ProspectsThe Role of the Corporate Advisor

This booklet has been created in cooperation with Grant Thornton Services Ltd.

The Corporate Advisor

Small and medium-sized enterprises (SMEs) in Malta can access the capital market through Prospects, a multilateral trading facility (MTF) operated by the Malta Stock Exchange (MSE) and licensed by the Malta Financial Services Authority. Designed specifically for SMEs, Prospects offers a cost-effective opportunity for entities seeking to raise finance and trade the securities in accordance with the Prospects Rules (the Rules).

In order to list on Prospects, a prospective company (the Applicant) needs to appoint an approved corporate advisor. As set out in the Rules, a corporate advisor is “any person admitted to the Prospects marketplace to provide corporate advisory services”. The role of the corporate advisor is to guide the Applicant through the listing process as well as consistently ensure adherence to the company’s compliance obligations and continuing obligations as laid down in the Rules. Consequently, the role of the corporate advisor is very onerous and includes:

• drafting and submitting all required documents;• carrying out the necessary due diligence

on the Applicant;• assessing whether the Applicant has adequate

corporate governance in place and that compliance, transparency and accounting protocols are adhered to;

• assessing whether the financial sustainability forecasts included are robust, realistic, achievable and attainable;

• maintaining regular contact with the Applicant throughout the duration of the security in order to

ensure that appropriate notifications are released and continuing obligations are fulfilled.

Clearly, the role of the corporate advisor is pivotal to admission to Prospects, in order to ensure that corporate governance requirements are met as well as to provide investor protection through appropriate levels of transparency.

Moreover, the corporate advisor is ultimately responsible to the Applicant as well as the MSE.

In order to ensure that the ongoing provision of services is of the highest standards, corporate advisors are obliged to attend, on an annual basis, specific courses in respect of good corporate governance principles which are either conducted by the MSE or an approved authority.

The relationship between the Applicant and the corporate advisor must be retained for both the admission process as well as for the duration of the security’s term.

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Who May Be Appointed as Corporate Advisor?

Upon admission and on a continuing basisThe corporate advisor must demonstrate, to the satisfaction of the MSE, the following requirements:

• be either an individual or a legal person;• employ, directly contract or insource, at least two designated

qualified persons who shall act as liaison persons;

• proven experience in providing corporate finance, governance, legal or accounting consultancy services;

• capacity to represent the Applicant on Prospects;• maintain independence, impartiality, objectivity,

confidentiality and ethical standards all throughout the engagement;

• have no criminal prosecutions (except for proceedings in respect of minor contraventions) and disciplinary actions or sanctions by any competent authority, law enforcement agency or other professional association against its name;

• hold successful accreditation and aptitude levels; and• commits to keep an ongoing contact with the MSE and

Applicant for an efficient liaison and to readily reply to queries arising at any time.

Admission to Prospects as a Corporate AdvisorIn order to be appointed as a corporate advisor by the MSE, an applicant advisor must:

• complete and submit the corporate advisor application document;

• provide initial payment for initial application and admission; and

• submit any other information as the Prospects Admissions Committee may request.

Prior to approval, a formal interview between the applicant advisor and the MSE is held.

Admission as a corporate advisor to Prospects shall become effective when the Prospects Committee approves the Admission and issues the relevant MSE Notice.

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Corporate Advisor’s Responsibilities

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• take a lead role in the application process and on an ongoing basis by co-ordinating the input of any other advisors’ contributions, if required;

• maintain the reputation of the Prospects marketplace as well as honouring its duty of care to the MSE on a continuing basis, with a fiduciary responsibility of the utmost good faith and the highest standards of due care;

• ensure that investors in securities of Prospects Companies for which it acts as corporate advisor are adequately informed about inside information on a fair and equal basis primarily via the Prospects’ website; and

• liaise with the MSE in a professional, open and co-operative manner responding promptly to any MSE enquiries.

In addition to the above responsibilities, the corporate advisor must also provide training to the Directors so that they are informed of their responsibilities and obligations as Directors of a Prospects Company. The corporate advisor is also responsible for ensuring that all admission documents and the associated checklist set out in the Rules are complete. Furthermore, the corporate advisor needs to ensure that all information, documents and meeting minutes are properly maintained.

