Listing New Securities

Format and Contents of a Prospectus and Related Advertisements

Format a Prospectus

Under the Prospectus Rules, issuers are offered a choice of two distinct prospectus formats. Issuers may choose to produce a single prospectus document or a three-part prospectus23 comprising:

  • a registration document (this contains information relating to the issuer);
  • a securities note (this contains details of the securities being offered or admitted to trading); and
  • a summary (this covers the key information relevant to the securities).

Whilst the “single-document” format undoubtedly prevails in most typical IPOs and secondary offerings, the three-part format provides a fast-track procedure for frequent issuers, with the registration document being used as a shelf prospectus for multiple issues. The registration document, which requires FCA approval, will remain valid for up to 12 months from the date of its approval and can be used with a new securities note and a summary during that period whenever securities are offered to the public or admitted to trading. In these circumstances, the securities note would operate to “update” the registration document and would need to include any information that would normally be contained in the registration document if there has been a material change or recent development that could affect investors’ assessments since the latest updated registration document or supplementary prospectus was approved. The securities note and summary will require separate approval by the FCA.

Under the Prospectus Rules (PR 2.2.10), a single-document prospectus must comprise the following sections, in the following order:

  • a clear and detailed table of contents;
  • summary (containing a prescribed “health warning”) which conveys concisely, in nontechnical language and in an appropriate structure, the key information relevant to the securities that are the subject of the prospectus and which, when read with the rest of the prospectus, is an aid to investors considering whether to invest in the securities. The Amending Directive requires summaries to be prepared in a common format in order to facilitate comparability of the summaries of similar securities, and its content should convey the key information of the securities concerned. Every summary should be set out in five mandatory sections in the following order: (i) Introduction and warnings; (ii) Issuer and any guarantor; (iii) Securities; (iv) Risks; and (v) Offer. The Prospectus Regulation (Article 24) imposes a length limit rather than a specific word limit in respect of the summary: the summary should not exceed a maximum length of 7 percent of the length of the prospectus, or 15 pages, whichever is longer;
  • the risk factors linked to the issuer and the type of security covered by the issue; and
  • the specific information on the issuer and securities required by the various schedules to, and “building blocks” set out in, the Prospectus Rules.

The Prospectus Rules (PR 2.3) set out the minimum information to be included in a prospectus and adopt a “building-block” approach. Accordingly, the level of disclosure will be determined by the identity of the issuer and the type of securities involved. The specific disclosure items to be included in a prospectus will be based on a combination of the schedules and building blocks set out in Appendix 3 of the Prospectus Rules.

Notably, the Proposed Prospectus Regulation includes some new requirements for summaries: (i) a length limit of 6 pages;24 (ii) a requirement of three main sections in the summary to cover key information on the issuer, the securities and the offer/admission (in addition to the introductory section containing general and specific warnings, including a specific warning outlining how the investor may lose their investment in a worst case scenario); and (iii) a requirement that no more than 10 of the most material risk factors should be included in the summary.

Content Requirements for a Prospectus

The content requirements for a prospectus are prescribed by the Prospectus Directive and Prospectus Regulation as implemented by the Prospectus Rules and FSMA. Issuers must comply with both a general duty of disclosure and specific disclosure requirements. The content requirements stem from “maximum harmonisation” European legislation and therefore should be uniform throughout the EEA. In addition to the specific requirements imposed by the legislation, under the Prospectus Rules, issuers must be mindful of the ESMA Recommendations, and in determining whether or not the requirements have been complied with, the FCA will take into account an issuer’s compliance with the ESMA Recommendations.

i. General Duty of Disclosure +

Under section 87A of FSMA, a prospectus must contain all such information presented in an easily analysable and comprehensible form that, having regard to the particular nature of the securities and the issuer, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the company and the rights attaching to the securities.

The EU Parliament Proposal clarifies that the content of a prospectus should include all necessary and relevant information which an investor would reasonably require in relation to an investment in securities in order to make an informed assessment of:

  • The assets and liabilities, financial liabilities, profits and losses, and prospects of the company and any guarantor; and
  • The rights attaching to the securities.

The EU Parliament Proposal also notes that the information contained in the Prospectus may vary depending on a number of factors such as the nature of the issuer and the type of securities.

ii. Specific Disclosure Requirements +
In broad terms, the prospectus on an IPO of equity shares must contain information on the following:

Registration document (Annex I):

  • The persons responsible for the prospectus (see paragraph D below) and suitable responsibility statement (item 1)

The language of the required responsibility statement requires those responsible to declare that “having taken all reasonable care to ensure that such is the case, the relevant information is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import”. Note that the rules do not permit the use of “split responsibility statements”; those responsible must take responsibility for the entire document and any translations thereof.

