This submission is in response to an invitation by the Company Law Review Group and specifically the sub-committee charged with examining the key legal difficulties surrounding Public Offers and Prospectuses in Ireland. The invitation is to identify issues causing difficulties and to make recommendations. A consultative document dated 1st June 2000, prepared by the sub-committee, has compiled an initial list of issues. This submission sets out below certain views in relation to what we believe are the more significant issues. Because the problems arise, in the main, due to a mis-match between domestic legislation and the implementation of certain EU directives, the list of inconsistencies and theoretical problems could be very extensive and are, to a certain extent, determined by different interpretations of the applicable rules.
For this reason solutions targeted at correcting individual inconsistencies would seem to be less practical than legislation which would codify the legal requirements in the different circumstances arising in this area of practice.
The primary sources of law and regulation are:-
The Companies Acts 1963 to
The European Communities (Stock Exchange) Regulations 1984 (“1984 Regulations”) implementing the Listing Particulars Directive (“LPD”) as amended;
A European Communities (Transferable Securities and Stock Exchange) Regulations 1992 (“1992 Regulations”) implementing the Prospectus Directive (“POD”).
Referring in the first instance to the issues identified in the consultative document:-
1. (a) notwithstanding the lack of clarity and consistency in the regulatory environment, Article 7 of the POD would appear to relieve the obligation to comply with the POD where an application for admission to official listing on a Stock Exchange situated or operating within the same member state. Instead the LPD would apply.
(b) The obligation under the Companies Act to prepare a Prospectus attaches where an application form is issued – Section 44 (3). However, Regulation 12 of the 1984 Regulations disapplies the Companies Act's content requirements by providing that a form of application for shares in an Irish company need not have attached to it a Prospectus which conforms to the Companies Act's requirements, if the form of application is issued with a document setting out listing particulars which have been approved by the Irish Stock Exchange or which indicates where such listing particulars can be obtained and inspected. In order to ensure that the provisions of the 1984 Regulations disapplying the content requirements of the Companies Act can be relied upon, it is necessary to issue a form of application in connection with the offering, even though it may not be necessary as a practical requirement for the issuer to use application forms.
(c) Bearing in mind the terms of Article 7 of the POD, arguably the filing requirements of the LPD would apply.
2. This point appears to be well made. As is generally acknowledged under the 1984 regulations, where a company is preparing listing particulars there is an effective disapplication of the Companies Act requirements. However, following the 1992 regulations implementing the POD, the Companies Act is still relevant in the case of public offers of securities even though such an offer is primarily governed by the 1992 regulations. For example, the 1992 regulations contemplate residual obligations. Also the 1992 regulations provide for an exemption from the rigors of the regulations in a number of named circumstances, such as where the transferable securities are offered to persons in the context of their trade or profession or where the selling price of all the transferable securities offered does not exceed ECU 40,000 or where the transferable securities offered can be acquired only for a consideration of at least ECU40,000. It seems to be the case that where the POD rules would not apply by reason of these exemptions the Companies Acts might still apply.
There is also a question as to the extent to which the Companies Act requirements are disapplied or amended in the case of an offering to which the POD applies which is not a public offering in Ireland. The usual approach has been to regard the Companies Act requirements as prima facie applicable to an offering of securities by an Irish company, unless there is an initial public offering in Ireland of securities to which the POD applies or where an Irish listing is applied for. In practice, this means that the Companies Act is deemed to apply to initial public offerings by Irish companies of securities in another Member State which have no other Irish element and where the local law implementing the POD is complied with. This has caused some trouble in the past. For example, if an Irish incorporated company proposes to make a public offer in Germany, the usual approach is to require that the Prospectus include the Third Schedule requirements, even though the Prospectus complies with the POD, as implemented in Germany.
3. We would concur with the views here and suggest that a unified list of requirements should apply irrespective of whether the Prospectus is pursuant to a public offer or an application for listing.
