Chapter 7 Public Offering and Public Company Requirements

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Questions and Answers

Which individuals can be held liable for misleading statements in a prospectus under Section 130 of the SMO?

Only the issuer of the prospectus

The issuer, directors, and the principal adviser (correct)

Only the industry experts named in the prospectus

Only the executive directors of the issuer

What must be submitted by the applicant before the close of the securities offer date?

A supplementary prospectus (correct)

A risk assessment document

A market research analysis

An annual financial report

What is the consequence for a person who knowingly makes a misleading statement in a prospectus?

They cannot be prosecuted if they claim ignorance

They are only liable if investors sustain losses

They may be guilty of an offense under Section 128 of the SMO (correct)

They can be banned from all future financial roles

In the context of a supplementary prospectus, what option is available to an investor who accepted the original offering?

They can withdraw their acceptance after the supplementary prospectus is published Signup and view all the answers

What is required for defendants in legal actions related to misleading statements in a prospectus?

They must prove that they acted with due care and diligence Signup and view all the answers

Which individuals are considered promoters of the prospectus and may be held liable for misleading statements?

Controlling shareholders and their associates Signup and view all the answers

What type of information is typically considered price-sensitive within the context of issuing a prospectus?

Specific forecasts or estimates regarding company performance Signup and view all the answers

Which of the following actions constitutes a legal violation under the SMO related to misleading statements?

Concealing facts to manipulate the investor's decision Signup and view all the answers

What must be disclosed in a prospectus if the estimated proceeds from a securities offering cannot fully fund all intended purposes?

The priority order of the purposes along with shortfall fund sources Signup and view all the answers

Which scenario requires the submission of a supplementary prospectus?

The approved prospectus contains a significant new factor or material mistake Signup and view all the answers

What key information is required if assets are acquired from the issuer’s affiliates or associates?

The persons from whom the assets will be acquired and how the cost is determined Signup and view all the answers

In which case may an issuer present no specific plans for the proceeds in the prospectus?

If the Authority has permitted the lack of plans and reasons are provided Signup and view all the answers

What should a prospectus describe if proceeds are used to discharge or reduce indebtedness?

The interest rate and maturity of the indebtedness Signup and view all the answers

What should be included in a prospectus drawn up as a single document?

Identified risk factors linked to the issuer Signup and view all the answers

Which element is specifically part of a securities note in a separate prospectus?

Short form information on the securities offered Signup and view all the answers

What can the Authority allow to be omitted from a prospectus?

Information that is only of little importance Signup and view all the answers

What is the purpose of the prospectus summary?

To convey the essential characteristics and main risks associated with the securities Signup and view all the answers

When must the issuer file information about price and quantity with the Authority?

As soon as practicable, if not disclosed Signup and view all the answers

Which of the following statements is true about the investor's decision process regarding a prospectus?

Decisions should be based on the context of the entire prospectus Signup and view all the answers

Which of the following is a requirement when requesting the omission of information from a prospectus?

Identifying the specific information and reasons for omission Signup and view all the answers

What happens if both the final offer price and quantity of securities are excluded from the prospectus?

Criteria and conditions for determining these items must be disclosed Signup and view all the answers

Under what condition can the omission of disclosed information be deemed acceptable?

If the information is deemed to be insignificant to investors Signup and view all the answers

Which component is NOT typically found in a complete prospectus?

Detailed financial projections of the issuer Signup and view all the answers

What types of information must publicly tradable companies disclose to prevent misleading statements in the market?

Price-sensitive information that could influence investor decisions Signup and view all the answers

Which of the following scenarios requires immediate disclosure by a listed company under regulations?

A definitive agreement involving a significant merger with another entity Signup and view all the answers

A listed company must avoid creating a false market. Which action is critical to achieving this?

Disclosing all relevant price-sensitive information within two business days Signup and view all the answers

What kind of price-sensitive information is linked to changes in a company's financial obligations?

Defaults and events triggering obligations Signup and view all the answers

Which of the following choices represents a condition that does not require disclosure under the security regulations?

Minor errors in quarterly earnings reports Signup and view all the answers

In the context of price-sensitive information, which item must be disclosed promptly to ensure investor protection?

Events leading to the loss of a significant client or contract Signup and view all the answers

Which of the following is NOT an example of price-sensitive information as per the regulations?

Changes in the board's meeting schedule Signup and view all the answers

What is a key compliance requirement for a listed company concerning its internal accounting system?

To be aligned with International Financial Reporting Standards (IFRS) or prescribed regulations Signup and view all the answers

Failure to disclose which type of information could create a false market in the securities?

Mergers and acquisitions impacting company valuation Signup and view all the answers

Which of the following statements about price-sensitive information disclosure is true?

