The Prospectus Directive

While most observers agree with the aim of moving towards a single capital market in the EU, serious concern has been expressed over the proposals. A lot of the anxiety has centred on the recommendation that all prospectuses should be pre-vetted by a country’s competent authority (a serious threat to AIM) and the proposal that all companies will have to issue an annual self registration document.

Just as serious is that the draft directive is silent on requirements that are currently contained within the listing rules or the AIM rules. This includes elements such as a working capital statement; an accountants’ report; a profit forecast; and confirmation regarding financial reporting procedures, all of which benefit the flotation process.

The directive aims to achieve ‘maximum’ rather than ‘minimum’ harmonisation. So, in theory, it may actually erode the UK’s ability to impose its own requirements over and above those that are finally set out. Although even this isn’t yet clear.

If this is true, there may be ways to get around EC restrictions by, for example, incorporating additional requirements in company law or in the rules of the London Stock Exchange. However, this would negate what the Commission is trying to achieve and what its reaction to this move would be is uncertain.

The battle is not yet over; Brussels needs to be convinced that, because of the widely held belief the UK system works well, it is better for the prospectus directive to reflect the UK experience rather than try to change a tried and trusted approach.

  • Chris Searle, BDO Stoy Hayward is a member of the ICAEW Corporate Finance Faculty’s technical committee

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