We have previously reported on the EU Prospectus Regulation (EUPR) which entered into force on 20 July 2017 and will apply in full from 21 July 2019. You can see our previous newsletter covering this here.
The EUPR’s two-year transition period is approaching the halfway mark and, on 21 July 2018, some of the changes will start to apply. If you currently rely on an exemption from filing an EU prospectus under the EU Prospectus Directive (EUPD), then you should now consider whether that reliance is still appropriate for the next year (21 July 2018 to 20 July 2019). This is also a good opportunity to think about what the full EUPR provisions might mean for you from July 2019. You should consider whether you will be able to extend your existing equity plans to the EU or whether you should defer any potential new plan until July 2019 so that you can rely on the widened employee share plan exemption.
The requirement to publish a prospectus for issuing securities within the EU (and various exemptions from this requirement) are currently found in the EUPD. To date, EU member states have implemented the EUPD in various different ways, leading to a complex and inconsistent approach. The EUPD is therefore being replaced by the EUPR, which will ensure that more consistent rules apply across the member states, with less scope for variation. A recap of the timeline of implementation is at the bottom of this alert.
July 2018 changes
A number of changes will take effect on 21 July 2018 – halfway into the two-year transition period:
- the current de minimis exemption, where the consideration for transferable securities across all member states over a 12 month period is less then EUR100,000, will be repealed;
- the current exemption, where total consideration of the offer across all member states over a 12 month period is less than EUR5million, will be repealed;
- a new exemption, where total consideration of the offer across all member states over a 12 month period is less than EUR1million, will be introduced; and
- member states will have the opportunity to increase the above threshold of EUR1million to also exempt offers up to a EUR8million limit (by notification to the European Commission and ESMA).
This means that, from 21 July 2018, the current exemption for offers with a total consideration of under EUR5million will be reduced to an exemption for offers under EUR1million This is a problem for many issuers currently relying on this exemption. Although member states will be able to provide for a higher threshold up to a EUR8million limit, ESMA has confirmed to us that they do not anticipate receiving any such notifications until close to July 2018 or even later, as there is no deadline. There is, therefore, no guarantee that the current EUR5million exemption will be preserved in any EU country.
Employee Share Plan Exemption
One of the key changes under the EUPR will allow issuers around the world to rely on the employee share plan exemption. Currently, issuers must be headquartered or listed in the EU to rely on this exemption. From 21 July 2019, when the EUPR applies in full, the new expanded exemption will be available to all issuers, regardless of where they are headquartered or listed. The EUR1million vs. EUR5million exemption point discussed above will, therefore, no longer be relevant for employee share plan offers from this point.
The EUPR will apply in full on 21 July 2019. The UK is due to leave the EU on 29 March 2019. Some commentators have reported that this means that between 29 March 2019 and 21 July 2019, UK issuers will not be able to rely on either the current EUPD or the new EUPR employee share plan exemption.
Although a Brexit ‘transition period’ has since been announced to run from 29 March 2019 to 31 December 2020, the impact of this on the position is currently not entirely clear. We are watching this space and will keep you informed!
The move from the EUPD to the EUPR is a welcome one, which will, when fully implemented, make employee offers in the EU simple for all issuers, wherever located. However, the approach to take during the transition period is still far from clear and the initial reduction of the EUR5million exemption will cause problems for some.
If you currently rely on the EUR5million exemption, then you need to think, in advance of 21 July 2018, what other exemptions will be available in each EU member state.
For issuers headquartered outside the EU, the broadening of the employee share plan exemption is little over a year away. You should start to think now about how to make the most out of this for your EU employees. If you have historically not offered a particular employee incentive plan in the EU because of the onerous prospectus obligations, you can now start thinking about whether this would be a good idea in the future!
If you want to discuss any of the points above or would like help with any of your incentive plans, please do contact us.
Bob, Sally and Tom