Chapter 7 Public Offering and Public Company Requirements PDF

CHAPTER SEVEN Public Offering and Public Company Requirements  DISCLAIMER □ Brunei Darussalam Central Bank (BDCB) is not responsible for the results of any action taken on the basis of information in this licensing examination study manual or any errors...

CHAPTER SEVEN Public Offering and Public Company Requirements  DISCLAIMER □ Brunei Darussalam Central Bank (BDCB) is not responsible for the results of any action taken on the basis of information in this licensing examination study manual or any errors or omission; □ BDCB expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted by a person in reliance, whether whole or partial, upon the whole or any part of the contents of this licensing examination study manual; and □ BDCB do not purport to provide legal or other expert advice in this licensing examination study manual and if any legal or other expert advice is required, the services of a competent professional person should be sought.  ABBREVIATIONS AMBD Autoriti Monetari Brunei Darussalam AAOIFI Accounting and Auditing Organisation for Islamic Financial Institutions BDCB Brunei Darussalam Central Bank BDCBO Brunei Darussalam Central Bank Order, 2010 BOD Board of Directors CMSL Capital Markets Services Licence CMSRL Capital Markets Services Representative’s Licence CIS Collective Investment Scheme CFD Contracts for Differences CSD Central Securities Depository ECF Equity Based Crowdfunding FCA Financial Conduct Authority FIMM Federation of Investment Managers Malaysia FinTech Financial Technology IOSCO International Organization of Securities Commissions IFRS International Financial Reporting Standards IMF International Monetary Fund ISAF Internal Syariah Audit Framework ICM Islamic Capital Market MMOU Multilateral Memorandum of Understanding OTC Over the Counter P2P Peer-to-Peer SMO, 2013 Securities Markets Order, 2013 SMR, 2015 Securities Markets Regulations, 2015 SFSB Syariah Financial Supervisory Board SFSBO Syariah Financial Supervisory Board Order, 2006 SRO Self-Regulating Organisation SAB Syariah Advisory Body SGF Syariah Governance Framework SPV Special Purpose Vehicle Contents CHAPTER 7 – PUBLIC OFFERING AND PUBLIC COMPANY REQUIREMENTS.............................. 2 Learning Goals....................................................................................................................... 2 7.1 Public Offering................................................................................................................. 2 7.2 Offering Process and Requirements............................................................................... 3 7.2.1 Prospectus Filing and Approval................................................................................ 3 7.2.2 Pre-allotment........................................................................................................... 4 7.2.3 Suspension of Offering............................................................................................. 5 7.3 Prospectus and Supplementary Prospectus Requirements........................................... 5 7.3.1 Information in Prospectus........................................................................................ 5 7.3.2 Supplementary Prospectus...................................................................................... 8 7.3.3 Misleading Statements and Practices Relating to Prospectus................................ 8 7.5 Reporting Requirements of a Public Company............................................................ 13 7.5.1 Periodic Financial Reporting Requirements.......................................................... 14 7.5.2 Disclosure and Handling of Price Sensitive Information....................................... 15 7.5.3 The Authority’s Directives and Powers.................................................................. 18 7.5.4 Disclosure of Directors’ Interests........................................................................... 19 7.5.5 Disclosure of Substantial Shareholders’ Interests................................................. 19 7.5.6 Proxy solicitations.................................................................................................. 20 Summary.............................................................................................................................. 20 Questions............................................................................................................................. 21 Additional Recommended Reading.................................................................................... 22 1  CHAPTER 7 – PUBLIC OFFERING AND PUBLIC COMPANY REQUIREMENTS Learning Goals LG1. To define the concept of public offering as compared with private offering. LG2. To describe the offering process and requirements. LG3. To outline the key requirements of a company’s prospectus and supplementary prospectus. LG4. To describe exemptions from the public offering requirements in the form of exempt securities, exempt transactions and the pertinent Notices. LG5. To discuss the key reporting requirements of a public company. 