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 fraudulent or reckless misrepresentations. - SFO s 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 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 19 th 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.