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COVID-19 EU Recovery Prospectus – a new simplified disclosure regime prospectus

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United Kingdom

On 24 July 2020 the European Commission adopted a Capital Markets Recovery Package as part of the Commission's coronavirus recovery strategy. 

As part of this package the EU Commission has proposed amending regulations (the "EU Recovery Prospectus Regulations") to the Prospectus Regulation 2017/1129 (the "Prospectus Regulation") to introduce an EU Recovery Prospectus to help recovery from the COVID-19 pandemic.   The EU Recovery Prospectus aims to be (i) easy to produce for companies that want to raise equity on capital markets, (ii) easy to understand for investors who want to finance them; and (iii) easy for national competent authorities to scrutinise and approve.  It is intended to be a temporary regime that expires 18 months after the EU Recovery Prospectus Regulation comes into force 20 days after its publication.

The EU Recovery Prospectus will be available for secondary issuances of shares by issuers who have had shares admitted to trading continuously on a regulated market or SME growth market for at least 18 months (provided that in the case of an SME growth market a prospectus has been published for shares already traded).  It is intended to  provide listed issuers with simplified disclosure rules tailored to the issuer's specific needs in a post-crisis environment whist enabling potential investors to be informed in line with the principle of proportionality.   It is aimed at being more reader friendly, shorter and focussed on essential information.  It also aims to make scrutiny by national competent authorities more efficient.  It is intended that as there will be less information to disclose and scrutinise the workload for the national competent authority would be streamlined and the prospectus approval process shall be reduced to 5 working days (for the initial and any subsequent review).   The EU Recovery Prospectus will be required to contain the relevant reduced information necessary to enable investors to understand the issuer's prospects and significant changes in the financial position of the issuer since the end of the last financial year, essential information on shares, the reasons for the issue, the impact on the capital structure and the use of proceeds.

The draft EU Recovery Prospectus Regulations provide that an EU Recovery Prospectus shall be a single document with a maximum length of 30 pages of A4 containing the minimum information required under the EU Recovery Prospectus Regulations annex (Annex Va to the Prospectus Regulation).  Incorporation by reference of information already available in the market will be permitted and will not be included in the maximum length requirement.  The minimum information requirements include a responsibility statement, the most material risk factors, annual audited and half yearly financial statements for the period of 12 months prior to the approval of the EU Recovery Prospectus and where applicable pro forma financial information, a description of any significant change in the financial position, trend information (production, sales, inventory, costs and selling prices since the end of the last financial year and any known trends, uncertainties, demands, commitments or events likely to have a material effect on the issuer's prospects), final offer price and the amount of shares including any firm commitment from shareholders above 5% and names of underwriters, information on when and where to subscriber for shares, the reasons for the offer and the use of proceeds, a working capital statement, information on any conflicts of interest and details of shareholdings and voting rights after the issue.    It shall contain a concise summary of a maximum length of 2 sides of A4 which shall not cross reference other parts of the prospectus or incorporate information by reference.  The summary shall comprise an introduction, key information on the issuer, key information on the securities and the offer of securities and/or admission to trading.

The European Parliament and Council will now consider the text of the draft EU Recovery Prospectus Regulations for adoption under the ordinary legislative procedure.  If brought into force before 31 December 2020 the changes will be directly applicable in the UK.   Whilst the majority of EU acts adopted under the  ordinary legislative procedure are adopted after the first reading the process can take many months.  It remains to be seen how quickly these draft regulations will be implemented and whether it will be fast tracked to ensure that the desired impact as a response to Covid-19 is as immediate as possible in the market.

Commission Delegated Regulation 2019/980 sets out the content requirements for prospectuses issued under the simplified disclosure regime for secondary issuances under the Prospectus Regulation.  It is not yet clear if the EU Recovery Prospectus content requirements for the areas outlined above will mirror those for the simplified disclosure regime for secondary issuances or if it is intended that there will be further content derogations for an EU Recovery Prospectus.  As with the simplified disclosure regime ensuring a streamlined process with minimum content requirements is likely to remain problematic in some instances, for example, for issuers who are looking at a secondary issuance in the context of an acquisition where issuer and target financial information is required and which may need to be aligned or where otherwise there are likely to be circumstances giving rise to a complex financial history or a significant financial commitment which will require additional information to be contained within the prospectus to enable investors to make an informed assessment and for the FCA to approve the prospectus.  However, the draft EU Recovery Prospectus Regulations suggest that an EU Recovery Prospectus would require less content than a prospectus under the simplified disclosure regime for secondary issuances and will take less time for approval by the FCA, thereby offering a quicker and more cost effective route for issuers to achieve a secondary issuance during the 18  month period following the EU Recovery Prospectus Regulations coming into force.

Other changes to be introduced by the draft EU Recovery Prospectus Regulations relate to supplementary prospectuses and repeat non equity issuances by credit institutions.  The Prospectus Regulation requires financial intermediaries to contact investors on the same day that a supplementary prospectus is published. The scope of investors to contact as well as the deadline to contact them can raise difficulties. The EU Recovery Prospectus Regulations introduce a more proportionate regime extending the deadline to contact investors to one working day. The deadline for investors to exercise their withdrawal rights in the event of a supplementary prospectus is also to be extended from two to three days.  The EU Recovery Prospectus Regulations also temporarily increases (for a period of 18 months) the exemption threshold for non equity securities issued by a credit institution in a continuous or repeated manner from Euros 75million to Euros 150million.

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