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COMPANY LAW II

Wk 5 Fundraising by Public Issue - part 2

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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

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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.

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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.

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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.

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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.

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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.