Estonia

Summary of private placement provisions for fund interests (if applicable)

Estonia has fully implemented AIFMD with a new Investment Funds Act (“IFA”) taking effect on 10 January 2017.

There is no express definition of “private placement” in Estonian law. Instead, the Estonian Securities Market Act (“ESMA”) and the IFA provide for a definition of a “public offer” and stipulates a list of exemptions which under which an offer or placement of securities is not considered to be public and which, if met, would exempt the issuer and the offeror from the obligation to publish a prospectus. The relevant exemptions provided in the ESMA derive from the Prospectus Directive (as amended). An offer of securities (including an offer of units or shares of investment funds) is considered public, unless it satisfies any of the following exemptions provided by the ESMA. For the purpose of the ESMA, an offer of securities is defined as a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to the securities.

Article 12(2) of the ESMA states that an offer of securities is not deemed to be a public offer if it falls within the following exemptions:

• an offer of securities is addressed solely to qualified investors (as defined in Article 6(2) of the ESMA which implements the MiFID definition of qualified investor);
• an offer of securities is addressed to fewer than 150 persons per each EEA Member State, who are not qualified investors; or
• an offer of securities is addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer; or
• an offer of securities has the nominal or book value of at least EUR 100,000 per each security; or
• an issue or offer of securities has a total consideration in all EEA Member States of less than EUR 2,500,000 during a one-year period.

In addition, the IFA exempts from the public offer regime any offering of units or shares of a foreign open-ended investment fund by a fund, management company or a credit institution to its specific client in the course of provision of portfolio management services or services relating to issue or underwriting of securities.

The concept of private placement remained unchanged after the full implementation of the AIFMD.

Other forms of possible placement options for fund interests outside fund regulations

Estonian public offer rules may not apply if the placement of securities of an investment fund is made at the initiative of an investor, i.e. on the basis of reverse solicitation (including unsolicited request). In addition, Estonian public offer rules would not apply if the offer is not deemed to be made in Estonia. This condition may only be deemed fulfilled if no marketing materials or other communications regarding the offer of securities are distributed in Estonia or addressed to Estonian investors (i.e. marketing materials are not in Estonian, there is no Estonian help desk/ call centre, a website is not on an Estonian server etc.), any contracts are concluded and the securities are acquired, cleared and accepted by Estonian persons outside Estonia, according to a non-binding opinion expressed by the Estonian Financial Supervision Authority (“EFSA”). Thus, reverse solicitation could, in principle, fall outside the Estonian public offer rules to the extent that the foreign fund is not actively marketed in Estonia and the acquisition of fund units or shares occurs and is cleared outside Estonia.

The EFSA will, however, assess on a case-by-case basis whether the above-mentioned conditions are fulfilled.

The IFA regulates all types of investment funds (investment funds are defined as a pool of assets established for collective investment (hereinafter common fund) or a public limited company founded for collective investment, which is or the assets of which are managed on the principle of risk-spreading by a management company), including but not limited to pension funds and UCITS. With amendments to the IFA that have transposed the AIFMD, the list of available types of investment funds has been supplemented to include AIFs (although AIFs are not defined in the IFA as a separate fund class, but rather the legislation applicable to AIFs has been transposed through the rules and regulations concerning AIFMs) by reference to funds that are defined as another (not previously regulated) pool of assets or person established for collective investment, including an investment fund founded in a foreign state. The general exemptions of AIFMs stipulated in Paragraph 3 of Article 2 of the AIFMD have also been implemented in Estonia.

Consequences of non-compliance with placement regimes for fund interests

An offer of securities in a manner not compliant with Estonian law may lead to:

• claims for damages by investors that have subscribed to the offer of securities; and
• regulatory sanctions (including the imposition of administrative penalties of up to EUR 32,000 and also ban on further distribution activities of the fund); and
• criminal liability (including a fine of up to EUR 16m and/ or the risk of imprisonment for the directors of the fund manager or marketing entity).

Private placement rules for non-fund investments available

The private placement regime described above applies according to the ESMA to the following types of securities (non-fund investments):

• a share or other similar tradeable right;
• a bond, convertible security or other tradeable debt obligation issued which is not a money market instrument;
• a subscription right or other tradeable right granting the right to acquire securities specified in the previous two points;
• a money market instrument;
• a derivative security or a derivative contract; 
• a tradeable depositary receipt; or
• a greenhouse gas emission allowance within the meaning of subsection 137 (1) of the Estonian Atmospheric Air Protection Act.

Similar to fund units and shares, the offer of the above non-fund investments is exempt from the obligation to publish a prospectus if it falls under any of the exemptions stipulated in Article 12(2) of the ESMA.