  • Prominent disclosure of risk factors that are specific to the issuer or its industry (item 4)

Disclosure of applicable risk factors is mandatory, and arguably, the typical introductory “health warning” regarding the nonexhaustive nature of the risks identified has been rendered less effective as a result. The UKLA has emphasised that proper consideration should be given to the real risks that face an issuer and that generic or boilerplate disclosure should be avoided. Risk factors should be grouped together in a coherent manner, and those considered to be of the greatest or most immediate significance should be prominent at the beginning of each section or group within the risk-factor section.

Under the Proposed Prospectus Regulation, only risk factors which are material and specific to the issuer are to be included. The European Commission has stated that this is to prevent overloading the document with generic risk factors which obscure the more specific risk factors that investors should be aware of and only serve to protect the issuer or its advisors from liability. To that aim, the issuer will be required to allocate risk factors across two or three categories based on materiality. The EU Parliament Proposal also notes that risk factors should include risks relating to the level of subordination of the security and the impact of this on the investor’s ability to recover their investment in distressed situations.

  • Information about the issuer (item 5)

This will include information on the history of the issuer, a description of its investments made in the period covered by the historical financial information, those in progress, and principal committed future investments.

  • Business overview (item 6)

This will include a description of the issuer’s principal activities and markets, any exceptional factors affecting the same, and the basis for any statements made concerning the issuer’s competitive position.

  • Organisational structure (item 7)

A description of the issuer’s group and details of material subsidiaries will be required.

  • Property, plant and equipment (item 8)

This requires the inclusion of information regarding any material tangible fixed assets (including leased properties) and any major encumbrances thereon, together with a description of any environmental issues that may affect the issuer’s utilisation of the tangible fixed assets.

  • Operating and financial review (item 9)

Equity prospectuses must include an operating and financial review (“OFR”). OFR sections in prospectuses will generally resemble the US-style “MD&A” section25 typically found in offering documents for global offers or offerings with a US component.

The ESMA Recommendations contain substantial guidance on the preparation of the OFR section, and as mentioned above, these should be borne in mind. The stated purpose of the OFR is to assist investors’ assessment of the past performance of the issuer. It should set out a fair, balanced and comprehensive analysis of the development and performance of the issuer’s business and financial condition, together with a description of the principal risks and uncertainties it faces.

The ESMA Recommendations identify four overarching principles to be borne in mind in the context of an issuer’s preparation of the OFR:

- audience: The OFR should focus on matters relevant to investors and should not assume an existing detailed level of knowledge. Issuers should not assume that all investors will be sophisticated.

- time frame: The OFR should discuss the performance of the periods of the historical financial information included in the prospectus and should identify those trends and factors relevant to the investors’ assessment of past performance and the achievement of its long-term objectives.

- reliability: The OFR should be neutral and even-handed in dealing with positive and negative aspects. Cross-references should be provided where information is omitted from the OFR section on the basis of its inclusion elsewhere in the prospectus.

- comparability: Whilst recognising that issuers may take different approaches in presentation, the ESMA Recommendations require the disclosures to be sufficient for the investor to be able to compare the information with similar information about the issuer for the period under review and suggest that comparability will be enhanced if the measures disclosed are accepted and widely used either within the relevant industry sector or generally.

  • Capital resources (item 10)

In addition to the working capital statement that will generally be required under Annex III, an issuer is required to include a discussion of its short- and long-term capital resources, cash flows and funding structure. Where the issuer has entered into commitments to make future investments or acquire fixed assets, the sources of funds required to fulfil these commitments must also be disclosed.

Again, the ESMA Recommendations include detailed guidance on the required discussion of capital resources and liquidity and suggest that this discussion should encompass:

- the issuer’s existing long-term capital and funding structure;

- applicable ratios (e.g., interest cover and debt-to-equity ratios);

- cash inflows and outflows during the latest financial period (and any subsequent interim period), any material changes thereafter and any material unused sources of liquidity. This should also include an analysis of any material legal or economic restrictions (including any applicable exchange controls or tax consequences) on the ability of subsidiaries to repatriate funds, as well as any historical or anticipated impact of such restrictions on the issuer’s ability to meet its cash obligations;

- funding and treasury policies (if already covered in the financial statements of the issuer, cross-referencing rather than repeating the relevant information will suffice);

- existing liquidity and anticipated sources of the funds needed to fulfil its commitments, together with a commentary on the level of borrowings, the seasonality of borrowing requirements, and a maturity profile of borrowings and undrawn committed borrowing facilities; and

- covenants with lenders (if any breaches of covenant have occurred, or are expected to occur, this should be disclosed together with the issuer’s proposal to remedy the situation). Again, if this information is already included in the context of the working capital statement, it need not be repeated, but it must be clearly cross-referenced. The FCA has emphasised that the capital resources and liquidity discussion is not a means of qualifying an issuer’s working capital statement by the “back door”—any qualifications included in the capital resources discussion (whether express or implied) will require the working capital statement to be expressly qualified.

