Month: July 2019

Prospectus Regulation (no. 2017/1129) takes effect – changes and transition period for capital markets

Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC applies from 21 July 2019 (“Regulation 2017/1129”).

It is worth noting that works on adjustment of the provisions of the Polish Act of 29 July 2005 on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organized Trading, and Public Companies (the “Public Offering Act”) have not been completed. In case of any discrepancies between Regulation 2017/1129 and the Public Offering Act, the former shall prevail.

The Polish Financial Supervision Authority (“UKNF”) has published an interpretation of regulations in the transition period, i.e. until amendments to the Public Offering Act are implemented.

Below is a summary of key changes.

1) Changes to the “public offer” definition

Pursuant to Regulation 2017/1129, the “offer of securities to the public” is a “communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities.” This means that each offer will be public in nature, irrespective of the number of recipients at which it is addressed. UKNF notes that an offer intended for a single investor will not be regarded as a public one. The current version of the Public Offering Act will apply nonetheless to securities which are not covered by the scope of Regulation 2017/1129 (e.g. offers of some public benefit organizations).

2) Prospect as a general rule (with some exceptions)

Pursuant to Regulation 2017/1129, securities shall only be offered to the public in the European Union after prior publication of a prospectus. However, there is a range of exceptions to that rule. The aforesaid obligation will not apply to: (i) an offer of securities addressed solely to qualified investors; (ii) an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors; (iii) an offer of securities whose denomination per unit amounts to at least EUR 100,000; (iv) an offer of securities addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer; or (v) securities offered, allotted or to be allotted in connection with a merger or division, provided that a document is made available to the public, containing information describing the transaction and its impact on the issuer.

The current thresholds will continue to apply.

An offer of securities with the issuer’s or seller’s expected gross consideration, together with proceeds from the past 12 months, is at least EUR 100,000 but below EUR 1,000,000, will continue to entail an obligation to publish a prospectus.

That obligation does not apply if the total gross consideration over a 12-month period in the European Union is below EUR 100,000.

An offer of securities with the issuer’s or seller’s expected gross consideration, together with proceeds from the past 12 months, is at least EUR 1,000,000 but below EUR 2,500,000, can still be based on the memorandum discussed in article 41 of the Public Offering Act.

3) Bonds

Offering of bonds will be governed by Regulation 2017/1129, which – to the extent requiring publication of a prospectus – supersedes the Public Offering Act’s provisions referred to in article 33 item 1 of the Bonds Act of January 15, 2015 (Dz. U. / Journal of Laws of 2018, item 483). In case of some “offers of securities to the public” (as defined in Regulation 2017/1129), a prospectus might not be required. However, in the transition period, the Public Offering Act’s provisions imposing the obligation to make an information memorandum might apply (e.g. in case of an offer of up to EUR 2,500,000, addressed to over 150 non-qualified investors).

For certain public offers (e.g. one listed in article 1 section 4 item b of Regulation 2017/1129, i.e. an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors), the obligation to prepare a prospectus and have it approved does not apply. The Public Offering Act’s provisions requiring the publication of a memorandum will not apply, either. In such case, bonds can be offered on the basis of a purchase proposal.

4) (Non-)mandatory intermediation

Despite a wider definition of an “offer of securities to the public,” until the definition used in domestic regulations is adjusted to Regulation 2017/1129, the mandatory intermediation of an investment firm will not be required in case a given offer is considered as public (as defined in Regulation 2017/1129) but does not match the definition of the “offer of securities to the public,” as included in the previous regulations.

5) Certificates offered by non-public closed-end investment funds

According to UKNF, an investment fund, as discussed in article 15 section 1a of the Investment Funds and Management of Alternative Investment Funds Act of 27 May 2004 (Dz. U. / Journal of Laws of 2018, item 1355, as amended), should (as a closed-end fund) apply the provisions of Regulation 2017/1129 if it addresses the offer to more than one recipient. Non-public funds, which are not intended for a single investor (acquirer of investment certificates), are subject to general rules for public offering, as specified in Regulation 2017/1129. UKNF notes that offers aimed at fewer than 150 recipients in a given Member State do not entail an obligation to prepare any information document.

6) New prospectus types

Regulation 2017/1129 also discusses new prospectus types: a universal registration document for frequent issuers whose securities are admitted to trading on a regulated market or MTF, and a simplified prospectus for secondary offers. There is also a EU prospectus intended for the growth of small and medium enterprises. The idea is for the new documents to simplify and speed up the process of capital-raising. The structure of the prospectus is also about to change, becoming shorter and more comprehensible to investors.

