New requirements re public offering and seeking admission to trading
In Newsletter No. 104, we presented some introductory information concerning the amendments to the legislative Act regarding public offering. We hereby return to this issue, especially seeing as the date of coming into force of the new rules has since been announced (30 November 2019).
Drawing up, verification and approval of the prospectus
Given the coming into force on 21 July 2019 of the Prospectus Regulation, which comprehensively regulates key issues associated with the public offering, the duty to prepare a prospectus and to secure its approval, and publication of the prospectus (as discussed at length in our publication "New capital for a publicly listed company without a prospectus – New regulations"), the present amendments repeal pertinent provisions of the Public Offering Act so as to prevent overlap with the new Prospectus Regulation.
The amended Public Offering Act brings material changes concerning the scope and means of presenting risk factors. The gist is that the number of risk factors presented in the prospectus ought to be reduced in comparison to what is presently the norm, the idea being that the prospectus should only elaborate on risks unique to, or characteristic of, the specific issuer. Also, risk factors should now be presented along with indication of the probability that they may actually materialise and of the scale and nature of their potential impact.
The new regulations implement changes to the procedure for approval of the prospectus. They exclude application of some elements of administrative procedure, e.g. active participation of the parties in the proceedings, deeming a factual circumstance to have been proven if the party had the opportunity to comment on the adduced proof, and giving the parties the benefit of any doubt (respectively arts. 10, 81 and 81a of the Polish Administrative Process Code). The legislature declares that these amendments are intended to streamline the prospectus approval process and better reflect its character. In a scenario where the Polish Financial Supervision Authority (KNF) approves the application in its entirety, these procedural amendments are likely to be largely irrelevant from the perspective of the applying entity. If, meanwhile, the prospectus approval proceedings give rise to a dispute, the applicant will no longer have recourse to certain procedural principles which hereuntil fortified its position vis a vis KNF.
In the same vein, the fee for approval of the issue prospectus will increase by 30%, from EUR 4,500 to EUR 6,000.
A facilitation from the perspective of issuers, meanwhile, is presented in elimination of the duty to work through an investment firm in proceedings before the KNF – the issuer or offering entity may now file their application directly (art. 27.1 of the Act).
New requirements regarding offset of receivables associated with issue of shares and convertible bonds
In the context of issue of shares or of bonds convertible into shares which are to be acquired and paid up by way of offset, the Management Board will now be obligated to draw up a statement complying with the newly added art. 6a of the Act. Such statement, among other requirements, must set out the premises adopted in valuating the receivable of the subscriber and specify the legal basis for such receivable. This statement will be subject to assessment by a certified auditor appointed by the registry court (subject to a number of exceptions, e.g. offset of bank receivables). The net effect is that, in practice, the process of making contributions towards securities issues will become quite similar to issue of securities involving contributions in kind.
Passing on of public offering proceeds, automatic redemption
The amended art. 5a of the Act changes the terms for passing funds accruing from a public offering on to the issuer in instances where the prospectus, apart from the public offering as such, also concerned admission of the offered shares to trading in the regulated market. In such a situation, the issuer shall receive proceeds from the offering only once the shares have been admitted to trading in the regulated market. If such admission is not secured within the validity period of the prospectus, the Management Board of the issuer shall be bound by law to return any proceeds and to redeem the shares, and these steps shall not require calling a general meeting. Automatic redemption shall not apply, however, where the issuer has declared in the prospectus that, in the event that the shares are not admitted to trading in the regulated market, he shall seek admission to trading in an alternative system, or where admission to trading in an alternative system is secured while the prospectus remains in force (subject, in each and every instance, to permission by the investor).
Application for admission of securities to trading without permission of the issuer
The new art. 11a of the Act makes it possible to apply for admission of securities to trading in the regulated market without obtaining permission of the issuer, provided that the given securities have already been admitted to trading in another regulated market, with their issuer subject to the relevant duties. The entity lodging such an application shall be obligated to perform the information duties of the issuer in Poland (once the given information / statement has been published by the issuer in its home country). If the securities are subsequently delisted from the foreign regulated market, the entity which secured their admission in Poland must, within a one-month deadline, announce a tender for the issuer’s shares. The entity seeking admission of securities to trading on such a “substitute” basis shall be liable for truthfulness of the information presented in this connection.
Following the amendments, the KNF has at its disposal new powers in the event of violations concerning the public offering, subscription or sale of shares consequent to such offering, or seeking admission to trading in the regulated market:
- Recommending cessation of the violation, a tool on the flexible end of the statutory scale in that it does not require commencement of proceedings or issue of a decision – the offending entity is asked to cease and desist the action in question until the specified irregularities have been remedied;
- Demanding that the entity operating the financial instruments trading system suspends listing of the offending issuer’s securities for a period set by the KNF;
- In the event of justified suspicion of a violation, the suspension – 10 days maximum – enables the issuer, offeror or underwriter to address the suspected irregularities.
Significantly enough, the above are “on the spot” measures, subject to immediate execution.
The newly assed art. 96c of the Act institutes separate penalties for violation of certain rules laid down by the Prospectus Regulation concerning description of risk factors, information about the final offer price and number of the securities, inclusion of information by reference, publication of the prospectus, advertising, lack of clear notice of the right to revoke permission in connection with publication of any supplement, and use of language. Where such infractions occur, the KNF may:
- Exclude the securities from trading;
- Impose on the issuer, offeror or underwriter a penalty of up to PLN 21,100,000 or 3% of aggregate revenue as per the last approved annual report – for natural persons, the maximum penalty has been reduced to PLN 3,000,000;
- Enjoin the persons responsible for the violation to cease and desist actions resulting in the violation and to refrain from such actions in the future;
- Bar the issuer or offeror from seeking approval of another prospectus for up to five years.