Download UKLA proposed guidance - equity securities | Ashurst

Ashurst London
February 2013
ECM briefing
UKLA proposed guidance - equity
securities
The UKLA has published its Primary Market
Bulletin No. 5, in which it announced a
consultation in respect of proposed
guidance around listing, prospectus,
disclosure and transparency rules. We
summarise below the key points relating to
equity securities (we are separately
publishing a client briefing in regard to debt
and derivative securities). The consultation
is open until 8 April 2013.
Contents

Eligibility for listing

Company guarantees of subsidiaries

Disclosure of inside information in the context of
results reporting
H

Sponsor services

Supplementary prospectuses

Risk factors
Eligibility for listing
The UKLA has issued a revised procedural note on the
eligibility for listing process for issuers. It is proposing
to change the process as follows. Currently the UKLA
reviews the eligibility letter (submitted by the sponsor)
prior to submission of the prospectus to the UKLA for
review. The proposal is that eligibility review will in
future happen simultaneously with prospectus review.
The UKLA points out that the current method is
disadvantageous for the issuer as in most cases the
UKLA will qualify any approval with the comment that
it is subject to review of the prospectus. In reality, the
proposed changes may not make much practical
difference. It is possible at present for an issuer to
receive preliminary approval for listing and to proceed
with prospectus drafting and for the UKLA then to
decide at a much later stage that the applicant is not
suitable for listing. Equally, with the proposed new
process, an applicant may start prospectus drafting
(and incur substantial adviser and other costs) and
find out at a much later stage that the FSA has
decided that the applicant is not suitable for listing.
The draft technical note states that it may be possible
to submit an eligibility letter to the FSA in advance of
submission of the prospectus in certain limited cases.
This would obviously lengthen the review timetable.
The draft note is also helpful for those less familiar
with the process as it explains when an eligibility
review is needed (i.e. where there is a new applicant).
The relevant cases include: a transfer from standard
to premium listing; application for readmission
following a reverse takeover and new topco
transactions. It also explains in some detail how the
review process works.
Company guarantees of subsidiaries
The UKLA has published a new draft technical note in
relation to company guarantees, as the Companies Act
2006 (2006 Act) has recently been amended to allow
UK incorporated companies to exempt qualifying
subsidiaries from the requirement for mandatory audit.
New section 479C provides that in order for a
subsidiary to be exempt from audit, the parent
company must provide a guarantee of all outstanding
liabilities to which the subsidiary company is subject
as at the end of the relevant financial year. There is no
limit in terms of the size of the subsidiary companies
who can use the exemption and therefore a guarantee
could potentially be provided by a listed holding
company in respect of the liabilities of significant
trading companies within its group.
The proposed UKLA technical note explains that in the
opinion of the FSA, these guarantees fall within LR
10.2.4R on indemnities i.e. they would need to be
approved by shareholders as a class 1 transaction as
they are unlimited in scope. However, the note also
states that LR 10.2.4R(1) would apply such that if the
agreement relates to a wholly owned subsidiary
undertaking the rule does not come into play.
AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA
SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA
The relevant changes to the 2006 Act only came into
useful advice in relation to related party transactions,
force on 1 October 2012 and whilst it is still too early
clarifying that where a sponsor performs the financial
to assess the level of take up, we would not expect
adviser role in relation to any circular, it will not be
many listed companies to take advantage of this
deemed to be providing sponsor advice (as it is not
exemption by entering into these types of guarantees,
acting as sponsor) whereas the advice given on the
mainly because in practice subsidiary accounts would
application of the Listing Rules to a potential related
party transaction would be a sponsor service.
need to be produced in any event in order to produce
audited consolidated accounts. Auditors' work on these
subsidiary accounts may be insufficiently different
Supplementary prospectuses
from a full audit to justify guaranteeing all the
subsidiary's obligations.
The UKLA has also produced a new draft technical note
on when a supplemental prospectus will be permitted
Disclosure of inside information in the
context of results reporting
and content of the supplement. It is primarily aimed at
debt issuers who have a base prospectus and prefer to
update by way of supplement (rather than producing a
The UKLA has also produced a new draft technical note
in relation to DTR 2.2.2.R emphasising that an issuer
new prospectus) but some points are relevant for
equity issuers as well.
cannot delay disclosing inside information when it is in
the process of producing financial reports and has a
scheduled announcement date in mind.
When is a supplement permitted?
The UKLA is maintaining its very restrictive
interpretation of the permitted scope of supplements,
The note expands on an earlier comment in the UKLA's
technical note on the disclosure and transparency
and will only permit supplements where the proposed
change satisfies the following three principles:
rules (not carried forward into the new version of the
technical notes known as the Knowledge Base) that