  • Research and development, patents and licences (item 11)

This will include a description of historical research and development policies and the amount spent on issuer-sponsored R&D activities. In the case of certain specialist issuers (such as scientific-research-based companies), the ESMA Recommendations may require further information on this area to be disclosed—see the section on “Specialist issuers” below for further details.

  • Significant trend information (item 12)

This requires disclosure of significant recent trends since the end of the last financial year, together with information on any known factors that are reasonably likely to have a material effect on the issuer’s prospects for the current financial year. Note that this requires the directors not to form a view of the issuer’s prospects for the current financial year, but only to disclose the generic factors reasonably likely to have a material effect on such prospects.

  • Profit forecasts or estimates (item 13)

Any profit forecasts or estimates must be reported on, and the ESMA Recommendations include detailed guidance on the preparation of these. Note that an issuer that has published a profit forecast or estimate (otherwise than in a previous prospectus) which is still outstanding at the time of publication of a prospectus may be required to include it in the prospectus if it is still material (and ESMA considers there to be a presumption that any such outstanding forecast will be material in the case of share issues, especially in the context of an IPO). Note also that under the proposals in the ESMA Report, an issuer would be required to state the figure of any profit forecast or estimate in the summary as well as in the main body of the prospectus26.

  • Administrative, management and supervisory bodies and senior management (item 14)

The disclosures required in relation to directors (e.g., their current and previous directorships, convictions, declared or pending bankruptcies and public criticisms within the last five years) are also required for senior managers, founders (where the issuer has been established for less than five years) and, if applicable, any members of its administrative, management and supervisory bodies. (This last category is likely to be relevant only in the context of an issuer with a split-tier management structure.) For these purposes, the “senior managers” are those people who are relevant to establishing that the issuer has the appropriate expertise and experience for the management of its business.

Potential conflicts of interest between duties to the issuer and private or other interests or duties must also be disclosed, as must any arrangement or understanding with major shareholders, customers or suppliers (or others), pursuant to which any director or senior manager was appointed.

  • Remuneration and benefits (item 15)

Remuneration and benefits are required to be disclosed in relation to senior managers as well, and the rules require the information to be provided on an individual-by-individual basis. The total amount set aside or accrued to provide pension, retirement or similar benefits must also be disclosed.

  • Board practices (item 16)

This section encompasses disclosure of directors’/senior managers’ terms of office and benefits on termination, information on the audit and remuneration committees, and a statement as to whether or not the issuer complies with the corporate governance requirements of its country of incorporation.

  • Employees (item 17)

An issuer is required to disclose either the number of employees at the end of each financial period or the average for each financial year in respect of the period covered by the historical financial information and, if possible and material, the breakdown by main category of employee activity and location. An issuer employing a significant number of temporary employees will likewise be required to disclose the number of temporary employees on average during its most recent financial year. Shareholdings and share option details for directors and senior managers are also required to be disclosed, in addition to share option arrangements for employees as a whole.

  • Major shareholders (item 18)

Shareholders with a notifiable interest under the DTR (see Chapter 8 for further details) are required to be disclosed, together with information on whether major shareholders have different voting rights. An issuer is also required to disclose (if known) whether it is controlled and to include information on the measures in place to ensure that any such control is not abused. Any arrangements that may result in a change in control must also be disclosed.

Where an issuer is not admitted to trading on an EU-regulated market and the Transparency Directive does not apply, the information to be included under item 18 is that which is notifiable according to the law of the issuer’s country of incorporation. Where the law of the issuer’s country of incorporation does not require any information to be notified, the issuer should include a negative statement in the prospectus to that effect.

  • Related party transactions (item 19)

The ESMA Recommendations suggest that the definition of “related party” used by the International Financial Reporting Standards (“IFRS”) should be used for these purposes.

  • Financial information concerning the issuer’s assets and liabilities, financial position, and profits and losses for the latest three financial years (including pro forma financial information) (item 20)

- Three-year historical financials and audit reports that are prepared in accordance with:

a) in the case of an EEA issuer, the International Accounting Standards (“IAS”) (or, if not applicable, then the national accounting standards of the relevant member state); and

b) in the case of a non-EEA issuer, IAS or national accounting standards that are “equivalent” to IAS27

- The financial information included for the last two years must be prepared (or re-stated) on a basis consistent with that which will be used in the preparation of the issuer’s next set of financial statements28, which will be IAS for an EEA issuer admitted to a regulated market.

