Prospectus Regulation (no. 2017/1129) takes effect – changes and transition period for capital markets

Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC applies from 21 July 2019 (“Regulation 2017/1129”).

It is worth noting that works on adjustment of the provisions of the Polish Act of 29 July 2005 on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organized Trading, and Public Companies (the “Public Offering Act”) have not been completed. In case of any discrepancies between Regulation 2017/1129 and the Public Offering Act, the former shall prevail.

The Polish Financial Supervision Authority (“UKNF”) has published an interpretation of regulations in the transition period, i.e. until amendments to the Public Offering Act are implemented.

Below is a summary of key changes.

1) Changes to the “public offer” definition

Pursuant to Regulation 2017/1129, the “offer of securities to the public” is a “communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities.” This means that each offer will be public in nature, irrespective of the number of recipients at which it is addressed. UKNF notes that an offer intended for a single investor will not be regarded as a public one. The current version of the Public Offering Act will apply nonetheless to securities which are not covered by the scope of Regulation 2017/1129 (e.g. offers of some public benefit organizations).

2) Prospect as a general rule (with some exceptions)

Pursuant to Regulation 2017/1129, securities shall only be offered to the public in the European Union after prior publication of a prospectus. However, there is a range of exceptions to that rule. The aforesaid obligation will not apply to: (i) an offer of securities addressed solely to qualified investors; (ii) an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors; (iii) an offer of securities whose denomination per unit amounts to at least EUR 100,000; (iv) an offer of securities addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer; or (v) securities offered, allotted or to be allotted in connection with a merger or division, provided that a document is made available to the public, containing information describing the transaction and its impact on the issuer.

The current thresholds will continue to apply.

An offer of securities with the issuer’s or seller’s expected gross consideration, together with proceeds from the past 12 months, is at least EUR 100,000 but below EUR 1,000,000, will continue to entail an obligation to publish a prospectus.

That obligation does not apply if the total gross consideration over a 12-month period in the European Union is below EUR 100,000.

An offer of securities with the issuer’s or seller’s expected gross consideration, together with proceeds from the past 12 months, is at least EUR 1,000,000 but below EUR 2,500,000, can still be based on the memorandum discussed in article 41 of the Public Offering Act.

3) Bonds

Offering of bonds will be governed by Regulation 2017/1129, which – to the extent requiring publication of a prospectus – supersedes the Public Offering Act’s provisions referred to in article 33 item 1 of the Bonds Act of January 15, 2015 (Dz. U. / Journal of Laws of 2018, item 483). In case of some “offers of securities to the public” (as defined in Regulation 2017/1129), a prospectus might not be required. However, in the transition period, the Public Offering Act’s provisions imposing the obligation to make an information memorandum might apply (e.g. in case of an offer of up to EUR 2,500,000, addressed to over 150 non-qualified investors).

For certain public offers (e.g. one listed in article 1 section 4 item b of Regulation 2017/1129, i.e. an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors), the obligation to prepare a prospectus and have it approved does not apply. The Public Offering Act’s provisions requiring the publication of a memorandum will not apply, either. In such case, bonds can be offered on the basis of a purchase proposal.

4) (Non-)mandatory intermediation

Despite a wider definition of an “offer of securities to the public,” until the definition used in domestic regulations is adjusted to Regulation 2017/1129, the mandatory intermediation of an investment firm will not be required in case a given offer is considered as public (as defined in Regulation 2017/1129) but does not match the definition of the “offer of securities to the public,” as included in the previous regulations.

5) Certificates offered by non-public closed-end investment funds

According to UKNF, an investment fund, as discussed in article 15 section 1a of the Investment Funds and Management of Alternative Investment Funds Act of 27 May 2004 (Dz. U. / Journal of Laws of 2018, item 1355, as amended), should (as a closed-end fund) apply the provisions of Regulation 2017/1129 if it addresses the offer to more than one recipient. Non-public funds, which are not intended for a single investor (acquirer of investment certificates), are subject to general rules for public offering, as specified in Regulation 2017/1129. UKNF notes that offers aimed at fewer than 150 recipients in a given Member State do not entail an obligation to prepare any information document.

6) New prospectus types

Regulation 2017/1129 also discusses new prospectus types: a universal registration document for frequent issuers whose securities are admitted to trading on a regulated market or MTF, and a simplified prospectus for secondary offers. There is also a EU prospectus intended for the growth of small and medium enterprises. The idea is for the new documents to simplify and speed up the process of capital-raising. The structure of the prospectus is also about to change, becoming shorter and more comprehensible to investors.

7) Regulations concerning pending procedures and offers

In case of prospectuses that have been approved before 21 July 2019, the public offer and its promotion should be based on the previous regulations (even after 21 July 2019). The same applies to offers based on a memorandum that was approved or published before 21 July 2019. If the procedure has not been completed until 21 July 2019, and Regulation 2017/1129 specifies that in case of a public offer or admission to trading, no information document (that is subject to approval of a supervisory authority) is required, the administrative procedure should be discontinued. In all other cases, the document will need to be adjusted to new regulations, while promotion-related activities will be governed by Regulation 2017/1129.

Although the aim of the new regulations is to make it easier to raise capital, streamline administrative procedures and enhance investor protection, it might be difficult at the beginning to get used to the new legal situation, especially given the fact that Polish laws are not adjusted to the EU ones, and the supervisory authority needs to develop practices for application and interpretation of new regulations. It is necessary to follow amendments to the Public Offering Act and the supervisory authority’s practice, incl. UKNF’s position. All of them will have an impact on the extent to which objectives will be fulfilled.

In case of any questions about the issues presented herein, please feel free to get in touch with us.

Contact

Piotr Wojnar
Attorney-at-law | Managing Partner
piotr.wojnar@actlegal-bsww.com
+48 22 420 59 59

Piotr Smołuch
Attorney-at-law | Managing Partner
piotr.smoluch@actlegal-bsww.com
+48 22 420 59 59

Małgorzata Stefaniak
Legal counsel | Senior Associate
malgorzata.stefaniak@actlegal-bsww.com
+48 22 420 59 59