WHEN IS A PROSPECTUS REQUIRED?
The Netherlands, Curaçao, St. Maarten and the BES-islands compared
The Netherlands
The legal system in the Netherlands has a European origin. We will not discuss this further here.* Chapter 5.1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht: ‘Wft’) includes the rules for offering securities.
Section 5:2 Wft stipulates:
“It is forbidden in the Netherlands to offer securities to the general public or to allow securities to be traded in a regulated market situated or operating in the Netherlands unless – with regard to the offering or the admission – a prospectus is generally available which has been approved by the Dutch Authority for the Financial Markets (‘AFM’) or by a regulator of another Member State.”
There are obviously exceptions to this prospectus requirement, this being an obligation to provide information. A major exception is already present in the description of the concept of an “offer to the general public“. This is only the case if the offer (to buy or otherwise to obtain, or to offer) is aimed at more than one person (Section 5:1 under a Wft). Therefore the one-to-one situation is excluded from the prospectus requirement. In addition, the prohibition only applies to offering or admission ‘in the Netherlands’. ‘Offering from the Netherlands’ is not covered by the prohibition; however, other countries themselves usually have such a prohibition.
Insofar as this is relevant here, the term offering means: “in the course of a profession or business making directly or indirectly a sufficiently determined proposal to enter as the counterparty into an agreement with a consumer with regard to a financial product other than a financial instrument, contributory pension claim or insurance or in the course of a profession or business entering into, managing or carrying out such an agreement” (Section 1:1 Wft).
It is also possible to broker. Insofar as this is relevant here, the term brokering means: “all activities in the course of a profession or business aimed at forming an agreement as an intermediary with regard to a financial product other than a financial instrument, credit, contributory pension claim or insurance between a consumer and an offeror” (Section 1:1 Wft).
Of the other exceptions I only mention offering securities exclusively to qualified investors or to a group of less than 150 persons (not being qualified investors), or if the securities offered can only be acquired at the counter value of at least €100,000 per investor, or if the nominal value per security amounts to at least €100,000 (Section 5:3 subsection 1 Wft).
Section 5:21 Wft stipulates who should make the prospectus generally available. This is about the issuing company (the issuer), the offeror of the securities or the party who requested that the securities be listed on the stock exchange (admission to trade in the regulated market). This Section provides for the regulatory obligation to make the prospectus generally available. With respect to prospectus liability it should be mentioned that other parties may be liable as well.
Curaçao and Sint Maarten
The legal regulations in connection with the law providing for financial supervision are materially identical in Curaçao and Sint Maarten. For convenience sake we will mainly refer to Curaçao below.
The search for a prospectus requirement in the law on supervision will be in vain. The National Ordinance on the Supervision of Investment Institutions and Administrators (Landsverordening toezicht beleggingsinstellingen en administrateurs: ‘Ltba’) prohibits everybody in Section 3 subsection 1 from asking or obtaining in or from Curaçao funds or other assets in order to participate in an investment institution – which has not been granted a license by the Central Bank of Curaçao and Sint Maarten – or from offering participation rights in such an investment institution. The Central Bank can grant an exemption from this prohibition (Section 10 Ltba).
In Section 8 of the Directives on the Supervision of Investment Institutions and Administrators it issued, the Central Bank made a prospectus mandatory for any offering by an investment institution and in Annex B of this listed what information must be included in such a prospectus. The major requirement in this connection is that the prospectus includes the details which are necessary for the investors to be able to form a sound idea about the offer.
Thus there is not a generic prospectus requirement in Curaçao and St. Maarten. Therefore there is no prospectus requirement for offering securities one-to-one (just as in the Netherlands), unless it would involve – in short – offering participation rights in an investment institution. If securities are offered from Curaçao or St. Maarten in countries where a prospectus is a requirement, this would obviously have to be taken into account. In connection with offering securities via the internet this could easily give rise to problems.
Aside: that there is no generic prospectus requirement obviously does not mean that securities can randomly be offered to the general public. For instance Section 45 of the National Ordinance on the Supervision of Banking and Credit Institutions (Landsverordening toezicht bank- en kredietwezen: ‘Ltbk’) stipulates that anybody is prohibited from approaching the general public directly or indirectly with regard to raising funds unless these are credit institutions entered into the official register. It is generally supposed that offering bonds / debentures to the general public is covered by this prohibition. In addition, the concept of ‘general public’ is then interpreted very broadly: as everybody except (registered) credit institutions.