A corporate advisor is expected to maintain, at all times, a professional, arm’s length relationship with the Applicants or admitted Prospects Companies with a view to maintaining the requisite standards of independence and impartiality.Furthermore, a corporate advisor is expected to keep the MSE informed of any material changes to the above. Consequently, the corporate advisor’s general responsibilities as emanating from the Rules, are to:

• maintain independence, impartiality, confidentiality and objectivity throughout the engagement;

• establish procedures to prevent and detect conflicts of interest;

• ensure that the Applicant meets the criteria to list on Prospects;

• objectively assess whether the Applicant should float and remain floated on Prospects, and regularly interact with the Applicant;

• maintain a contractual services agreement for the period during which it serves as the corporate advisor;

• ensure that all matters known to the corporate advisor are disclosed appropriately in a consistent, coherent, accurate and complete manner in the Company Admission Document, in a Company Announcement or otherwise in writing to the MSE as appropriate. In case of any rule violations, the corporate advisor should simultaneously initiate an investigation and submit the results thereof to the MSE as soon as possible;

• objectively assess its own capacity on whether it can provide advice, guidance and training to the Applicant both on application to Prospects and on an ongoing basis;

Information disclosed Description

Details of current and previous experience

The corporate advisor must list the current and previous experience of its qualified persons, as appropriate.

A list of current and former Prospects client companies, if any

The corporate advisor must list its current and former Prospects client companies, as well as include a list or links to the corporate finance transactions undertaken for each Prospects company for the past five years.

Statement A statement that the corporate advisor will at all times maintain:

Independence, impartiality, objectivity, confidentiality and ethical standards ensuring that it can identify, mitigate and, if not possible to eliminate, disclose any conflicts of interests and how such conflicts are managed;

to the extent allowed a process by which the corporate advisor or its connected person(s) may invest or trade in securities issued by their client Prospects companies and the immediate disclosure of any such investment or trading therein; and

quality assurance in respect of its services to client Prospects companies.

Website Maintenance

A corporate advisor is obliged to maintain a website and disclose the following on its website:

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Assessment of Prospective Applicants

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Internal investment committeeWhile not required by the Rules, it is advisable that the corporate advisor sets up an internal investment committee, consisting of at least two senior members of the firm, so that all prospective Prospects applicants are approved by the investment committee, prior to listing on Prospects. Such approval ensures that the four eyes principle is adhered to and that all clients listing on Prospects are of a reputable nature, thus maintaining the reputation of the Prospects marketplace as well as ensuring investor protection.

Corporate advisor agreementIn line with Prospects Rules, the corporate advisor must maintain a contractual services agreement for the period during which it serves as the corporate advisor. Consequently, the relationship between the corporate advisor and the Applicant is to be formalised through a corporate advisor agreement, which should be signed prior to commencement of the engagement. In essence, the agreement is to include all terms and conditions of the engagement, such as an overview of the assignment, the role and responsibilities of the corporate advisor, the role and responsibilities of the Applicant, and the corporate advisor’s fees.

Initial meetingAn initial meeting between the corporate advisor and Applicant is held (ideally face-to-face) in order to obtain a sound understanding of the Applicant, the vision of the Proponent, the strategy of the business and the proposed use of proceeds. In such initial meetings preliminary workings provided by the Applicant are discussed and the corporate advisor assesses the appropriateness of the Applicant to list on Prospects.

Know your client (KYC)Once the corporate advisor assesses that the Applicant is suitable for Prospects, a due diligence on the company, its shareholders, directors and key management personnel is carried out by the corporate advisor in order to authenticate the client relationship and its financial dealings. Such due diligence ensures that the Applicant is not involved in money laundering activities and/or financing of terrorism, is not burdened by lawsuits and that no warrants of a legal nature or prohibitive injunction are issued against the company and/or its promoter which could have an adverse financial and legal effect.