4. Again, a unified requirement should apply particularly in relation signatures by Directors. However, we would suggest that the requirement to file material contracts in each case should not be dismissed without due consideration. Although filing material contracts is onerous in certain circumstances the display of documents in a particular location for a limited period provides a more limited level of disclosure.
5. The benefit of paragraph 8 (3) of the 1992 Regulations would probably not be available in these circumstances. It begs the question as to whether under the LPD the Stock Exchange would have the authority to reduce the requirement from 5 years to 3 years?
However, where there is an application for official listing or where the issuer has chosen to draw up the Prospectus as listing particulars, it appears that the issuer does not need to comply with the content requirements of the Third Schedule of the Companies Act, 1963 if an application form is used.
6. This point is certainly well made and the obligations under the Investment Intermediaries Acts need to be clarified.
7. Previous to the regulations of 1992 implementing the POD a foreign issuer making a public offering, but not seeking a listing in Ireland could avail of an exemption from the requirements of the Companies Act 1963, if the foreign issuer was a UK company. This was by virtue of statutory instrument number 42 of 1964. Since the Prospectus regulations a UK issuer would not be in a position to avail of this exemption. In the area of mutual recognition complications can occur, not only in Ireland we understand, but also in the UK because of the fact that a procedure which is provided for in the EU legislation does not exist in this jurisdiction. To be specific the mutual recognition provisions apply to Prospectuses where the Prospectus has been approved in circumstances where the competent authority of the member state in which the issuer has its registered office provides in general for the “prior scrutiny” of public offer prospectuses or in circumstances where the relevant member state does not provide for such general “prior scrutiny”, if the public offer is made in another member state and a supervisory authority in that State does provide for such general “prior scrutiny”.
It seems to be accepted that the Companies Office does not provide for “prior scrutiny” of Prospectuses and therefore Irish and probably UK companies in certain circumstances will not be in a position to avail of the mutual recognition provisions. It appears that an Irish issuer who wishes to have its Prospectus eligible for mutual recognition in other EU Member States must ensure that the Prospectus is approved by the Irish Stock Exchange (as the competent authority) under the LPD either in conjunction with an application for listing or by election under Article 12 of the POD.
With regard to rights issues, the Irish legal uncertainties involved in the extension by UK registered companies of rights issues to their Irish resident shareholders has prompted UK companies to exclude their Irish shareholders from those rights issues. This situation has given rise to some concern in Ireland as Irish institutions and individuals are substantial investors in UK securities. The issue is that the extension of a UK rights issue to Irish shareholders may well constitute a public offer in Ireland requiring compliance with the 1992 Regulations. Whereas the most convenient method of compliance for a UK company would be to avail of the mutual recognition procedure provided for by the POD (which allows a Prospectus prepared in one Member State of the EU which is eligible for mutual recognition to be recognised in the other Member States), the procedures to be followed in Ireland on mutual recognition (particularly as regarding filing and publication) are unclear in a number of respects. The approach often taken on these issues (i.e. that a copy of the UK prospectus signed by every director together with copies of the material contracts be filed in the Companies Registration Office in Dublin and that an advertisement be placed in a national newspaper) is likely to deter a UK company which would otherwise wish to include its Irish shareholders in its rights offer. Indeed, there is evidence that a number of UK companies have, for this reason, excluded Irish resident shareholders from rights issues in recent years. Although under the POD the filing requirements may not be waived, the 1992 Regulations could be amended to clarify that the filing of a "plain copy" with the Companies Registration Office would be sufficient for those purposes.
In addition, the requirement under paragraph 4 of the Third Schedule to the 1992 Regulations that the Prospectus include certain local tax and other information has also proved to be a significant impediment to the operation of the mutual recognition procedure into Ireland. Under the POD each Member State is given the discretion to require that this local information be included as a pre-condition to mutual recognition and Ireland has exercised that discretion. The decision to require this information could be reversed in the interest of facilitating the operation of the mutual recognition procedure here.
8. The requirement that allotment cannot take place until the 4th day after the publication of the Prospectus is an anachronism and should be corrected.
