Key points
- EU Prospectus Regulation amended to facilitate recovery from the COVID-19 pandemic.
- New EU Recovery Prospectus for equity securities.
- Withdrawal rights on publication of a prospectus supplement extended from two to three working days.
- Financial intermediaries' obligations in relation to prospectus supplements clarified and slightly relaxed.
- Amendments are time-limited and do not extend to the UK.
Amending regulation
On 26 February 2021, a regulation* amending the EU Prospectus Regulation was published in the Official Journal and will come into force in all EU member states on 18 March 2021. Its stated purpose is to facilitate the recapitalisation of companies affected by the COVID-19 pandemic.
EU Recovery Prospectus for equity securities
The principal change made by the amending regulation is to provide for a new short-form prospectus (a so-called "EU Recovery Prospectus") which will be available to any issuer whose shares have been admitted to trading on a regulated market or an SME growth market continuously for at least the last 18 months and which prospectus is for the purpose of issuing shares which will be fungible with previously issued and outstanding shares.
Extension of withdrawal rights for prospectus supplements
The amending regulation also contains an important change to the rights of investors who have already agreed to purchase securities before a prospectus supplement is published to withdraw their acceptances after publication of a supplement. Investors wishing to exercise these rights currently have two working days from the publication of the supplement (or such longer period as the issuer may permit) to do so. The amending regulation will extend this period of two working days to exercise withdrawal rights to three working days.
Clarification of financial intermediaries' obligations in relation to prospectus supplements
The EU Prospectus Regulation regime introduced a new requirement for financial intermediaries to inform investors of the possibility of a prospectus supplement being published, where and when a supplement would be published and that the financial intermediary would assist the investors to exercise their right to withdraw from their purchase or subscription acceptances as a result of such publication. More controversially, it also introduced a requirement on the part of the financial intermediary to contact investors on the same day as the day of publication of the supplement. These requirements introduced considerable uncertainty as to the scope of a financial intermediary's obligations in terms of which investors it is obliged to inform and practical difficulties in relation to how to ensure compliance with the same day supplement notification requirement.
Which investors must be informed of the possibility of a prospectus supplement?
The amending regulation clarifies that the requirement for financial intermediaries to inform investors of the possibility of a prospectus supplement being published extends only to investors who agree to purchase securities through the financial intermediary between the time when the prospectus for those securities is approved and the closing of the initial offer period.
Which investors must be informed of the publication of a prospectus supplement and by when?
The amending regulation extends the time available for a financial intermediary to contact investors when a supplement is published from the same day of publication of the supplement to the working day following the day of publication.
The amending regulation clarifies that this obligation extends only to investors who purchase securities through the financial intermediary and who have a right of withdrawal as a result of the supplement being published.
Amendments time-limited
The amendments made by the amending regulation to the EU Prospectus Regulation are designed to facilitate recovery from the COVID-19 pandemic and as such are limited in their effect until 31 December 2022. However, the EU Prospectus Regulation regime is scheduled for a routine five-year review by 31 July 2022 so it remains to be seen whether these amendments will be more permanently adopted in one form or another as a result of this review.
Brexit
These amendments apply only to the EU Prospectus Regulation and have no parallel in the UK Prospectus Regulation regime nor is there currently any indication of the UK making any similar changes.
Further information
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Authors: Mike Logie and Tim Morris.
* Regulation (EU) 2021/337 of the European Parliament and of the Council.