Understanding the Business and Feasibility Review

Feasibility review of financial sustainability forecastsA set of projections, including a statement of comprehensive income, a statement of financial position and a statement of cash flow are to be drawn up by the Applicant and reviewed by the corporate advisor. The review would include:

• challenging the assumptions on which the projections are drawn up,

• ensuring projections are compiled under International Financial Reporting Standards,

• comparing projections to actual historical figures (if any),• identifying key performance indicators,• assessing the efficiency of the tax structure proposed by

the Applicant,• assessing completeness of the costs included,• assessing the use of proceeds, amongst others.

Following the review of projections, the corporate advisor must assess whether alternative forms of funding could be availed of, and whether the assumptions underlying the projections need to be reassessed.

Sensitivity analysisThe corporate advisor should then stress test the robustness of the projections through a sensitivity analysis and/or a scenario analysis, whereby the drivers behind the key assumptions are changed to assess the likely impact on the Company’s projected performance and its ability to service and (in the case of bonds) ultimately repay in full.

In-depth analysis of the businessIt is essential that the corporate advisor obtains a thorough understanding of the operations of the Applicant, in order for the corporate advisor to:

• provide the Applicant with advice and support in the application process,

• challenge the Applicant’s assumptions on an ongoing basis,

• identify the risks the Applicant is facing, and• determine the risk-mitigating factors built into the

business model.

The corporate advisor should continually assess whether the Applicant is a suitable candidate for Prospects and whether the Applicant consistently adheres to the Rules on an ongoing basis.

Such knowledge and expertise is obtained through detailed discussions with the Applicant, analysis of historical financial statements and/or projections, detailed review of the business plan, sectoral knowledge, competitor analysis, internet research and industry reports amongst others. In case of specialised businesses, specialists or external experts may need to be appointed in order to achieve appropriate knowledge of the Applicant’s area of business.

Setting up a project planSetting out a project plan which is then discussed with the Applicant assists the corporate advisor in identifying the listing process, setting clearly defined timelines for the tasks involved and assigning responsibilities for each task. The project plan is to be monitored on anongoing basis by the corporate advisor.

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Corporate Governance and Legal Setup

Training provided to directors, compliance officer and key management personnelThe Applicant’s directors are jointly and severally responsible for ensuring full compliance with the Prospects Rules.

Consequently, the corporate advisor is entrusted with providing training to the directors, the compliance officer and key management personnel so that they are informed of their responsibilities and obligations. The corporate advisor’s responsibility extends across the entire term of the security, during which it retains the responsibility of ensuring that directors, compliance officer and management are kept abreast of any developments to the Prospects Rules.

Determining the appropriate setupThe legal and tax structure of the Applicant should also be assessed and challenged by the corporate advisor, in order to ensure that the most effective structure is being utilised by the Applicant.

Corporate governance setupIt is the corporate advisor’s duty to ensure that the Applicant has an appropriate corporate governance structure in place. Amongst other matters, the corporate advisor must assess the effectiveness of the board of directors, audit committee and compliance function. The corporate advisor must carry out a thorough review of the internal controls and risk management systems in place to ensure that they are sufficient for the level of risk the Applicant is exposed to.

It is the Applicant’s responsibility to ensure that the directors’ and management’s expertise are sufficient to effectively execute the proposed business plan and to deliver the identified objectives.

Board of directorsIn accordance with the Rules an Applicant is required to have a board of directors and audit committee, composed of at least three directors, the majority of whom are non-executive directors.

Consequently, it is the corporate advisor’s duty to ensure that such parameters are met. Moreover, it is the corporate advisor’s responsibility to assess the appropriateness of the directors in place, assess the effectiveness of the board of directors as a whole for the Applicant’s current needs and future plans, and advise the Applicant on whether additional directors need to be appointed. Should further directors need to be appointed, due diligence of these additional directors would need to carried out by the corporate advisor.

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Company Admission Document

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In order to be admitted to Prospects, the Applicant needs to submit a company admission document. Although it is the Applicant’s directors who are jointly and severally responsible for the company admission document, the document is compiled by the corporate advisor.

Consequently, the corporate advisor is responsible for ensuring completeness, accuracy and appropriateness of admission documents.

The company admission document should amongst other matters include the risks associated with and essential characteristics of the Applicant (and guarantor, if any) and the investment in the relevant security.

