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COMPANY LAW II

COMPANY LAW II. Wk 5 Fundraising by Public Issue - part 2. Misstatements - causation and intention. Causation: false or misleading statement must have caused loss: Edgington v Fitzmaurice. - Cf co 540 and SFO 5 108, and 55277,281 . Third party reliance: - Peek v Gurney

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COMPANY LAW II

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  1. COMPANY LAW II Wk 5 Fundraising by Public Issue - part 2

  2. Misstatements - causation and intention • Causation: false or misleading statement must have caused loss: Edgington v Fitzmaurice. - Cf co 540 and SFO 5 108, and 55277,281 . • Third party reliance: - Peek v Gurney - AI Nakib Investments - Andrews v Mockford - Possfund Custodian v Diamond - Cf CO 540 and SFO 5 108, and 55277,281

  3. Fraudulent misstatements • Civil liability for compensation: - Tort of deceit; MO s 3(1). - CO s 40, SFO ss 108, 277 and 281 . • Criminal liability: - CO s 40A - untrue statements in prospectus where no reasonable grounds for belief. - SFO s 107 - fraudulent or reckless misrepresentations. - SFO s 298 - fraudulent or reckless disclosures of false or misleading information. [SFO pt XIV] - Theft Ordinance (Cap 210) s 16A - fraud. - Common law: conspiracy to defraud.

  4. Fraudulent misstatements • Proving fraud: Derry v Peek. Fraud is proved if: - Person knows statement to be false; - Person did not believe in the truth of the statement; or - Person was reckless as to the truth or falsity of the statement. • Cf MO s 3(1), CO s 40A, SFO ss 107, 298.

  5. Typical process for public issues • Must be public company: see s 29. - Private co converting to public: see s 30 . • Appoint sponsor . • Sponsor to engage in due diligence and drafting of the prospectus . • Apply for listing on stock exchange; submit prospectus (listing • document) to stock exchange for review: see LR Ch 9 . • At the same time, lead underwriter (usually the brokerage arm of the sponsor) will begin process of syndication (obtaining other underwriters ) . • Following approval by the stock exchange, register prospectus with Companies Registry: s 38D . • Issue application forms and prospectuses . • Open and close subscription lists . • Allot and issue the shares.

  6. Advertising restrictions • Restrictions under s 38B. - Exceptions: see s 388(2) and 19th Schedule . • Restrictions arising from definition of prospectus: ss 2, 38(1), (1A), 380 . • Restrictions under SFO ss 103, 105 . • Restrictions under Stock Exchange listing rules, rule 9.08.

  7. Sales in secondary market • Prospectus provisions prima facie do not apply to sales of shares . • But anti-avoidance provision in s 41 : prohibits the offer of shares for the purposes of on-sale.

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