It is sufficiently material: the subject of the
"Companies should not delay the announcement in
amendment must fall within the scope of FSMA
order to prepare for the announcement of results" and
S.87G(1) (PD, Art 16) - i.e. it is a "significant new
states categorically that "disclosure of information that
factor, material mistake or inaccuracy relating to
falls within the definition of inside information,
the information included in the prospectus which is
including information about financial performance,
capable of affecting the assessment of the
cannot be delayed merely so that it can coincide with
securities…". Otherwise, the issuer must make an
a scheduled announcement of a periodic financial
announcement to the market (see the ESMA FAQs
report". Well advised companies would have followed
on Prospectuses Question 23). The UKLA will "not
this approach in any event, but the UKLA note is
approve a supplement where neither materiality
nor relevance to the investor can be established";
useful confirmation of its approach. The key question
in any analysis is whether the information in question
constitutes inside information.

factor, material mistake or inaccuracy must relate
to "the securities" – i.e. the securities as described
Sponsor services
in the original approved prospectus. The UKLA sees
"the securities" (as defined in FSMA s87G(3) and
The UKLA has produced a new draft technical note
Article 16 of the Prospectus Directive) as specific
regarding the definition of sponsor services. The note
securities that are anticipated to be offered or
confirms that a sponsor will be carrying out a
listed under the approved prospectus. Only very
sponsor service if the sponsor is in discussions with
limited changes will be permitted and only where
the UKLA concerning a matter that is a sponsor
the UKLA is satisfied that such changes are not
service even if it has not been formally appointed,
inconsistent with the terms of the securities on
which the prospectus was originally approved; and
and will therefore be subject to the Principles for
Sponsors. It also confirms that the sponsor role
continues after approval of a prospectus relating to
It relates to "the securities": The significant new

It arises in the relevant period: the significant new
listing or a circular relating transfer of listing
factor or event must arise in the period after the
category until the effective date of admission or of
prospectus has been approved and the later of (i)
transfer. In relation to shareholder circulars, the
closure of the public offer or (ii) admission to
listing.
sponsor role ceases on completion of a transaction
requiring shareholder approval (LR 8.2.1R(2)(3) and
(4)) but this may be some time after the general
This means, for example, that the UKLA would not
meeting and the sponsor service will therefore
permit a supplement, produced for a legitimate reason,
continue during this period. The note also sets out
to contain other unrelated corrections or amendments
which of themselves would not trigger a
supplementary prospectus.
Risk factors
"Key" risks in the prospectus summary vs
"material" risks in the main body of the
prospectus
The UKLA will not permit the addition of risk factors
which are not "key risks" in the prospectus summary
Approach to vetting risk factors
notwithstanding industry concerns that investors may
The UKLA will expect that risk factors are grouped
focus solely on "key" risks and thereby fail to pay
together in a coherent manner and those which are
sufficient attention to the broader suite of "material"
considered to be of the greatest or most immediate
risks set forth in the main body of the base prospectus.
significance should be prominent at the beginning of
each section.
To help address this concern, the UKLA has proposed
The UKLA will challenge certain risk factors, including:





to the Risk Factors section in the main body of the
prospectus:
where disclosures conflict with or undermine other
"Prospective investors should note that the risks
rule requirements where disclosures conflict with
relating to the Group, its industry and the Ordinary
an issuer's eligibility or continuing obligations;
Shares summarised in the section of this
where disclosure is contradictory to the Listing
document headed "Summary" are the risks that
Principles;
the [Directors believe/the Company believes] to be
where sufficient prominence is not given to
the most essential to an assessment by a
material risks;
prospective investor of whether to consider an
where there is disclosure elsewhere in the
investment in the Ordinary Shares. However, as
documents that seems to clearly present a risk to
the risks which the Group faces relate to events
an issuer, which has not already been disclosed in
and depend on circumstances that may or may not
the risk factor section;
occur in the future, prospective investors should
where the risk factors are simply statements of
consider not only the information on the key risks
fact that contain no explanation of the risk in the
summarised in the section of this document
context of the issuer's business or the issue of the
headed "Summary" but also, among other things,
the risks and uncertainties described below."
securities in question; and

