#3345 - Prospectus Liability Crib Sheet - Public Companies and Equity Finance

Prospectus Liability

Has there been an omission of information in the prospectus, a misleading statement, incorrect information or information coming to light which should have triggered the production of a supplementary prospectus?

1. What claims can be brought?

   1. Misrepresentation under the Misrepresentation Act 1967

   2. Misrepresentation at common law for breach of contract if the misrepresentation has been incorporated as a term of the contract for the allotment of shares

   3. Negligent misstatement if the requisite duty of care to the subscriber can be established

   4. Tort of deceit

   5. Breach of directors’ duties

   6. 118(7) FSMA market abuse

      1. Dissemination of information likely to give a false or misleading impression

         1. Applies once application for permission to trade is made

   7. Criminal charges if an untrue or misleading statement is made deliberately with the intent to deceive

      1. 397(2) & (3) FSMA

      2. 19 Theft Act

      3. 2, 3 & 12 Fraud Act

   8. Breach of DTR 2.2.1 if insider information had to be released to the market

2. Who can bring a claim?

   1. Anyone who acquired the shares and subsequently suffered a loss

      1. EXPLAIN WHY THEY HAVE SUFFERED A LOSS

3. Who is potentially liable?

   1. 90(1) FSMA any person responsible for the listing particulars must pay compensation to anyone who has acquired the shares and suffered a loss as a result

      1. 90(11) FSMA listing particulars applies equally in relation to a prospectus

      2. 84(1)(d) FSMA defines persons responsible by referring to PR 5.5.3(2)

         1. PR 5.5.2 these rules apply in respect of a prospectus in relation to an issue of transferable securities in a Home State that is the UK

            1. APPLY TO THE FACTS

         1. PR 5.5.3R(2)(a) the issuer (company)

         2. PR 5.5.3R(2)(b)(i) directors of the company

         3. PR 5.5.3R(2)(b)(ii) anyone who has agreed to be named, and is named, in the prospectus as a director, or having agreed to become a director, either immediately or in the future

         4. PR 5.5.3R(2)(c) anyone who accepts, and is stated in the prospectus as accepting responsibility for the prospectus

         5. PR 5.5.3R(2)(d) anyone other than the company who is offering the shares

            1. PR 5.5.7R a person will not be responsible if the shareholder is making the offer in association with the issuer and it is primarily the issuer who draws up the prospectus

         6. PR 5.5.3R(2)(e) the person requesting admission to trading of the shares

         7. PR 5.5.3R(2)(f) anyone else who authorises the content of the prospectus

            1. Includes accountants who must set out a statement in the prospectus that they are responsible for such content

               1. PR 5.5.8 they will be responsible only for content in those paragraphs

      3. PR 5.5.9R sponsors and lawyers do not have responsibility by reason only of giving advice about the content of the prospectus in a professional capacity

4. Defences

   1. 90(2) FSMA refers to the defences in Schedule 10 FSMA

      1. Schedule 10, para 1(2) at the time when the listing particulars were submitted to the competent authority, he reasonably believed (having made such equires, if any, as were reasonable, that the statement was true and not misleading or the matter whose omission caused the loss was properly omitted and

         1. Para 1(3)(a) continued belief until securities were acquired OR

         2. Para 1(3)(b) securities acquired before it was reasonably practicable to bring a correction OR

         3. Para 1(3)(c) before securities were acquired, he had taken all reasonable steps to secure that a correction was brought OR

         4. Para 1(3)(d) continued belief until after commencement of dealings in securities and acquired after such a lapse of time that he ought be reasonably excused

      2. Schedule 10, para 2(2) at time when listing particulars submitted he reasonably believed that the other person (expert) was competent to make or authorise the statement and he had consented to its inclusion in the form & context in which it was included and

         1. Para 2(3)(a) continued belief until securities were acquired OR

         2. Para 2(3)(b) securities acquired before it was reasonably practicable to bring a correction OR

         3. Para 2(3)(c) before securities were acquired, he had taken all reasonable steps to secure that a correction was brought OR

         4. Para 2(3)(d) continued belief until after commencement of dealings in securities and acquired after such a lapse of time that he ought be reasonably excused

         5. Schedule 10, para 8 expert includes any engineer, valuer, accountant or other person whose profession, qualifications or experience give authority to a statement made by him

      3. Schedule 10, para 3(2)(a) before securities were acquired...