A prospectus is a mandatory disclosure of information required on the issue of new shares debentures and other securities. The law on prospectuses was updated and put on the European Union wide footing in 2005, giving effect to the EU Prospectus Directive. The directive is designed to provide common European Union wide standards for prospectuses. It is also designed to facilitate the EU wide recognition of prospectuses based on the standard EU wide requirements.
The requirements apply to companies and other entities issuing securities (issuers). The Irish regulations apply when it is the home member state of the issuer of the securities concerned. The home member state is generally the state of the registered office.
For issuers of non-equity securities of denomination of €1,000 per unit or of non-equity securities giving a right to require securities or receive cash in consequence of conversion, it is the member state where the issuer has its registered office or the host member state in which they\’re admitted to trading on an exchange or offered to the public, at the choice of the entity concerned.
Securities cover all transferable securities under the MiFID regulations. This embraces all shares, debts, instrument and rights relating to them. See that separate section in relation to the wide definition concerned.
The persons responsible for prospectus information include
- the entity issuing the shares.
- its directors and every person authorised to be named as such.
- persons who accept responsibility in the prospectus.
- persons who approve the contents of the prospectus.
In the case of non-equity securities, a similar range of persons is responsible under prospectus regulation.
The prospectus regulations do not apply to certain categories of securities. They include in particular the following
- units issued by open-ended investment entities
- non-equity securities issued by public entities
- securities unconditionally and irrevocably guaranteed by a State or public authority
- certain securities issued by non-profitmaking bodies
- non-equity securities issued repeatedly by credit institutions subject to certain conditions.
- certain shares designed to confer rights to occupy a property or immovable property.
- securities where the total consideration for the offer is less than €2.5 million (within a period of 12 months).
There are exemptions for the following types of securities
- securities offered exclusively to qualified investors:
- securities addressed to fewer than 100 persons other than qualified investors.
- securities addressed to investors with a minimum considerations of at least €50,000 per investor
- offers whose denomination is €50,000 or more.
- offers where the amount of total consideration for the offer is less than €100,000.
The regulator maintains registers of persons registered as qualified investors. A person or small to medium-sized business may apply to be entered in the register. The persons must be
- registered in the State and
- have carried out transactions of a significant size on security markets of an average frequency of at least 10 per quarter over the four preceding quarters
- value of securities exceeds €0.5 million.
- he has worked at least one year in financial sector in a professional position which requires knowledge of security investment.
One or more of the above criteria must be met.
The obligation to publish prospectus does not apply to the following:
- shares issued in substitution for shares issued without increasing capital
- shares issued in connection with a takeover by means of exchange provided a document is available containing information equivalent to a prospectus
- securities issued in connection with a merger where equivalent information is available.
- Shares allotted free of charge to shareholders or stock dividend.
- share is allotted to former or existing directors or employees or those of related businesses admitted to a trading market subject to certain conditions.
There are similar exemptions for shares admitted in other EU states.
The prospectus must contain the information which according to the type of company concerned and the securities offered, is necessary to enable investors make an informed assessment of the assets, liabilities, financial position, profits and losses and prospects of the company/ issuer concerned or any guarantor and the rights attaching to the securities.
The prospectus must be consistent and presented in easily analysable and comprehensive form. It must contain certain stipulated minimum information. It must include a summary which is set in brief non-technical language, the essential characteristics associated with the issuing company and its guarantor and with the shares or security concerned. The summary must contain certain warnings.
A prospectus may be drawn up in a number of composite documents. In certain cases, it may consist of a base prospectus which may be subject to supplements on later occasions. This may apply where non-equity securities issued under an offering program. It may apply to non-equity securities offered by a credit institution in a continuous or repeated manner provided the funds are used in certain ways which are otherwise covered or protected. Where a base prospectus is used, the information must be supplemented if necessary, with updated information.
Where the final price cannot be included, the criteria and conditions for determining the price must be disclosed or it must be a term that acceptances may be withdrawn or revoked within two working days after the price has been published.
