Part 3 Flashcards
What is the requirements regarding the content of a prospectus?
The requirement of the content of a prospectus is set out in the PR2 of the Prospectus rules. The prospectus can be one single document or divided into separate documents. If it is in separate documents then the following three documents are required:
1. The registration document: this contains information about the company.
2. The Securities note: this contains information regarding the shares that are to be offered in relation to the prospectus.
3. The Summary: This must be provided in non-technical language and be conveyed concisely and in an appropriate structure, the key relevant information regarding the securities. This will be used to aid investors considering on whether to invest or not.
The requirements of the prospectus will largely depend on the nature of the shares and type of company issuing them (FSMA 2000, s87A(10)). All companies however must provide the ‘base prospectus’ and some companies may need to provide additional information referred to as ‘building blocks’.
Explain the effects of Registration of Charges and the Non-Registration of a Charge.
Registered charges will have their registered information included in the register of companies and which can be access online or by visiting Companies House. The Registrar will also be provided with a certificate of registration which will confirm that the required documents were provided within the period for delivery and can be used as evidence. The courts have stated in the case of Wilson V Kelland that registration of a charge provides constructive notice of a charges existence but does not provide notice of its terms.
If a Charge is not registered within the period allowed for delivery then it will be void against a liquidator, administrator or creditor of the company. This will only void the security not the debt, and the company will still owe money to the creditor but the creditor will have lost its security. To off-set this if a charge become void for non-registration then the money secured by the charge will immediately become repayable, this will however on be the case for a company in liquidation or administration as stated in Smith v Bridgend County Council, however is the company is still a going concern the security will stand and can be enforced (re Monolithic Building Company).
Market Abuse
Under Part V Criminal Justice Act 1993
There are THREE offences of insider dealing, what are these
- Dealing in price affected securities on the basis of inside information
- Encouraging another person to dealing in price affected securities on the basis of inside information
- Disclosing inside information
Discuss dealing in price –affected securities (s52(1) CJA 1993)
This states that an individual who has information as an insider is guilty of insider dealing if they have dealt in securities that are price-affected securities in relation to information. This offence only relates to shares and debt securities as listed in schedule 2 CJA 1993. The securities will only be considered as price affected if had the information been made public it would have had a significant effect on the securities price. The dealing must have also occurred on a regulated market (including the London Stock Exchange) or the person dealing is acting as a professional intermediary or relies on such person.
The main issue is whether a person is to be considered as ‘dealing’ in securities and this will be true if they meet any of the following conditions. They acquire the securities whether as a principal or agent, this includes agreeing to acquire the security and entering into a contract which creates the security. They dispose of the securities whether as a principal or agent, this includes agreeing to dispose of the security or ending a contract which created the security. They procure directly or indirectly, an acquisition or disposal of the securities by another person or a person who procures or disposes of a security via an agent, nominee or person acting on their behalf.
What is “inside information”?
S56(1) CJA 1993
S56(1) CJA 1993 states that inside information:
- Relates to particular securities, to a particular issuer of securities or particular issuers of securities.
- Is specific or precise
- Has not been made public
- If it was to be made public it would be likely to have a significant effect on the price of securities
What is an insider source?
CJA 1993
S.71(1) states that a person has inside information from a source if:
1) they have it through being a director, employee or shareholder of an issuer of securities or have access to this information by virtue of their employment, office or profession (it can be any issuer of securities not just the price affected one)
2) the direct or indirect source of information is a person with the point above.
Under s53 CJA 1993, what are the defences regarding insider information?
A person won’t be found guilty if you can show
• They didn’t expect the dealing to result in profit attributing from the price sensitive information relating to the securities,
• That they believed on reasonable grounds that the information had been disclosed widely enough that none of those taking part in the dealing would be prejudiced by not having the information and,
• That would have still gone ahead regardless of the information.
What are the penalties for a breach of insider information und CJA 1993?
Insider dealing is a criminal offence.
Summary conviction: fine and or imprisonment for a term not exceeding 6 months
Conviction on indictment: fine and or imprisonment not exceeding 7 years.
What is a share?
540 A share means a share in the company’s share capital
541 A share is personal property
A shareholder can transfer or transmit
It’s a thing in action - intangible asset
BORLANDS TRUSTEES V STEEL BROS & CO LTD - a share is the interest of a shareholder in the company measured by a sum of money
Define Preference share
Preferred fixed dividend -
paid before ordinary share holders - usually has no voting rights
2 types -
cumulative (carries over to next year if there’s a loss)
Non- cumulative - nothing carries over
Ordinary share
Full voting rights
Paid dividend after preference shares
Also called equity shares capital
Deferred shares
Special right to surplus off profits or surplus assets on winding up - also called founds or mgmt shares
Redeemable shares
Fully paid shares that company buy back on future date. Date can be fixed or at directors discretion.
Payment from company must be out of fresh distribution or distributable profits. If it comes from share premium account the same needs to be paid into the capital redemption fund.
Can’t be the only shares in the company
Cancelled on redemption
What are the three sets of rules within the FCA Handbook relevant to public offering of shares?
Listing Rules
Prospectus Rules
DTR - Disclosure Guidance and Transparency
Types of public offering of shares
- offer for subscription - offers amount to public and all shares need to be taken up or the terms of offer say they don’t need to be taken up CA 578
- offer for sale - investment bank subscribes for all the shares then offers to the public
- placing - investment bank places the shares with public and they’ll usually take any the public don’t want
Rights issue - offer to existing shareholders proportionally