Price-sensitive information must be disclosed within two business days Signup and view all the answers

What is the primary purpose of placing pre-allotment proceeds in a separate bank account according to Section 125 of the SMO?

To maintain transparency and accountability regarding the handling of these funds Signup and view all the answers

Under which condition may a company's public offering be suspended?

If information filed becomes misleading or if the sale results in investor fraud Signup and view all the answers

What does Regulation 4 of the SMR require a prospectus to provide?

All necessary information for investors to assess the issuer's financial position and prospects Signup and view all the answers

Who bears the responsibility for the safekeeping of pre-allotment proceeds?

The issuer of the securities Signup and view all the answers

What action can the Authority take if it determines that a company's public offering information is inadequate?

Request additional pertinent information from the issuer Signup and view all the answers

If an issuer receives a warning notice after the Authority's decision to suspend an offering, what can the issuer do next?

Present their case to the Authority for reconsideration Signup and view all the answers

Which of the following is NOT a consequence of contravening the requirement to separate pre-allotment proceeds?

Loss of the right to issue securities in the future Signup and view all the answers

When dealing with price-sensitive information, what must the issuer be cautious about?

Confirming the accuracy of the information before publication Signup and view all the answers

What is the issuer's obligation regarding pre-allotment proceeds, based on the requirements outlined?

To hold the proceeds in trust and not to use them for other expenses Signup and view all the answers

Study Notes

Prospectus and Supplementary Prospectus Requirements

The prospectus must disclose all necessary information for investors to assess the financial position and prospects of the issuers and guarantors for trading on a regulated market
The prospectus must disclose how proceeds from the offering of securities will be used.
The prospectus can be shown as a single document or as separate documents
For proceeds used to acquire assets not in the ordinary course of business, the prospectus shall describe the assets and their costs.
For proceeds used to finance acquisition of other businesses, the prospectus shall briefly describe such businesses and information on the acquisition status
For proceeds used to discharge, reduce or retire indebtedness, the prospectus shall disclose the interest rate and maturity of such indebtedness.
The prospectus must disclose the estimated net amount and percentage of the proceeds broken down into each main intended use.
If the estimated proceeds cannot fully fund all the proposed purposes, the issuer needs to disclose the priority order of the purposes, and amount and sources of the shortfall funds needed.
If there are no specific plans for the proceeds, and the Authority has allowed this, the issuer shall discuss the key reasons for the securities offering.
If the offer is not fully underwritten on a firm commitment basis, the prospectus shall state the minimum amount which the directors think must be raised.
If the assets were or will be acquired from the issuer’s affiliates or associates, the prospectus shall disclose the persons from whom the assets will be acquired, and how the cost to the issuer will be determined.
The prospectus information may refer to previously published documents which were approved by or filed with the Authority. The information shall be the latest available to the issuer.
If there is a significant new factor, material mistake or inaccuracy on the information provided in the prospectus, the applicant must submit a supplementary prospectus which provides details of such significant new factor, material mistake or inaccuracy before the close of the securities offer date or when trading begins.
The supplementary prospectus must be submitted before the close of the securities offer date or when trading begins.
An investor who has accepted the offering (based on the earlier-approved prospectus) can choose to withdraw his acceptance after the supplementary prospectus is published.

Misleading Statements and Practices Relating to Prospectus

The issuer of prospectus, including the capital markets service provider that facilitate the fund-raising exercise may be subject to risks of being sued for losses or damages, under Section 130 of the SMO.
The securities buyers or subscribers who feel they have been misled may pursue legal action to recover the loss or damage from:
- The issuer and each director of the issuer at the time of the issue.
- The person who consented or caused himself to be named in the prospectus form as a director, sponsor or solicitor.
- The promoter of the prospectus, such as the controlling shareholder and their associates, and executive directors who have interest in 5% or more.
- The principal adviser who advises the issuer in submitting corporate proposal which includes prospectus to the Authority.
- The person named with his consent as stating something in the prospectus, that is the subject matter expert such as industry expert of the issuer.
- The person named with his consent as a securities broker, underwriter, auditor, banker, advocate or solicitor.
In defence of any proceeding or legal action taken by the securities buyer or subscriber, the defendant must prove that they have exercised due care, skill and diligence to ensure that the information provided are true, concise and accurate.
The issuer is guilty of an offence under Section 128 of the SMO if he makes a statement, promise or forecast which he knows is misleading for the purpose of inducing, or is reckless as to whether it may induce the message recipient to enter into or to refrain from entering or offering to enter into an investment agreement.

