information to be included in Prospectuses
(and, depending on the view of the London Stock Exchange,
possibly AIM Admission Documents) and in particular, whether
rules should be introduced setting out the financial information
to be included where an issuer has a complex financial history.
The Prospectus Directive requires the publication of a prospectus
drawn up in accordance with the PD where securities are offered
to the public or admitted to trading on a "regulated
market" (this includes the Main Market but not the AIM
Market), unless an exemption from that obligation applies
in a specific case.
Article 5(1) of the Prospectus Directive currently imposes
a general requirement that a prospectus must contain "all
information which, according to the particular nature of the
issuer and of the securities offered to the public or admitted
to trading on a regulated market, is necessary to enable investors
to make an informed assessment of the assets and liabilities,
financial position, profit and losses, and prospects of the
issuer and of any guarantor, and of the rights attaching to
such securities".
The European Commission has given CESR a mandate to advise
on how best to tackle potential differences in the implementation
of the Prospectus Regulation and in particular, a potential
deficiency in the provisions of the Regulation that has been
identified relating to historic financial information where
issuers have a "complex financial history".
Normally, the historic financial information of the issuer
reflects the business of the issuer as a whole throughout
the required period, including significant acquisitions or
disposals. However, there are certain circumstances that may
arise, mainly in relation to public offers or admission to
trading of shares, in which the issuer has not prepared its
historic financial information as a single business during
the whole of the period for which the historical financial
information is required under the Regulation (these types
of issuers are, therefore, considered to have a "complex
financial history").
Particular examples that CESR gives of issuers with a "complex
financial history" are cases where:
| • |
The issuer is a newly incorporated holding
company inserted over an established business; |
| • |
The issuer seeking admission to trading
or making an offer consists of companies that were under
the control or ownership but which never formed a legal
group; |
| • |
The issuer has made a significant acquisition
(representing more than 25% of the group) during the three
year historical record or subsequent to the last audited
consolidated financial information on the issuer, including
specific reference to cases where the acquired target
has different accounting policies; |
| • |
The issuer has disposed of a significant
part of its business since the last audited accounts; |
| • |
The issuer has changed its accounting reference
date during the three year period. |
CESR's initial consultation of the Member State representatives
on its committee indicated that the current practices of some
Member States require that historical financial information
should be provided not only for the legal entity which issues
or proposes to issue securities (which would be the issuer
for the purpose of the Regulation) but also for those companies
or businesses that the issuer has acquired during the period
for which historical financial information is required on
the issuer itself.
Practice varied between the requirements of the regulatory
bodies in each of those Member States although some similarities
were identified. For example, where a newly incorporated holding
company has been inserted over established subsidiaries, the
current practice in most of the Member States is to require
three years of historical financial information or key figures
extracted from the statutory accounts in respect of the enlarged
group. This variously takes the form of a three year pro-forma
or combined accounts of the enlarged group, or a one year
pro-forma on the enlarged group together with three years
financial information on material subsidiaries. Similarly,
where there is a carve out, the practice is normally to require
three years of historical financial information or key figures
in respect of the entity that has been carved out. However,
three years of financial information is not always available,
and in such cases competent authorities may adopt a flexible
approach.
The European Commission noted, accordingly, that there was
some uncertainty about the extent to which the provisions
of the Prospectus Regulation relating to historical financial
information will enable competent authorities to continue
with their current practice. Accordingly, the European Commission
has proposed the amendment of the relevant provisions of the
Prospectus Regulation so as to eliminate uncertainty as to
the scope of those provisions and to ensure that the requirements
in relation to historical financial information extend to
the entire range of information which may be necessary to
enable investors to make an informed assessment of the issuer
and the securities, in each case where financial information
relating to legal entities other than the issuer may be relevant
to the financial condition and prospects of the issuer.
In its response to the Consultation, the London Stock Exchange
has indicated that its view is that the competent authority
should have discretion on a case by case basis as to the financial
information to be included and that they do not endorse a
rule-based response as it would increase costs to issuers
and reduce discretion of regulators.
CESR has indicated that it will provide technical advice on
this point by 31 October 2005.
For further information please go to www.cesr-eu.org.
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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