- If an issuer has changed its accounting reference date during the period for which historical financial information is required, the audited historical information shall cover at least 36 months or the entire period for which the issuer has been in operation, whichever is the shorter.

- Pro forma financial information will be required in the event of a “significant gross change”29. If applicable, this requirement will usually be satisfied by the inclusion of pro forma information, prepared in accordance with Annex II and by the reporting accountants30.

- Interim financial information will be required if more than nine months have elapsed since the issuer’s financial year-end; if more than 15 months have elapsed since the year-end, this interim information will need to be audited. In addition, if the issuer has published any quarterly or half-yearly financial information since the date of its last audited accounts, this will need to be included.

- An issuer that has been in operation for less than one financial year would need to include historical financial information to cover this shorter period. Audited financial information prepared by the issuer for that shorter period is considered sufficient. The FCA does not expect such issuers to use IAS 34 (Interim Financial Reporting) when preparing the financial information.

  • Legal and arbitration proceedings (item 20.8)

The disclosure requirement includes governmental proceedings in addition to legal and arbitration proceedings.

  • Additional information, material contracts and information on holdings (items 21, 22 and 25)

The prospectus will need to include information on the issuer’s share capital and constitution, material contracts and subsidiary undertakings.

  • Third-party information, experts and declarations of any interest (item 23)

This requires consent statements (which in turn will trigger the requirement for responsibility statements) in respect of accountants’ reports, valuation reports and other expert reports.

In addition, where information has been sourced from a third party, the prospectus must include confirmation that this has been accurately reproduced and that, so far as the issuer is aware, nothing has been omitted to render it misleading. Note that this is not intended to qualify the responsibility statement.

  • Documents on display (item 24)

The issuer’s memorandum and articles of association, any expert valuation reports referred to in the prospectus, and the historical financial information must be available for display. The FCA has clarified that it expects all reports, letters and other documents and historical information, which are either referred to or included in the prospectus, to be put on display. There is no requirement to display material contracts that have been summarised in the prospectus.

Securities Note (Annex III):

The persons responsible for the prospectus and responsibility statement (item 1)

This will follow the equivalent requirement in Annex I—there is no need to repeat the responsibility statement in the context of a prospectus drawn up as a single document.

  • Prominent disclosure of risk factors that are material to the securities in question (item 2) 31  

This is different from the risk factors required under Annex I, as the risk factors here will relate to the securities rather than the issuer. Whilst generic risk factors are certainly acceptable (e.g., warning of share price volatility), the FCA encourages all issuers to be as specific as possible.

As noted above in relation to the risk factors required under Annex I, under the Proposed Prospectus Regulation, only risk factors which are material and specific to the securities are to be included in order to avoid overloading the document with generic risk factors which obscure the more specific risk factors that investors should be aware of.

  • Working capital statement (item 3.1)

An issuer is required to confirm its opinion that the working capital is sufficient for its present requirements (12 months) or, if not, how it proposes to provide the additional working capital needed. Whilst this suggests that issuers may be able to qualify their working capital statement, note that, as set out in Chapter 1 of this Guide, issuers seeking a premium listing of equity securities on the Main Market still need to satisfy the FCA’s eligibility condition requiring a clean 12-month working capital statement.

The ESMA Recommendations include detailed guidance on the preparation of the working capital statement and reiterate that, whilst guaranteed proceeds of the offering may be factored in, other assumptions, sensitivities or caveats will not usually be acceptable in the context of a “clean” working capital statement. In the context of a fundraising, this means that only underwritten funds can be included. An issuer that is confident of its working capital position for the initial 12 months but is aware of working capital difficulties beyond the 12-month period will nonetheless need to consider whether supplementary disclosure is appropriate.

An issuer may (subject to the eligibility condition referred to above) make a “qualified” working capital statement, but in this case must make it absolutely clear that “it does not have sufficient working capital for its present requirements”. Having clarified this, the prospectus should then go on to disclose information on the timing and quantum of the working capital shortfall, as well as its proposed action plan and the implications of any of the proposed actions that are unsuccessful in each case, in sufficient detail to enable investors to be fully apprised of the actual working capital position of the issuer.