7) Regulations concerning pending procedures and offers

In case of prospectuses that have been approved before 21 July 2019, the public offer and its promotion should be based on the previous regulations (even after 21 July 2019). The same applies to offers based on a memorandum that was approved or published before 21 July 2019. If the procedure has not been completed until 21 July 2019, and Regulation 2017/1129 specifies that in case of a public offer or admission to trading, no information document (that is subject to approval of a supervisory authority) is required, the administrative procedure should be discontinued. In all other cases, the document will need to be adjusted to new regulations, while promotion-related activities will be governed by Regulation 2017/1129.

Although the aim of the new regulations is to make it easier to raise capital, streamline administrative procedures and enhance investor protection, it might be difficult at the beginning to get used to the new legal situation, especially given the fact that Polish laws are not adjusted to the EU ones, and the supervisory authority needs to develop practices for application and interpretation of new regulations. It is necessary to follow amendments to the Public Offering Act and the supervisory authority’s practice, incl. UKNF’s position. All of them will have an impact on the extent to which objectives will be fulfilled.

In case of any questions about the issues presented herein, please feel free to get in touch with us.

Contact

Piotr Wojnar
Attorney-at-law | Managing Partner
piotr.wojnar@actlegal-bsww.com
+48 22 420 59 59

Piotr Smołuch
Attorney-at-law | Managing Partner
piotr.smoluch@actlegal-bsww.com
+48 22 420 59 59

Małgorzata Stefaniak
Legal counsel | Senior Associate
malgorzata.stefaniak@actlegal-bsww.com
+48 22 420 59 59

The Central Register of Beneficial Owners (hereinafter referred to as the “Register”) is supposed to be implemented in Poland on October 13, 2019. This is related to the Anti-Money Laundering and Counter-Terrorism Financing Act, which came into effect as of July 13, 2018 (the “AML Act”).

The establishment of the Register will entail additional obligations for partnerships and companies, as well as the possibility to impose a financial penalty for failure to meet those obligations.

Below you will find key assumptions related to the Register:

1. Partnerships and companies (except for professional partnerships [PL: spółki partnerskie] and public companies, as defined in the Act of July 29, 2005 on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organized Trading, and Public Companies) will be obliged to become listed in the Register.

2. Relevant submissions can be made by individuals authorized to represent partnerships/companies.

3. Entities which entered the National Court Register until October 13, 2019 will have to apply for an entry in the Register until April 13, 2020. Entities which entered the National Court Register after October 13, 2019 will have to apply for an entry in the Register within 7 business days of becoming listed in the National Court Register.

4. Submissions need to include the following:
a) the applicant’s own details, i.e. business name, legal form, registered office, KRS (National Court Register) number, and NIP (tax identification number); and
b) details of the beneficial owner and member of a corporate body or shareholder authorized to represent the partnerships/companies listed in article 58 of the AML Act, i.e. first and last name, nationality, country of residence, PESEL or date of birth (if no PESEL number has been assigned), and information about the shares or interest held by the beneficial owner.

5. In order to simplify the definition of the “beneficial owner,” provided in the AML Act, and for the purposes of this legal alert, we can assume that the beneficial owners of partnerships/companies are individuals who directly or indirectly hold over 25% shares/voting rights (incl. as a pledgee or user, or on the basis of arrangements with other holders of voting rights). In case it is impossible to determine (or there are doubts as regards) the identity of beneficial owners (e.g. due to a dispersed shareholding structure), and there is no suspicion of money laundering or financing of terrorism with respect to a given entity, it is presumed that the beneficial owners are individuals who hold senior management positions.

6. Along with the registration application, it is necessary to file a statement of accuracy of the data submitted with the Register. Such statement is subject to criminal liability for fraudulent misrepresentation.

7. The person submitting information about beneficial owners and updates to such information bears liability for damages resulting from publication of inadequate data with the Register.

8. The Register will be publicly available. The data included in it will be covered by the presumption of truthfulness. Information about beneficial owners can be obtained free of charge.

9. A partnership’s/company’s failure to meet the obligation to apply for an entry in the Register carries a fine of up to PLN 1,000,000.00.

Objectives of the Register:
1. Ensuring greater transparency of commercial transactions in Poland and across EU.
2. Identifying potential criminals or those who evade taxation by hiding behind complex corporate structures.
3. Offering access to comprehensive information about potential business partners.
4. Boosting the society’s trust in the reliability of the financial system and financial transactions.

It seems, however, that the Register will not be established until the deadline specified in the AML Act. As of the alert date, the Ministry of Finance released an announcement that the expected start date of the public tender for the Register’s implementation is Q4 2019.

In case of any questions about the issues presented herein or other AML or counter-terrorism financing matters, please feel free to get in touch with us.

Contact
Rafał Smolik
Associate
rafal.smolik@actlegal-bsww.com
+48 22 420 59 59