Prospectus Content

If a prospectus is drawn up as a single document, it should contain:
- A clear and detailed table of contents
- A prospectus summary
- Identified risk factors linked to the issuer and the type of security covered by the issuer
- Any information required by the Authority
If the prospectus is to be drawn up as a separate document, it should contain:
- A registration statement
- A securities note which is a short form information document which contains information on the securities being offered and for which admission to trading is sought
- A prospectus summary
A prospectus summary conveys the essential characteristics and main risks associated with the issuer, the guarantors, and the securities being offered to the public.
A prospectus summary cautions the readers to read the information in proper context, as follows:
- It shall be read as an introduction to the prospectus
- An investor's decision shall be based on consideration of the prospectus as a whole
The Authority may authorise the omission of information from the prospectus for the following reasons:
- The disclosure would not be in the public interest
- The disclosure would adversely affect the issuer (but this may be acceptable only if the omission would be unlikely to mislead the public)
- The information is only of little importance
In order to request for such omissions, the issuer needs to:
- Put the request in writing
- Identify the specific information concerned and the specific reason for its omission
- State the reason(s)
One would normally expect a prospectus to state the final offer price and quantity of securities to be offered.
These items may not be disclosed under the following situations:
- If both these items are excluded, then the prospectus must state the criteria and conditions which determine the price and quantity or in the case of price, the maximum price. This information must be filed with the Authority as soon as practicable
- If either one item is excluded, investors shall be entitled to withdraw their acceptance of the acquisition/subscription terms for the securities within two trading days after the publication of these two information items.

Disclosure and Handling of Price Sensitive Information

Listed companies or publicly tradable companies need to disclose to the public any price-sensitive information or inside information that would materially affect an investor’s investment decision within two business days.
Types of price-sensitive information include information that:
- Is necessary to enable appraisal of the position of the company and its subsidiaries
- Is needed to avoid the creation or continuation of a false market in the securities, e.g. based on incomplete or inaccurate information
- Might reasonably be expected to materially affect market activity and the price of its securities.
The types of price-sensitive information to be listed include the following:
- Transactions in securities of the reporting entities made by their executive officers and directors.
- Defaults and other events that may trigger acceleration of direct or contingent obligations.
- Transactions that result in material direct or contingent obligations not included in a prospectus filed by the reporting entities with the Authority.
- Offerings of securities not included in a prospectus filed by the reporting entities with the Authority.
- Waivers of corporate ethics and conduct regulations for officers, directors and other key employees.
- Material modification to rights of security holders.
- Departure of any senior management of the reporting entities.
- Notices that reliance on a prior audit is no longer permissible or that the auditor does not consent to the use of this report.
- Definitive agreement that is material to the reporting entities.
- Loss or gain of a material client or contract.
- Material write-offs, restructurings or impairments.
- Material change in accounting policy or estimates.
- Movement or de-listing of the securities from one quotation system or securities exchange to another.
- Changes in rating agency decisions and other rating agency contacts.
- Any other material events.

Pre-allotment Proceeds

The company can ascertain the number of securities subscribed versus those eventually allotted only at the closing date of the public offering.
Section 125 of the SMO requires the issuer to place all pre-allotment proceeds in a separate bank account which is set up solely for this purpose. The issuer does not own the proceeds but is merely holding these proceeds in trust for the applicant.
The issuer's pre-allotment proceeds must not be mixed up with the issuer’s other bank accounts.
Contravention of this requirement would result in a fine, imprisonment or both.
The responsibility for safekeeping lies with the issuer and not the bank to which the moneys are deposited.
The bank is not obligated to enquire on such moneys provided that the purpose of the deposit is solely for the fund-raising activity.

Suspension of Offering

The Authority may ask the issuer for further pertinent information if information filed is or has become misleading, incorrect, inadequate or incomplete in any material respect.
The sale or offer of the registered security may be suspended if it will result in a fraud on investors.
The Authority may suspend the right to sell and offer for sale of such security.
If the Authority decides to suspend the issuance, it must give the issuer a warning notice.
The issuer is then given the opportunity to present its case to the Authority.
If, despite this presentation, the Authority upheld its decision, then the issuer may appeal to the Financial Markets Services Panel.

Company Accounting Records and Documents

The company needs to comply with the following:
- Keep the accounting records and documents to comply with the Authority’s regulations.
- Disclose to the public a timely interim report which contains all material information relating to the company’s financial condition and operating performance.
- Have an internal accounting system that is in line with the IFRS or any others that the regulations may prescribe.

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Description

Test your knowledge on the key requirements and disclosures necessary for a prospectus and supplementary prospectus. This quiz covers essential aspects such as financial disclosure, use of proceeds, and acquisition details that must be included for investor assessment.