9. The reference to “transferable securities” is another term which perpetuates some of the inconsistencies between the Companies Act and EU legislation. The suggestion that a number of safe harbors be identified appears to be a good one. To attempt to precisely define the term “public” could present its own difficulties in the future. The concept of a “restricted circle of persons” could be problematic. We understand that there are a number of different interpretations in the various European jurisdictions. Also by providing a safe harbor by reference to a maximum number of investors might not provide a sufficient protection to investors.
Furthermore, although the 1992 Regulations and the Companies Acts are to be read as one, in order for an issue to fall outside the ambit of the Prospectus Regulations, the issuer must be comfortable that it is able to avail of exemptions under each heading. For example, it is not enough that an issuer is dealing with a "restricted circle of persons" within the meaning of the 1992 Regulations, if it is not also able to bring itself within the Companies Act "domestic concern" exemption or some other exemption under that legislation. If dealing with professionals, an issuer may also have to satisfy the "professionals' exemption" in the 1992 Regulations and that in the Companies Act 1963 (which has only a limited application for Irish companies). It would seem useful to codify these exemptions and exclusions.
10. This problem could be dealt with by amending the Companies Act to be consistent with EU legislation by the use of the term “Transferable Securities”.
12. Attention to this aspect of the matter indeed merits attention.
13. Again, this aspect will presumably in time become extremely relevant and merits time to be devoted to it.
Other examples of issues requiring attention might be:-
1. different rules in relation to the issuing of Prospectuses apply to different issuers according to the place of incorporation of the issuing company and apply even if the offer is made entirely outside the Irish jurisdiction. On the other hand the rules applicable under the Listing Particulars regulations apply only to securities which are listed within jurisdiction irrespective of where the issuer is incorporated.
2. The Listing Particulars disapplied the Companies Act in the case of companies which are admitted to the official list and have prepared listing particulars. This meant that the Companies Act still applied in the case of Companies which might be listed on the alternative companies market or some other secondary market even though that market is also regulated by the Stock Exchange. It begs the question as to whether there should be some provision for companies complying with the standard set by the Stock Exchange on any of the markets regulated by the Stock Exchange. In the context of the definition of what constitutes “the public” there is an exception under the Companies Act if the invitation or offer “can properly be regarded, in all the circumstances, as not being calculated to result, directly or indirectly, in the shares or debenture becoming available other than to those receiving the invitation or offer or otherwise as being a domestic concern of the persons making or receiving it”. Although this exception may receive criticism from time to time it would appear to have some merit as being a qualitative description as opposed to quantitative which presents certain difficulties in the context of protecting investors.
The Sub-committee has put
significant emphasis on recommendations for resolving the
current problems. One suggestion might be to list from 1 upwards the various inconsistencies, issues and problems and to draft a specific clause, paragraph or section of a regulation or piece of legislation to attempt to resolve each separate issue. Even if it were possible to do this it might be difficult to be satisfied that every potential problem had been dealt with. Perhaps a better solution would be to introduce a regulation which pulls together the best aspects of the various pieces of legislation and regulation in a unified statement separately or by reference so that these aspects would be stated to take precedence in the case of conflict with any other legislation. For example, it should be possible to state that for the purposes of issuing a Prospectus whether pursuant to the Companies Acts the Listing Particulars regulations or the Prospectus regulations it shall be a requirement that a copy of the Prospectus be identified by an officer of the Company being either the secretary or a director, be filed in the Companies Office together with the material contracts specified therein or where a Prospectus has been filed in another EU jurisdiction a clean copy of such Prospectus should be filed together with copies of the material contracts, etc., etc. The precise requirements are perhaps an issue for another forum and the above is just an example of how a unified code might be adopted. Similarly there are a number of exemptions which arise in the various pieces of legislation and regulation such as those which appear in Article 2 of the POD and for example Section 61 (2) and (3) of the Companies Acts. A unified set of exemptions should perhaps be adopted consistent with EU legislation. Sections, paragraphs and articles of legislation and Directives which are inconsistent with the unified standards could be disapplied by regulation.