Prospectus Directive Changes

PR 1.2 of the Handbook reminds us of the need to issue a prospectus before transferable securities are offered to the public, subject to the certain exemptions listed.

The requirement derives from FSMA s85 which in turn was driven by the Prospectus Directive (PD). FSMA s86 and Schedule 11A lists various exemptions including where the offer is made to fewer than 100 persons; open-ended collective investment schemes; and where the total consideration of the offer is less than €2.5m.

Following changes to the PD, which do not have to be implemented until 1 July 2012, HM Treasury has decided to consult on two elements of the revision with a view to introducing them as soon as possible. It is proposing increasing the ‘persons’ threshold to 150 and the ‘consideration’ threshold to €5m. HMT believes that this will benefit companies, both quoted and unquoted, in reducing the costs associated with raising funds – it is estimated that the cost of producing a prospectus can range from 7% to 12% of the funds raised for consideration levels below £10m. Since the PD was implemented in 2005 the LSE believes that 98% of further fund raising by AIM companies has been by way of private placements rather than by way of public offers, which, of course, dilutes the interest of existing shareholders.

The consultation period ends 9 June.