This prohibition is not applicable to issuing shares or inviting limited partner participations. After all, in that case capital (equity) is raised and the capital provider will not be in the position of a creditor but that of a shareholder or limited partner.
BES (Bonaire, St. Eustatius & Saba)
It has been laid down in Section 4:10 subsection 1 of the BES Financial Markets Act (Wet financiële markten BES: ‘Wfm BES’) that an investment institution must have a prospectus available with regard to the rights of participation it offers. The Act also prescribes which information must be included in the prospectus (cf Section 5:4 Wfm BES) and that the prospectus must be updated as soon as there is reason to do so. I will not go further into this.
The system of the prospectus requirement in the BES differs on various points from that of the Netherlands but I will only mention one important difference here. Section 5:19 subsection 1 Wfm BES includes a generic prospectus requirement:
“It is forbidden to offer securities in the public bodies (i.e. Bonaire, St. Eustatius and Saba –KF) outside a closed circle to others than professional market parties or to allow securities to be traded in a stock exchange held in the public bodies unless a prospectus that has been approved by the Authority for the Financial Markets (AFM) is generally available with regard to the offering.”
Subsection 2 provides for two exceptions: when participation rights in an investment institution are involved (the Act includes a different arrangement for this) and when it involves securities which are excluded under a Ministerial Regulation (e.g. stock dividend or employee shares). But there is not yet such a Ministerial Regulation!
The one-to-one situation where there is a party who wants to offer securities to one interested party only, is excluded from the prospectus requirement as well. According to Section 1:1 Wfm BES an offer means: in the pursuit of a profession or business make a sufficiently specific proposal, either directly or indirectly, to submit a sufficiently specific proposal to more than one party to act as the other party in a contract relating to the purchase or other form of acquisition of securities or an invitation to submit an offer for securities.
According to Section 1:26 Wfm BES the Minister of Finance may issue a Ministerial Regulation granting exemption, for instance with respect to securities of which the nominal value per security exceeds a certain threshold, or if the securities are only offered to a restricted group. But there is not yet such a Ministerial Regulation!
In other words: outside a closed circle (and the one-to-one situation) securities can only be offered to professional market parties unless there is a prospectus approved by the AFM. The subject of listing is not further detailed here.
The concept of a ‘closed circle‘ is not further described in the BES legislation. It seems obvious to tie in here with the arrangement in the Netherlands. In short: (i) a well-defined group of people (objectively limited), (ii) access to the group is not easily realizable and (iii) there must be an existing legal relationship between the issuing company and the members of the group (e.g. an employment agreement).
So for the remainder there is no exception from the prospectus requirement for offering securities to others than the professional market parties. The professional market parties are listed exhaustively in the Act. Section 1:1 Wfm BES:
“professional market party: investment institution, credit institution, pension fund, asset manager, insurer or other party appointed in or pursuant to an Order in Council.”
According to the Dutch Central Bank it is characteristic of a professional market party to be able to assess financial products and services independently and to take decisions in that respect. A professional market party must be able to assess the risks of financial products and services himself.
There is no Order in Council referring to another party as such, such as in the Netherlands where the category of ‘professional market party’ is further defined in Section 3 of the Wft Definitions Decree (Besluit definitiebepalingen Wft).
In conclusion, there is a much broader prospectus requirement in the BES than in the Netherlands and in Curaçao en St. Maarten. And this is obviously rather odd!
Karel Frielink
Attorney (Lawyer) / Partner
(23 March 2014)
.
* See the Prospectus Directive (2003/71/EC) published on 31 December 2003 in the Official Journal of the European Union (L345/64, 31.12.2003). On 1 July 2012 several amendments became effective in the Netherlands. This involves amendments as a result of the implementation of the reviewed Prospective Directive (Directive 2010/73/EC), the Omnibus I Directive (Directive 2010/78/EC) and amendments as a result of adjustments in the Prospectus Regulation (Regulation (EC) no. 809/2004) in 2012 (Delegated Regulation 486/2012/UG and Delegated Regulation 826/2012/EU). The Prospectus Regulation includes rules for formulating a prospectus.
.