The regulator may authorise the omission of information from a prospectus which is otherwise required, if it considers disclosure is contrary to the public interest or would be seriously detrimental to the issuing company provided the omission is not misleading with relation to essential facts and circumstances required for an informed assessment or the information is of minor importance only for a specific offer and is not such as would influence the assessment of the financial position of the issuer or guarantor.
Without limiting the obligation give adequate information to investors, where exceptionally information is inappropriate to the issuer\’s sphere of activity or the relevant type of shares or securities the prospectus may omit that information, but in this case, must provide equivalent information.
Information in the prospectus may cross refer to previously published document approved by and filed by the regulator. This is not permitted in relation to the summary.
Provided it is updated by supplements where required, the general period of validity of the prospectus is 12 months.
The regulations attach responsibility for the content of the prospectus on certain responsible persons. They must be identified in the prospectus. The prospectus must contain declarations by them, that to the best of their knowledge the information accords with the facts and that no omission is likely to affect it or is important, save information permitted to feel omitted.
A draft of the prospectus must be submitted to the regulator together with such other information and documents as the rules require. The regulator must make a decision within 10 days which may be extended under certain circumstances. The regulator may require supplementary information.
The regulator may only approve a prospectus that complies with the requirements laid down in the regulations and otherwise by law. On approval, the applicant must file the prospectus with the regulator and the Companies Registration Office. The refusal to file a prospectus may be subject of a court review.
Upon approval the prospectus must be made available to the public as soon as practicable and in any event a reasonable time before the offer of the securities to the public or for admission to a stock exchange. In the case of new shares not already trading on the stock exchange, this must be at least six working days before the offer.
A prospectus may be deemed available to the public in a number of ways:
- Inserted in a newspaper or circulated or widely circulated in the state of offering.
- Available free of charge at the public offices of the stock exchange or the office of the company and intermediaries.
- Electronic form on the website and the intermediary\’s website.
- Electronic form on the stock exchange\’s website.
- Electronic form on the regulator\’s website if it so operates.
The issuer of equity securities must generally also publish a prospectus in electronic form. They must also publish a notice stating how the prospectus has been made available and where it can be obtained by the public.
Where the prospectus is made available in electronic form, a paper copy must be delivered to each investor who purchases or subscribes for the securities upon request free of charge by the issuer or the intermediaries. The regulator is to publish prospectuses on its website or via a link for 12 months after approval.
A supplement to a public prospectus must be published and must include every new factor mistake or inaccuracy relating to information, previously included which is capable of affecting the assessment of the securities of which is noted after the prospectus is approved and before the final closing of the offer. There are special procedures for the approval of a supplementary prospectus. A person who has subscribed for shares before the supplement is issued, may withdraw his application or acceptance.
A prospectus approved by the competent authorities of another EU state is valid for an offer or admission of shares to an exchange in the State provided that certain procedures and approvals are followed and obtained. The prospectus together with the translation if not in English or Irish and a certification of approval must be produced to the regulator. The certificate must certify the approval has been drawn up in accordance with the EU directive and record information lawfully omitted.
Where the prospectus has drawn up in accordance with the law of a non-EU state, it may be approved by the regulator, provided the prospectus has been drawn up in accordance with International Securities Commission Organisation disclosure standards and the information requirements including financial disclosures are equivalent to those under the Prospectus Directive.
Where the offer is for securities trading in the State the prospectus may be drawn up in English. Where the offer is for admission in other states the prospectus must be drawn up in accordance with the language of the relevant states concerned or in a language customary in the sphere of international finance. The authority of each other EU state may require the summary be translated into its official home language.
Insurer of securities admitted to trading must draw up at least annually, a statement containing information available to the public over the preceding 12 months in one or states and in third countries dealing with the regulation of shares and security markets. The document must be filed with the regulator. Provision does not apply to securities admitted to trading which are not equity securities and or of denomination at least €50,000. Where the State is not the home state the issuers most file an annual information document in accordance with the directive with the regulator in their own state.
Advertisements relating to a public offer or admission to trading of securities, must comply with certain requirements in relation to advertisements and publicity. An advertisement complying with the requisite requirements is not itself a prospectus. The regulator may monitor compliance and give directions as are necessary to secure compliance with the provisions. A person may be required to withdraw or modify an advertisement or require additional information or correction.
