1. 1 Prospectuses

2. 2 Share issues not requiring a prospectus: Share issues not requiring a prospectus: Offer or invitation not to result in shares or debentures becoming available to persons other than those receiving the offer or invitation Offer or invitation not to result in shares or debentures becoming available to persons other than those receiving the offer or invitation

3. 3 Examples of private share issues: Rights issue Private placing

4. 4 Methods of public issue Direct ‘offer’ by the company – Direct ‘offer’ by the company – invitation to the public to subscribe invitation to the public to subscribe prospectus issued prospectus issued banks receive application banks receive application Public placing Public placing Prospectus issued Prospectus issued Through brokers/placing agents Through brokers/placing agents

5. 5 Prospectuses Aim: ensure that the company gives to the public a certain amount of information about its financial position when it is first floated and whenever it subsequently offers its shares and debentures to the public. Aim: ensure that the company gives to the public a certain amount of information about its financial position when it is first floated and whenever it subsequently offers its shares and debentures to the public. General requirement: Full and frank disclosure of relevant facts so that the risk of investment can be assessed. General requirement: Full and frank disclosure of relevant facts so that the risk of investment can be assessed.

6. 6 Definition: Definition: a document a document offering shares or debentures to the public for subscription or offering shares or debentures to the public for subscription or calculated to invite offers by the public to subscribe. calculated to invite offers by the public to subscribe.

7. 7 Content of the prospectus Schedule 3 of the Companies Ordinance Schedule 3 of the Companies Ordinance Warning under section 38(1A) and Schedule 18: Warning under section 38(1A) and Schedule 18: “IMPORTANT If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice.”; and, if in the Chinese language, a statement in the following form or a form to the like effect— “ 重要提示 如你對此招股章程的任何內容有任何疑問， 你應尋求獨立專業意見。 ”. (note: warning on page 88 of text book has been repealed) “IMPORTANT If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice.”; and, if in the Chinese language, a statement in the following form or a form to the like effect— “ 重要提示 如你對此招股章程的任何內容有任何疑問， 你應尋求獨立專業意見。 ”. (note: warning on page 88 of text book has been repealed)

8. 8 Prescribed information General nature of business, share capital and minimum amount to be raised by issue General nature of business, share capital and minimum amount to be raised by issue Financial information Financial information Arrangement and expenses Arrangement and expenses Property to be purchased Property to be purchased Material contracts Material contracts

9. 9 Supporting documents Auditor’s report Auditor’s report Accountant’s report Accountant’s report Valuation report Valuation report

10. 10 Failure to comply The company and The company and Every person who is knowingly a party to the issue of a non-compliant prospectus; Every person who is knowingly a party to the issue of a non-compliant prospectus; liable to a fine of $50,000.

11. 11 Defence for director or other person responsible: Defence for director or other person responsible: Not cognisant of matter not disclosed. Not cognisant of matter not disclosed. Prove that the breach arose from an honest mistake of fact Prove that the breach arose from an honest mistake of fact Matters were immaterial or ought reasonably be excused Matters were immaterial or ought reasonably be excused

12. 12 Liability for misstatements in prospectus Plaintiff – on faith of the prospectus, Plaintiff – on faith of the prospectus, subscribes share/debentures subscribes share/debentures suffer loss or damage suffer loss or damage by reason of the untrue statement in prospectus by reason of the untrue statement in prospectus Untrue statement – deemed untrue if misleading Untrue statement – deemed untrue if misleading

13. 13 Possible defendants: Possible defendants: Promoters Promoters Directors Directors Persons authorised himself to be named as directors Persons authorised himself to be named as directors Persons authorized the issue of the prospectus Persons authorized the issue of the prospectus

14. 14 Statutory defences to section 40(1) liabilities Timely withdrawal of consent Timely withdrawal of consent Reasonable grounds to believe that statement was true Reasonable grounds to believe that statement was true

15. 15 Liability under Misrepresentation Ordinance Subscribers to prove: Subscribers to prove: A material false statement of fact; and A material false statement of fact; and That the false statement induced him to subscribe That the false statement induced him to subscribe

16. 16 Cases: Edgington v Fitzmaurice Cases: Edgington v Fitzmaurice Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd R v Kylsant R v Kylsant Re Pacaya Rubber and Produce Co Ltd Re Pacaya Rubber and Produce Co Ltd

17. 17 Remedies: Remedies: Rescission – name removed from register of members and money returned Rescission – name removed from register of members and money returned Right to rescission will be lost if: Right to rescission will be lost if: Affirmation by conduct Affirmation by conduct Failure to act within reasonable time Failure to act within reasonable time Restitution impossible Restitution impossible Company goes into liquidation Company goes into liquidation Damages Damages

18. 18 Actions in Tort Deceit Deceit Derry v Peek Derry v Peek Negligent Misstatement Negligent Misstatement