4) Liabilities for share issues

Question 1

What must be done if the marketing material is issued by a company rather than an authorised person?

Answer 1

• Have to determine whether each item of publicity material falls within the exemption under the FPO
• Then decide whether its content requires the approval of an authorised person.

Question 2

What is PR 3.3 (advertisements) NOT applicable to?

Answer 2

• Not applicable to the prospectus itself
• Or to any price-range prospectus that would have been approved by the FCA.
• but applies to all of the other types of promotion (website / pathfinder / roadshow)

Question 3

What is the criteria for things that fall under the exemption in Article 70(1)(c)FPO?

Answer 3

• Has to be approved by the FCA.

Question 4

What regime will a pathfinder fall under?

Answer 4

• The advertising regime

- Therefore needs to comply with requirements in PR 3.3.2R and 3.3.3G

Question 5

Explain why by default roadshow presentations may require approval?

Answer 5

• Communications - because they are an invitation / inducement to engage in an investment activity.
• Are solicited real-time communications, because the investors are deemed to invite the directors of the company to make a presentation to them

Question 6

How can a company avoid the requirement of having to get approval for a roadshow presentation?

Answer 6

• May be able to avoid getting approval for the presentation CONTENT.
• If made to institutional investors
  • Art 50 - sophisticated
  • Art 19 - investment professionals
  • Art 49 - high net worth companies

Question 7

Why cant a pathfinder fall under the exemption in Art 70(1)(c) FPO?

Answer 7

• Because it will not be approved by the FCA.

- But will usually only be sent to institutional investors - sophisticated investors under Art 50/ 19/49 FPO

Question 8

What is verification of a document? Why is it necessary?

Answer 8

• Potential range of liabilities that could result from the publication of a prospectus.
• Verification = checking the accuracy of all price sensitive statements in the prospectus and other marketing documentation
• Reduces risks of liability for false / misleading / inaccurate statements or omissions.
• Check factual accuracy/ make sure there are no omissions.

Question 9

What is the potential verification issue of saying that something “will not be successful?”

Answer 9

• Too definitive, may have to reword it to be verifiable
• Solicitors should not accept responsibility for any part of the document. Role is to advise on contents, not to accept responsibility - PR 5.5.9
• Should revise prospectus to reflect this

Question 10

What steps should be taken if a company is experiencing a big claim for breach of contract?

Answer 10

• Call urgent board meeting to advise all directors of position.
• Consider if supplementary prospectus is required.
• S87G(5)FSMA
• Ask company to investigate the nature of the claim to see if it has any substance - may be sensible to take counsels opinion on merits or otherwise of the claim. Examine company files.
• Relevant period? - s87G(3)
• New factor? - S87G(1)
• Is the new factor significant? - s87G(4) and S87A(2) FSMA

Question 11

What is an example of something that would be considered to be a ‘significant new factor’

Answer 11

• If a claim is worth a liability of like half of the companys estimated worth.
• Consider how much the claim would reduce their net asset value by if it was successful.

Question 12

Apart from the statutory provisions, what else could the investors sue a company under?

Answer 12

• Under common law

- For negligent misstatement

Question 13

How can a company and its directors prevent any liability to investors buying Aqua shares in the future?

Answer 13

• Announce details of the CLAIM to the market
• Via an RIS
• As this is inside information which directly concerns the issuer.
• Under obligation to notify the RIS ASAP - Art 17(1) MAR
• Publication of RIS statement - defence under Schedule 10 para 3

Question 14

Provided that verification of a prospectus has been completed before the date of publication, and then a big claim comes to light afterward, can liability attach to the directors?

Answer 14

• Yes liability can attach to the directors
• Because verification is an ongoing process.
• Verification notes should only be signed off by the directors of the company on the day of publication of the prospectus.
• Interviews with directors will take place before publication
• But directors should know that any info provided in the verification process must be updated when new information comes to light
• Liability does not end just because verification has been signed off

Question 15

If the company were to make a supplementary prospectus just after a threat was made, would the investors who accepted to buy shares before this date have a right to bring a claim?

Answer 15

• No, if company is in the period prior to its shares being admitted to trading
• Will be able to control liability for incorrect statement in prospectus
• By issue of supplementary prospectus
• S87G FSMA

Question 16

Will directors be liable under Art 12 MAR if a prospectus is published and then info comes to light afterwards that means this info is not fully true?

Answer 16

• Yes they will be
• Unless mistake is corrected
• Guilty of INACTION which leads to false / misleading signals as to price of shares
• Could be prosecuted for market abuse - market manipulation

Question 17

Does making an announcement to a RIS on receipt of a letter terminating a contract mean there is no need for a supplementary prospectus?

Answer 17

• No

- Announcement likely to be needed but would not absolve company of its obligations under PR / S87A FSMA

Question 18

what type of liability could make someone ‘lose their house’?

Answer 18

civil liabilities

Question 19

for which 4 types of financial promotion does s21 fsma apply?

Answer 19

1) price range prospects
2) pathfinder
3) roadshows
4) website

Question 20

does the exemption in the FPO apply to a price range prospectus?

Answer 20

yes, the article 70(1)(c) exemption specifically for prospectus’

Question 21

does PR 3.3 rule on advertisements apply for price range prospectus?

Answer 21

no it does not - little cross in PR 3.3 above the word prospectus to represent this

Question 22

does an exemption in the FPO apply for a pathfinder?

Answer 22

yes
art 50 - sophisticated investor 
art 49 - high net worth companies
art 19 - investment professionals 
CAN do a pathfinder to these groups without general restriction applying

Question 23

does an exemption for the FPO apply to roadshows?

Answer 23

yes art 50/49/19 - can do roadshow to these specified groups without the general restriction applying

Question 24

does the exemption in FPO apply to website?

Answer 24

• well only want to aim it at those in Art 50/49/19

- so need to add a filter to restrict access; anyone entering the site must self certify

Question 25

state how the public should be informed if there needs to be disclosure to the public?

Answer 25

via an RIS (regulatory information service)