The ESMA Recommendations emphasise the level of diligence that issuers are expected to undertake in relation to their working capital position to minimise the risk that the basis of the working capital statement will subsequently be called into question, and they reiterate the need for a thorough working capital exercise conducted by the issuer and its advisers. The FCA has highlighted the importance of the sponsor’s role in the working capital exercise. Whilst the issuer and its directors bear overall responsibility for the working capital statement, it is the sponsor that must confirm that it has come to a reasonable opinion, after having made due and careful enquiry, that the directors of the issuer have a reasonable basis on which to make the working capital statement. A sponsor is expected to apply its judgment, experience, knowledge and expertise on the Listing Rules and DTR when deciding whether an issuer has a reasonable basis on which to make the working capital statement. To do this, the sponsor must have regard to the issuer’s circumstances and the context of the transaction. Specifically, the sponsor should be prepared to review and challenge the work done by the issuer and reporting accountant to ensure that the working capital position presented is the right one under the circumstances.

The binary approach taken by the rules and ESMA Recommendations has given rise to a number of difficulties in the context of prospectuses published in connection with hostile takeovers, where the issuer has limited access to information on the offeree and is therefore unable to undertake the normal procedures to support a clean working capital confirmation. The FCA has stated that it takes a purposive approach to the application of rules in these circumstances, to allow an offeror either to include a clean or qualified working capital statement, complying with the ESMA guidance, or to state that the offeror is not able to undertake appropriate procedures to support a working capital statement when taking into account the acquisition. The reason for this must be given (e.g., the offeror does not have access to nonpublic information on the offeree allowing these procedures to be undertaken), and the offeror would then be required to give a 12-month working capital statement on the offeror on an unenlarged-group basis, making it clear that the acquisition has not been taken into account. A supplementary prospectus would be required if, before the close of the offer, the offeror were to be granted sufficient access to enable a working capital statement to be given32.

In relation to reverse takeover situations, the FCA has also clarified that whilst the rules set out by the Prospectus Directive and the ESMA Recommendations require working capital statements to address “Group” requirements (i.e., the Group as enlarged by the transaction), it is important for the statement to cover all possible funding scenarios. This means that the working capital requirements of the Group, on the basis that the transaction does not proceed, also need to be considered.

  • Capitalisation and indebtedness (item 3.2)

The ESMA Recommendations include a template for disclosure that should be followed “as much as possible”. The ESMA Recommendations also require the capitalisation statement to be derived from the latest published financial information, together with disclosure of any material changes if the published figures are more than 90 days old. It will not be deemed sufficient for an issuer to merely make a statement regarding significant changes to the capitalisation statement that occur within the 90-day limit; the issuer must actually reflect any significant change within its statement. The indebtedness statement must also be no more than 90 days old, but it is not required to be sourced from published financials.

Any statement of indebtedness should include both indirect indebtedness and contingent indebtedness. Following confusion as to interpretation of these terms, ESMA has clarified their meaning:

- Indirect indebtedness: “Indirect indebtedness” is any obligation not directly incurred by the issuer which is considered on a consolidated basis but which may fall on the issuer to meet in certain circumstances: for instance, a guarantee to honour a loan advanced by a bank to an entity (that is not in the issuer’s group) if this entity defaults on repayments due on the loan.

- Contingent indebtedness: “Contingent indebtedness” is the maximum total amount payable in relation to any obligation which, although incurred by the issuer, has yet to have its final amount assessed with certainty, irrespective of the likely actual amount payable under that obligation at any one moment in time: for instance, the total VAT liability due on goods in a bonded warehouse where the actual amount payable to the tax authorities in any given financial period will depend not on the actual goods bought by the issuer and deposited in the warehouse, but on the level of those goods actually sold on to customers.

  • Interest of persons involved in the issue/offer (item 3.3)

This requires disclosure of any interests (including conflicting interests) that are material to the offer, with details of the persons involved and the nature of the interest in question.

  • Reasons for the offer and use of proceeds (item 3.4)

The “use of proceeds” section must include a breakdown of the principal intended uses, including the amounts attributable to each, the order of priority and, in the event of a funding shortfall for any “use”, details of the amount and sources of other funds required.

  • The securities to be offered/admitted to trading (item 4)

This requires a description of the securities and related matters, including:
- the International Security Identification Number (“ISIN”);
- the currency of the shares;
- an indication of the existence of any mandatory takeover bids and/or squeeze-out and sell-out rules in relation to the shares; and
- details of any public takeover bids that have occurred during the last or current financial year.

  • Terms and conditions of the offer (item 5)

This section will be of most relevance in the context of offers for sale/subscription or open offers/rights issues.

  • Admission to trading and dealing arrangements (item 6)

The issuer is required to disclose information regarding any application being made for the securities in question to be admitted to trading and the applicable dealing arrangements.

