Relief In The Prospectus Regime

Morrison & Foerster LLP

Morrison & Foerster LLPCorona makes it possible! Soon there will be the opportunity to share based on a much shorter prospectus ( " reconstruction Prospect " or " short-form prospectus offering") and / or to allow the stock market. This privilege is limited to 18 months and is intended to give issuers the opportunity to raise equity quickly and inexpensively and to reduce debt.

The short prospectus is also of interest to other companies if their current options for issuing shares without a prospectus are sufficient due to the associated restrictions or if they have already exhausted this option in the last 12 months.

We explain below which requirements must be met for the simplified issue and admission and which options the short prospectus offers.

What is the background for the introduction of the short prospectus?

The short prospectus is part of the European package of measures to deal with the COVID-19 crisis. The package contains, among other things, the amendment of the prospectus regulation, through which the reconstruction prospectus is to be introduced. This should be (i) easy to create, (ii) easy to read and (iii) easy to check. The Commission expects this to make it easier and save costs for listed companies.

The short prospectus should be limited to a greatly reduced minimum content. The relaxed prospectus regulations are intended to enable companies to more easily issue capital shares and thus shift the ratio between debt and equity in favor of equity.

What are the facilities?

The short prospectus has a greatly reduced minimum content compared to the usual prospectus. It must not exceed 30 pages in total. In addition, the approval process is to be accelerated. This is intended to reduce time and costs.

Who can make use of the facilities?

A prerequisite for taking advantage of the relief is a listing on a regulated market or an SME growth market for at least 18 months. The relief therefore only applies to secondary issues, but not to an IPO.

For companies listed in Germany, this means that all companies that are listed in the General Standard or Prime Standard of the Frankfurt Stock Exchange or in the regulated market of another German stock exchange can take advantage of the facilities. This also applies to companies that are listed in the Scale segment of the Regulated Unofficial Market of the Frankfurt Stock Exchange, as this segment is registered as an SME growth market.

The relief cannot be used by companies that are only listed on the open market of an exchange. This applies to the Open Market of the Frankfurt Stock Exchange, for example, but also to the m: access of the Munich Stock Exchange.

How long can the facilities be used?

The relief is limited in time and can only be used 18 months after the regulations come into force. We expect it to come into force before the end of 2020.

What can the reconstruction brochure be used for?

Corporate actions

The reconstruction prospectus can be used for the public offering and admission of shares. On the one hand, this concerns the implementation of rights issue capital increases with subsequent admission of the subscription shares issued. In addition, private placements or capital increases in kind are also possible, whereby the short prospectus is then only required for the admission of the new shares.

It has not yet been clarified whether the short prospectus can also be used for the mere admission of shares that have already been issued in the past. According to the wording, this seems possible. According to the sense and purpose of the regulation, however, this would be rather questionable, since no new equity is raised in this way. It remains to be seen what position the admission offices of the stock exchanges will take.

Issue and admission of fungible shares

The short prospectus can only be used for shares and not for the issue or admission of bonds or convertible bonds. The reason is that the relief is intended to improve the ratio of equity to debt. This is not intended to encourage further borrowing via the capital markets.

The new shares to be issued must be fungible with the shares already admitted. This means, for example, that no preference shares can be issued with the short prospectus if there are currently only ordinary shares. It will have to be clarified whether the requirement of fungibility also requires that the shares must have the same profit entitlement, which can sometimes be difficult in the case of a capital increase before the ordinary general meeting.

What are practical examples of using the short brochure?

The use of the short prospectus will always be considered if the existing options for a corporate action without a prospectus are insufficient or have already been used. A distinction must be made between the prospectus requirement (i) because of the implementation of a public offer and (ii) because of the admission of shares.

Issue of shares

The short prospectus can be used for rights issue capital increases with issue proceeds of more than EUR 8 million. However, it can also be useful for rights issue capital increases with issue proceeds of less than EUR 8 million in order to be able to use the prospectus-free capital increase immediately after the expiry of the regulations for the short prospectus.

Admission of shares

In the same way, a short prospectus can be used for the admission of new shares to the extent of more than 20% of the authorized share capital, but also for the admission of less than 20%, so that after the expiry of the short prospectus regulation, shares can be admitted immediately without a prospectus.

What is the minimum content of a reconstruction brochure?

The short prospectus must contain a summary of a maximum of two pages (previously a maximum of 15 pages). The summary is divided into four sections:

  • Introduction with warning notices;
  • Basic information about the issuer;
  • Basic information about the securities;
  • Basic information about the public offer of securities and / or admission to trading on a regulated market.

The other minimum details of the reconstruction prospectus are listed in a new Annex Va of the Prospectus Ordinance.

  • Name of the issuer, founding Member State, link to the website of the issuer
  • Trend information
  • Final issue price and share volume, including firm commitment from shareholders of more than 5% and names of subscribers
  • Place and time of subscription of the shares
  • Reasons for the offer and use of the proceeds
  • Business capital statement
  • Conflicts of Interest
  • Share ownership after issue
  • Declaration of the responsible persons
  • Risk factors
  • Financial statements (annual and semi-annual financial statements) for the last 12 months prior to approval (incorporated by reference) and a description of any material change in the Group's financial position that has occurred since the end of the reporting period for which either audited financial statements or interim financial information are published were. If necessary, pro forma information must also be attached.

This eliminates the need for tables on capitalization and debt (so-called cap tables), which have regularly caused problems with the timing of prospectuses due to the 90-day period to be observed. According to the Prospectus Ordinance, the information in the tables may not be more than 90 days old, which can be a challenge for the accounting of many medium-sized companies, if the prospectus timeline means that figures from the current annual, half-yearly or quarterly reports cannot be used.

Facilitation of the approval process

The approval of the prospectus is to be shortened to five working days. However, the option of carrying out the approval process in several rounds remains, so that it should generally take more than five working days from the initial submission to approval.

Is the reconstruction prospectus only valid in Germany?

The European passport mechanism can be used for the reconstruction prospectus, which means that investors from across the EU can finance these companies. The use of the short prospectus is therefore not restricted to Germany.

How is the further procedure?

The planned relief should come into force by the end of the year. Before that, the European Parliament and the EU Finance Ministers Council have to give their approval. As soon as the new requirements have been adopted and come into force, they will apply immediately in the member states. It remains to be seen, however, whether this proposal of the European Commission will be approved without changes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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