The document must also clearly indicate:

• the rights attached to the securities;• general terms of the offer;• estimated issue costs;• overview of the business, legal setup and trend

analysis;• details of the process to be undertaken before the

securities are admitted to trading;• reasons for the offer and use of proceeds; and• summary details of the financial sustainability

of the Applicant.

Depending on the nature of business of the Applicant and the history of the Applicant’s operations, additional reports may need to be annexed to the company admission document, such as specialist third party valuation reports and accountant’s report, amongst others.

Ongoing Obligations

• A company admitted to Prospects shall be bound by the continuing obligations as required in the Prospects rules. The responsibility of compliance with such obligations rests on the Prospects company, however, it is the corporate advisor’s responsibility to ensure that the continued obligations of the Applicant are followed and all necessary notifications are communicated to all parties including the MSE and the investors. Consequently, the Prospects company shall in its own interest, seek prior independent advice from its corporate advisor as appropriate.

• It is the corporate advisor’s responsibility to independently advise, support and update the Prospects company on its obligations to the MSE, investors and the market at large on the application of the Prospects rules. The corporate advisor together with the Prospects company shall take all reasonable care to ensure that such information the company releases to the market is not misleading, false or deceptive and that it does not omit anything that is likely to affect the price of its securities.

• The corporate advisor is to regularly interact with the Prospects company, to keep abreast of developments, making due and careful enquiry, and contacting the MSE immediately about the Prospects company’s continuing obligations and notifying it if the company is in violation of the rules. In case of the latter, the corporate advisor is required to initiate an investigation and submit results to the MSE.

• The corporate advisor is also required, on an ongoing basis, to update its website with transactions relating to the Prospects company as well as continually assess whether it retains the capacity to meet the conditions required of corporate advisors as set out in the Rules. The corporate advisor is to promptly advise the MSE by written notice of any material change that may impact its ability to comply with the responsibilities listed in the Rules.

Key Ongoing Responsibilities

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• Appointment and termination of directors;• Retention of the organisational capabilities to meet the

disclosure and compliance obligations under Prospects rules;

• Corporate governance is maintained;• Website is maintained by the Prospects company and that

free access to its specific information is included;• Any related party transactions are vetted by the company’s

Audit Committee and if the transaction is not approved by the committee then a company announcement is issued;

• Any transactions involving takeover, merger, major acquisition, disposals or realisation involving substantial shareholding documented through a company announcement.

The corporate advisor shall ensure that all company announcements are prepared, uploaded and circulated to all the holders of securities.

It is the corporate advisor’s responsibility to ensure that the continued obligations of the Applicant are followed and all necessary notifications are communicated to all parties including the MSE and the investors.

Consequently, the corporate advisor should maintain regular contact with the Prospects company, to ensure that the following notifications and/or information is provided on an ongoing basis:

• Inside information and subsequent material changes thereto are promptly uploaded on the MSE’s website by way of a company announcement, either directly or via the corporate advisor. The corporate advisor may assist the company in uploading such information;

• Annual and half yearly financial statements are compiled in accordance with IFRSs. Such financial statements would need to be disseminated on the company’s website, the MSE’s website and also on the corporate advisor’s website;

• Financial statements of the guarantor (if any), including auditor’s reports are prepared and uploaded on the respective websites;

• Financial sustainability forecasts prepared annually, or quarterly if the company’s net cash flow forecast indicates less than 12 months of remaining working capital;

• Material variances between published forecasts and actual performances are to be clearly explained;

Prospects is a Multilateral Trading Facility operated by the Malta Stock Exchange and authorised by the MFSA

Disclaimer and further Information

This Guide does not purport to furnish a comprehensive outline of the Rules and is intended to briefly sum up the role and responsibilities of a Prospects corporate advisor. In this context, therefore, it should be read as subject to the detailed provisions of the Rules which will prevail in case of any inconsistency with any of the relevant provisions.

The full text of the Rules and other relevant information may be found on www.smeprospects.com

This booklet has been created in cooperation with Grant Thornton Services Ltd.

Malta Stock Exchange plc, Garrison Chapel, Castille Place, Valletta VLT 1063.Tel: + 35621244051 E-mail: borza@borzamalta.com.mt Website: www.borzamalta.com.mt

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