  • Selling shareholders (item 7)

Details of any selling shareholders (including lock-in arrangements) will need to be disclosed.

  • Expenses of the offer (item 8)

The total net proceeds and estimate of expenses of the offer must be disclosed.

  • Dilution (item 9)

The amount and percentage of the dilution resulting from the offer are required to be disclosed.

  • Additional information (item 10)

As under Annex I, consent statements from experts and (in the case of third-party information not produced at the issuer’s request) details of third-party sources must be included.

Specialist issuers (ESMA Recommendations):

In addition to the general and specific disclosure requirements set out in the Prospectus Rules, the ESMA Recommendations suggest various additional disclosures in the case of certain specialist issuers. Note also that for specialist issuers seeking a premium listing on the Main Market, the FCA’s eligibility conditions may also need to be reflected in the prospectus. (See Chapter 1 for further details.)

  • Mineral companies

In March 2011, ESMA published an updated version of the recommendations for mineral-company prospectuses. For the purpose of the recommendations, the definition of “mineral company” has been extended by removing the previous “principal activity” test. “Mineral company” is now defined as a company with “material mineral projects”. In March 2013 the recommendations were further amended to clarify the materiality concept in the context of whether or not an issuer has “material mining projects”, such that the projects should be considered material where an “evaluation of the resources” is necessary to enable investors to make an informed assessment of the prospects of the issuer. Materiality should be assessed having regard to all the issuer’s mineral projects relative to it and its group taken as a whole. The ESMA Recommendations require that all mineral companies (including prospectuses drawn up by companies that have been trading as mineral companies for more than three years) should set out:

- details of reserves;
- the expected period of working of those reserves;
- the periods and main terms of any licences or concessions and their economic conditions;
- indications of the progress of mineral exploration and/or extraction and processing; and
- an explanation of any exceptional factors that have influenced this information.

Where a prospectus is being issued in connection with the acquisition of a mineral company and/or resources, and the acquisition constitutes a significant gross change, the issuer should include the above information on the assets being acquired.

In addition, a mineral company is required to include a mineral expert’s report (“MER”) when issuing a prospectus as part of its IPO, but not thereafter if it has reported and published annually details of its mineral resources and, where applicable, reserves (presented separately) and exploration results/prospects with one or more of the designated reporting standards. The MER must generally be dated no more than six months from the date of the prospectus (although in exceptional and limited circumstances, the FCA may consider a MER that is between six and 12 months old in the context of a secondary offering) and must report mineral resources and reserves in accordance with one of the specified reporting standards. The previous requirement for certain mineral companies to provide an estimate of funding requirements has been removed on the basis that the other disclosure requirements relating to funding contained in the Prospectus Directive are sufficient.

  • Scientific-research-based companies

 Under the ESMA Recommendations, the prospectus of a scientific-research-based company (which is also a start-up company) must include details of:

- laboratory research and development, to the extent material to investors, including details of patents granted and the successful completion or progression of significant testing of the effectiveness of the products. If there are no relevant details, a negative statement should be provided;

- the relevant collective expertise and experience of the key technical staff;

- any collaborative research and development agreements with organisations of high standing and repute within the industry, to the extent material to investors, or, in the absence of such agreements, explanation of how such absence could affect the standing or quality of its research efforts; and

- a comprehensive description of each product, the development of which may have a material effect on the future prospects of the issuer.

Scientific-research-based companies must also include the information required for start-up companies set out below.

  • Start-up companies

The ESMA Recommendations define “start-up issuer” as a company that has been operating in its current sphere of economic activity for less than three years. This definition will therefore include companies that completely change their business less than three years before listing. Companies formed for the purposes of acting as holding companies for existing businesses are not considered to be start-up companies. In addition, special purpose vehicles are not considered to be start-up companies, as they are formed for the purpose of issuing securities, not conducting a business.

A prospectus issued by a start-up company should include a discussion of the issuer’s business plan, together with a discussion of the issuer’s strategic objectives and the key assumptions upon which the plan is based (including the development of new services and/or new products during the next two financial years and a sensitivity analysis to variations in the major assumptions). Issuers are not obliged to include figures in this business plan. If the business plan includes a profit forecast, an independent auditor’s report is also required.

The prospectus should describe:

- the extent to which the issuer’s business is dependent upon any key individuals, identifying the individuals concerned;
- current and expected market competitors;
- dependence on a limited number of customers or suppliers; and
- any assets necessary for production that are not owned by the issuer. A valuation report prepared by an independent expert on the services/products of the issuer may be included but is not mandatory.