The advertisements must state that the prospectus has or will be published and indicate where investors are or will be able to obtain it. Advertisements must be clearly recognisable as such. The information contained in them must not be inaccurate or misleading. It must be consistent with information contained in the prospectus. All information concerning the offer to the public or admission to trading on an exchange whether written or verbal must be consistent with the prospectus. Material information provided to some investors only, to whom the offer is addressed, including that disclosed in meetings must be disclosed to all investors.
The regulator is the competent authority for approval of prospectuses. It may delegate the authority to approved stock exchange. It has done this in the past but has taken back the function.
The regulator has a wide range of powers to enable it to perform its role under the regulations. It may require the incorporation of additional information. It may require the issuer and its auditors and managers to provide additional information.
The authority may suspend a public offering if it has grounds for believing the requirements have not been complied with for a maximum of 10 days. It may prohibit or suspend advertisements for the same period. It may prohibit the offer entirely if the requirements have not been complied or there are reasonable grounds for suspecting that they will not be complied with. It may suspend or require the regulated market to suspend trading for up to 10 days, or ultimately prohibit trading for breach of the legislation.
Once securities have been admitted to trading it may require the issuer to disclose all material information which may impact on the assessment of the securities to ensure investor protections. It may suspend or require the exchange to suspend the securities from trading, if it would be detrimental to the investors’ interests. It may take steps to ensure that the securities comply with listing and equivalent transparency requirements.
The exchange has powers to appoint officers to exercise functions and police the regulations. Officers may have at all reasonable times, enter premises where records. It may search and take records. It may require individuals to cooperate in production and delivery of the records. This includes operators of computer systems. A warrant is required to entry to a dwelling house.
The regulator may give directions as are necessary
- to perform its functions under the directives
- prevent contraventions or protect the interests of investors; this may include directions not to dispose of assets, other than subject to conditions
- directions to banks not to make payments on accounts.
- not to accept or process subscriptions or orders on behalf of particular persons
- not to carry out business other than as specified
- not to engage in a practice that contravenes the regulations
- not to enter specified transactions other than under conditions
- not to publish specified information.
- to publish or disseminate specified information.
Where an order or direction is made, the person affected may apply to court to have it set aside or varied.
There is provision for administrative sanctions or failures to comply with the regulations. Where the regulator has reason to suspect that there has been a contravention of the regulations, it may appoint an assessor to consider the contravention and the prospective sanction. The assessor may be independent of the bank.
The assessor investigates the matter and considers submissions made by the persons affected. It conducts its investigations as it sees fit. Where the assessor decides that a contravention of relevant legislation has taken place, it must specify the grounds, summary of evidence and statements of sanctions it believes appropriate.
An assessor has power to require attendance of witnesses and require them to give evidence under oath. Failure to do so is an offence and may be treated similarly to contempt with court. The assessor may apply to court for an order requiring the persons to comply with the requirements.
The person concerned is to be given a copy of an adverse assessment and advised in relation to appeal either in relation to the assessment or sanction. There is a right of appeal against the assessment of an assessor within 28 days.
The sanctions that may be imposed include
- public caution or reprimand.
- private caution or reprimand.
- penalty up to €2,500,000.
- disqualifying the person from being involved in the management or holding in any financial service provider.
- ordering cessation of contravention
- paying costs.
The sanctions take effect if no appeal is made against them to court. Where no appeal is made, the regulator may apply for a court order confirming the assessment. The regulator may disclose the sanctions, unless it would consider that the disclosure would jeopardise markets or cause disproportionate damage to the persons concerned.
Persons must not be penalised twice for the same matter. An administrative sanction may not be imposed where the person is found guilty or not guilty of an offence under the regulations. The regulator may resolve suspected contraventions by way of an agreement.
Apart from the administrative sanctions there are provisions for criminal offences in respect for breach of the regulations. Directors, officers and other persons concerned in the management of a company may be made liable if the offence is committed with their consent knowledge or approval.