Soon after announcing a proposal for a blanket exemption the EU has revised its proposals.
As set out in our last newsletter, on 24 September 2009, the EU Commission published its proposed amendments to the Prospectus Directive as part of a review and simplification process on which it has already consulted (see link to article in Resources below).
In brief, the original proposals were to extend the “employee share schemes” exemption contained in the current Prospectus Directive to cover employee share schemes of companies not admitted to trading on an European Economic Area (EEA) “regulated market”. This would include all offers of securities to current and former employees and directors irrespective of whether the issuer was publicly listed, private, within the EEA or outside of it.
On 21 October 2009, the EU Council issued a revised version of the Commission’s original amending directive. The Council’s proposed amendment is to limit the proposed extension of the existing exemption to companies with securities on a regulated market or listed on a market in a “third country” (presumably one outside the EEA) which has equivalent standards to those applied in the EU (by reference to the standards set out under the Markets in Financial Instruments Directive (MiFID), the Market Abuse Directive (MAD) and the Transparency Directive).
This further amendment will therefore affect private companies, companies not listed on a regulated market (AIM, for example, is not a regulated market) or companies listed on a market in a “third country” which does not have the necessary equivalent standards. These companies will be prevented from relying on the amended employee share schemes exemption. Where such companies are not able to take advantage of the more general exemptions under the Prospectus Directive, it will be necessary to produce a prospectus, which is both costly and time consuming.
The narrowing of the proposed amendment to the exemption is disappointing and the reasons behind the Council’s proposal are not clear.
In the UK, the Companies Act 2006 has introduced an element of deregulation for private companies and it is therefore strange to see costly and potentially unnecessary burdens being proposed, particularly when the stance of the European Commission appears to be in tune with the UK approach to deregulation.
It is not yet known whether the revised version of the amending directive proposed by the Council will be adopted in its current form or whether this will be subject to further change. Any proposed amendments would need to be adopted by both the European Commission and the European Parliaments. As reported previously, this process may yet take months or even years.
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