  • Property companies

Pursuant to the ESMA Recommendations, property company prospectuses must include a valuation report that should:

- be prepared by an independent expert;

- give the date or dates of inspection of the property;

- provide all relevant details of material properties necessary for the valuation;

- be dated and state the effective date of valuation for each property (which must not be more than 12 months prior to the date of the prospectus, provided that the issuer confirms that there have been no material changes since the date of valuation);

- include a summary of freehold and leasehold properties and the aggregate of their valuations; and

- include an explanation of the differences between the valuation figure and the equivalent figure included in the issuer’s latest published individual annual accounts or consolidated accounts, if applicable. Only a condensed report needs to be included in the prospectus.

In order to comply with the ESMA Recommendations, the FCA expects any valuation report for a property company to be in accordance with either the: (i) Appraisal and Valuation Standards (fifth edition) issued by the Royal Institution of Chartered Surveyors; or (ii) International Valuation Standards (seventh edition) issued by the International Valuation Standards Council.

  • Shipping companies

The prospectus of a shipping company should refer to:

- the name of any ship management company or group (if other than the issuer) that manages the vessels and an indication of the terms and duration of its appointment, the basis of its remuneration, and any arrangements relating to the termination of its appointment;

- all relevant information regarding each material vessel that is managed, leased or owned directly or indirectly by the issuer; and

- if the issuer has contracts to build new vessels or improve existing vessels, detailed information regarding each material vessel. Issuers are expected to include a condensed valuation report, prepared by an experienced independent expert. The valuation report is not required if the issuer does not intend to finance new vessels, where there has been no re-valuation of any of the vessels for the purpose of the issue and it is prominently stated that the valuations quoted are as at the date of the initial purchase or charter of the vessels.


iii. Omission of Information (PR 2.5) +
Omission of information from a prospectus is allowed where the FCA considers that the disclosure of such information would be contrary to the public interest or seriously detrimental to the issuer or that the information is of minor importance in the specific situation (PR 2.5.2R).

In addition, if in exceptional cases certain information that is required to be included in a prospectus is inappropriate to the issuer’s activity, the legal form of the issuer, or the securities to which the prospectus relates, the prospectus must contain information equivalent to the required information (PR 2.5.1R).

iv. Incorporation by Reference (PR 2.4) +
Issuers may incorporate information by reference in a prospectus only if such information has been approved by or filed with the FCA (PR 2.4.1R) or another competent authority that was the“home competent authority” at the time of approval or filing. Examples of information that may be incorporated by reference include instruments of incorporation, annual accounts, half-yearly accounts, and earlier approved and published prospectuses or base prospectuses. Information incorporated by reference must be the latest available to the issuer (PR 2.4.3R). Cross-references can also be made between information in the registration document and securities notes where there are duplicated items, provided a cross-reference list can be submitted.

Under the Proposed Prospectus Regulation the scope of the information that may be incorporated by reference is expanded to include all regulated information; historic annual and financial information and audit reports wherever published and for whatever reason and certain documents filed in connection with mergers and acquisitions, management reports, corporate governance statements and also memoranda and articles of association.

If information is incorporated in the prospectus by reference to another document, the applicant must submit to the FCA for vetting and approval a hard copy of the document (annotated to indicate the item of the schedules and building blocks to which it relates), together with the rest of the prospectus (PR 3.1.1R(5)).

Where information is incorporated by reference, a cross-reference list must be provided in the prospectus to enable investors to easily identify specific items of information. Documents incorporated by reference need not be in the same language as the prospectus, provided that the language of the incorporated document complies with the language rules of the Directive. Should an issuer wish to passport a prospectus containing incorporated documents drawn up in a language different from that of the prospectus, it can do so only where the different language is accepted by the host competent authorities. Any material changes to the information incorporated by reference must be clearly stated in the prospectus. Issuers must be mindful at all times of not endangering investor protection in terms of comprehensibility and accessibility of information and should also, of course, ensure that any information incorporated by reference has been prepared and verified to “prospectus standards”.

v. Exclusion of Final Price (PR 2.3.2R) and Supplementary Prospectus +
The Prospectus Rules permit a prospectus to be approved and published without the final price and number of securities if:

  • the prospectus discloses the criteria and/or the conditions applicable for determining the price and number of securities or, in the case of price, the maximum price; and
  • the final price and number of securities must be filed with the FCA and published as soon as practicable.

Where an investor has agreed to buy or subscribe for securities in circumstances where the final offer price or the amount of securities to be offered to the public is not included in the prospectus, it may withdraw its acceptance within two working days of the date on which the competent authority is informed of the price and final number of securities unless the prospectus contains (in the case of the amount of securities) the criteria and/or conditions according to which the final number will be determined or, in the case of price, the criteria and/or conditions according to which the price will be determined or the maximum price (section 87Q of FSMA)33.

