On 28 September 2004, the UK's Financial Markets Law Committee (the "FMLC") published a paper discussing the question of what constitutes an "offer of securities to the public" in the context of the EU Prospectus Directive (2003/71/EC) (the "Directive"), which came into force on 31 December 2003.
This issue is of particular importance for non-EU issuers of equity and low-denomination debt securities, whose "home Member State" for purposes of the Directive will be the Member State in which their securities are listed or "offered to the public" for the first time after 31 December 2003. As the FMLC paper points out, the Directive fails to make it clear whether the existing laws of the Member States or the provisions of the new Directive apply in determining what constitutes an offer of securities to the public for these purposes, and whether an offer falling within an applicable exemption from the obligation to publish a public offer prospectus under existing laws of a Member State (e.g. the exemptions in relation to takeover offers, offers to professionals, offers to employees of an issuer and so on) may nevertheless constitute an offer of securities to the public for purposes of determining an issuer's home Member State under the Directive.
This uncertainty as to which rules apply has led to concerns that, by virtue of having made an offer to the public within the meaning of the Directive without intending to do so, issuers may inadvertently find themselves locked into a home Member State whose regulatory structure is inappropriate to their needs, or even subject to criminal sanctions or civil law action as a result of having prospectuses approved by the wrong Member State competent authority following implementation of the Directive.
The FMLC's paper suggests that, in order to avoid market uncertainty around these issues, the EU Commission should adopt "implementing measures" under Article 2(4) of the Directive to clarify that the current national law definitions of "offer to the public" will apply until the Directive is implemented into national law in the Member States, which is required to take place by 1 July 2005. This would allow non-EU issuers to determine with reasonable certainty, by reference to the rules and exemptions currently in place, whether they were considered to be making an offer to the public in a given Member State, and thus to avoid triggering an inadvertent election of home Member State under the Directive.
The FMLC paper also suggests that, in tandem with this change, the timing regime under the Directive be altered so that a competent authority would only be automatically selected by an "offer to the public" made after (say) 1 March 2005. This would give any non-EU issuer which may already have inadvertently chosen its home Member State by means of a public offer the chance to make a more considered choice. The FMLC suggests that choices of home Member State for the purposes of the Directive made by means of a listing of securities since 31 December 2003 should be preserved.
If you require further information on this topic please contact Jason Harding at [email protected] or on +44 (0)20 7367 3138 or Stephen Hewett at [email protected] or on +44 (0)20 7367 2970 or Edina Cavalli at [email protected] or on +44 (0)20 7367 3126.