that the following text may be included as a preamble
risks which are not relevant to a particular issuer
that are nevertheless included in the issuer's
document.
Whilst not included in the consultation, the UKLA has
elsewhere rejected risk factors on the basis that the
particular event had not yet sufficiently materialised or
its impact on investors was as yet too unclear (e.g.
early FATCA risk factors).
This text was discussed with and approved by the
Company Law Committee of the City of London Law
Society of which Ashurst is a member.
If you have any questions or comments please speak
to one of the Ashurst partners over the page.
Contacts
Simon Baskerville
London
T: +44 (0)20 7859 1141
E: [email protected]
Chris Bates
London
T: +44 (0)20 7859 2388
E: [email protected]
Simon Beddow
London
T: +44 (0)20 7859 1937
E: [email protected]
Jeremy Bell
London
T: +44 (0)20 7859 1913
E: [email protected]
Giles Boothman
London
T: +44 (0)20 7859 1707
E: [email protected]
Nick Bryans
London
T: +44 (0)20 7859 1504
E: [email protected]
David Carter
London
T: +44 (0)20 7859 1012
E: [email protected]
Nick Cheshire
London
T: +44 (0)20 7859 1811
E: [email protected]
Anthony Clare
London
T: +44 (0)20 7859 1927
E: [email protected]
Adrian Clark
London
T: +44 (0)20 7859 1767
E: [email protected]
Karen Davies
London
T: +44 (0)20 7859 3667
E: [email protected]
Dhana Doobay
London
T: +44 (0)20 7859 3133
E: [email protected]
Jonathan Drake
London
T: +44 (0)20 7859 2986
E: [email protected]
Jonathan Earle
London
T: +44 (0)20 7859 1126
E: [email protected]
Ray Fisher (US)
London
T: +44 (0)20 7859 1797
E: [email protected]
Charlie Geffen
London
T: +44 (0)20 7859 1718
E: [email protected]
Nick Goddard
London
T: +44 (0)20 7859 1358
E: [email protected]
Richard Gubbins
London
T: +44 (0)20 7859 1252
E: [email protected]
Bruce Hanton
London
T: +44 (0)20 7859 1738
E: [email protected]
Nicholas Holmes
London
T: +44 (0)20 7859 2058
E: [email protected]
Isabelle Lentz
London
T: +44 (0)20 7859 1094
E: [email protected]
Adam Levitt
London
T: +44 (0)20 7859 1633
E: [email protected]
Stephen Lloyd
London
T: +44 (0)20 7859 1313
E: [email protected]
Mark Lubbock
London
T: +44 (0)20 7859 1762
E: [email protected]
Tom Mercer
London
T: +44 (0)20 7638 1111
E: [email protected]
Rob Moulton
London
T: +44 (0)20 7859 1029
E: [email protected]
Sergei Ostrovsky
London
T: +44 (0)20 7859 1821
E: [email protected]
David Page
London
T: +44 (0)20 7859 1908
E: [email protected]
Jonathan Parry
London
T: +44 (0)20 7859 1086
E: [email protected]
James Perry
London
T: +44 (0)20 7859 1214
E: [email protected]
Michael Robins
London
T: +44 (0)20 7859 1473
E: [email protected]
Eavan Saunders Cole
London
T: +44 (0)20 7859 1838
E: [email protected]
Jennifer Schneck (US)
London
T: +44 (0)20 7859 1744
E: [email protected]
Mark Sperotto
London
T: +44 (0)20 7859 1950
E: [email protected]
Nigel Stacey
London
T: +44 (0)20 7859 1028
E: [email protected]
Jeffrey Sultoon
London
T: +44 (0)20 7859 1717
E: [email protected]
Piers Warburton
London
T: +44 (0)20 7859 1099
E: [email protected]
Nick Williamson
London
T: +44 (0)20 7859 1894
E: [email protected]
This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information
please contact us at Broadwalk House, 5 Appold Street, London EC2A 2HA T: +44 (0)20 7638 1111 F: +44 (0)20 7638 1112 www.ashurst.com.
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© Ashurst LLP 2013 Ref:27948172 27 February 2013