The rules require the publication of a supplementary prospectus if, during the relevant period after approval of the original prospectus, a significant new factor, material mistake or inaccuracy relating to the information provided in the prospectus arises or is identified (section 87G of FSMA). An issuer should draw up and file with the competent authority a supplementary prospectus as soon as practicable after a significant new factor occurs or a material mistake or inaccuracy is discovered. In its guidance on the publication of supplementary prospectuses, the UKLA has made it clear that it is not appropriate to publish a supplement simply to clarify or revise drafting, nor should drafting changes be made as part of a genuine supplement.

ESMA considers that there is no systematic requirement to supplement a prospectus when interim financial statements are produced. However, this will depend on the circumstances of the case and, in particular, the relevance of the information included in the interim financial statements (such as any significant deviation in relation to previous financial information).

An investor that has agreed to buy or subscribe for securities on the basis of the original prospectus may withdraw its acceptance within two working days of the publication of the supplementary prospectus (section 87Q of FSMA). Such a right and the actual period for which it extends should be mentioned in the supplementary prospectus.

Advertisements (PR 3.32R)

The Prospectus Rules contain certain requirements for advertisements34 relating to a public offer or application for admission to trading35. Any such advertisement must be consistent with the prospectus, must not be inaccurate or misleading, must state that the prospectus has been or will be published (and indicate where it is or will be available) and must be clearly recognisable as an advertisement.

Guidance recommends that any written advertisement should also include a bold and prominent statement to the effect that it is not a prospectus but an advertisement and that investors should not subscribe for any securities referred to except on the basis of information contained in the prospectus.

The Prospectus Rules also emphasise that all information concerning an offer or admission to trading, whether oral or in written form, must be consistent with the prospectus.

On 30 November 2015, the European Commission published a delegated regulation supplementing the Prospectus Directive and requiring that issuers must update or amend an advertisement where there is a "significant new factor, material mistake or inaccuracy" which renders the advertisement inaccurate or misleading. The amended advertisement should refer to the original advertisement, state that it has been amended due to it containing inaccurate or misleading information and set out the differences between the two. The regulation imposes an overarching general standard for all issuers that an advertisement must not contradict or present a "materially unbalanced view" of information contained within the prospectus.

Responsibility and Liability for a Prospectus

Despite the harmonisation of content and, to some extent, distribution requirements for prospectuses (save in relation to liability for the summary as referred to below), the Prospectus Directive provides no harmonisation of civil liability in respect of that content. The Prospectus Directive has largely deferred to individual member states to impose responsibility and liability for a prospectus. PR 5.5R imposes responsibility for a prospectus relating to equity securities for which the UK is the home member state on, amongst others:

  • the click for definitionissuer of the securities to which the prospectus relates;
  • the issuer’s “directors” or a person who has agreed to become a director;
  • anyone stated in the prospectus as accepting responsibility;
  • any person who has authorised the contents of a prospectus; and
  • the offeror, if this is not the issuer, unless the issuer is responsible for the prospectus, the prospectus was drawn up primarily by the issuer, and the offeror is making the offer in association with the issuer.  

For these purposes, the issuer’s directors comprise:
  • all persons who are directors of the company at the time the prospectus is published;
  • all persons who have authorised themselves to be named and are named in the prospectus as directors; and
  • all persons who have agreed to become directors of the company either immediately or in the future (e.g., after flotation).

As mentioned above, the prospectus must include a responsibility statement whereby those responsible accept responsibility for all the information in the prospectus and confirm that, “having taken all reasonable care to ensure that such is the case, the information contained in this document is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import”.

Note that “split responsibility statements” on takeovers are not permitted; where a prospectus is published (see Chapter 7 for further details), directors are required to take responsibility for information on both offeror and target.

If a prospectus is published that contains inaccurate or misleading information (or omits any requisite information), the persons responsible for the prospectus may be liable to compensate an investor who has suffered loss as a result (section 90 of FSMA). The one area where the Prospectus Directive does attempt to harmonise liability is the summary of the prospectus (designed to meet the concern that a person responsible could be liable for incomplete information contained in the summary, especially as there is a limit on the number of words used). The Prospectus Directive provides that civil liability attaches to the summary only if it is misleading, inaccurate or inconsistent when read together with the rest of the prospectus. The Amending Directive extends the potential civil liability to circumstances where the summary does not provide, when read together with other parts of the prospectus, the key information necessary in order to aid investors when considering whether to invest in such securities.

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