7.1 Public Offering In general, a public offering happens when a firm sells (or issues) its equity or debt securities to the public at large, so as to raise funds. Typical examples of such securities are stocks and bonds respectively. Public offerings must be typically registered with the regulatory authorities. Since these securities are issued to the public at large, the offerings of such securities are subject to very stringent regulatory requirements. Conversely, a private offering happens when a firm sells its securities to a select group or limited number of persons or organisations. While private offerings must also meet regulatory requirements, they are less stringent compared with those for public offerings. Specifically, in Brunei Darussalam, the SMO states that a public offering is an offer to sell a security to more than fifty (50) non-accredited investors. Non-accredited investors are those individuals, corporations or trustees (or others prescribed by the Authority) whose net assets or income are below some pre-specified amounts as stated in Section 20 of the SMO. Conversely, the SMO also defines a private offering as one which offers to sell securities to fewer than fifty (50) non-accredited investors during a twelve (12)-month period. 2 7.2 Offering Process and Requirements 7.2.1 Prospectus Filing and Approval In order to make a public offering of securities in Brunei Darussalam, Section 116 of the SMO and Regulation two (2) of the SMR require a firm to file a prospectus with, and obtain approval from, the Authority. The prospectus must comply with the SMO requirements and have been declared effective by the Authority within forty (40) days from the date of application receipt. If there is no approval within this forty (40)-day period, the prospectus becomes effective only after the forty (40)-day period lapses. A prospectus is an offering document prepared by or on an issuer’s behalf to sell or offer its securities for sale to the public. It is only an issuer of securities who may make a public offering. Upon obtaining the Authority’s approval of the prospectus, the issuer must file it with the Authority. The issuer must also make the prospectus available to the public within a reasonable time prior to making the public offering or admission to trading of the securities (Regulation 12 of the SMR). The prospectus is deemed available to the public when it is published in one of the following ways under Regulation 12(3) of the SMR: (1) Inserted in one or more newspapers widely-circulated in Brunei Darussalam; (2) Its printed version is available for free to the public; and (3) Its electronic version is available on the website of the issuer, underwriter or regulated market. If a company’s shares are not offered to the public, the company is a private company. If its shares are offered to the public, be it through an over-the-counter (OTC) or stock exchange medium, it becomes a public company. It is also known as a publicly tradable company (Section 2 of the SMO) which is required to file periodic reports with the Authority. In the offering of its shares to the public, the public company or publicly tradable company is also subject to the general prospectus filing and approval process as mentioned above. 3 Advertisements relating to the public offering must be approved by a CMSL holder and fulfil the following conditions of Regulation 14 of the SMR: (1) It says a prospectus has been or will be published and tells where it can be obtained; (2) It is clearly recognisable as an advertisement; (3) The advertisement information is accurate and not misleading; and (4) The advertisement information is consistent with the information in the prospectus. Where an expert view is presented in a prospectus, the expert needs to certify and agree in writing on these pertinent parts of the documents for which he is responsible and is being cited. This written consent must be filed with the Authority and the issuer must keep a record of the written consent. 7.2.2 Pre-allotment In essence, in a public offering, a company issues securities so as to obtain funds from the public at large. Members of the public who are keen would apply or subscribe for their desired number of these securities. At this stage (known as the pre-allotment stage), these applicants would not know whether they would be allotted the number of securities for which they applied or subscribed. This is because the company can ascertain the number of securities subscribed versus those eventually allotted only at the closing date of the public offering. Hence, for accountability and transparency purposes, 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. In essence, the issuer does not own the proceeds but is merely holding these proceeds in trust for the applicant. In other words, 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. 4 7.2.3 Suspension of Offering These two (2) situations may lead to the suspension of a company’s public offering: (1) If information filed is or has become misleading, incorrect, inadequate or incomplete in any material respect; or (2) If the sale or offer of the registered security will result in a fraud on investors. Under these two (2) situations, the Authority may ask the issuer for further pertinent information. The Authority would use this information to decide whether it should revoke the public offering application. The Authority may also 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. 7.3 Prospectus and Supplementary Prospectus Requirements 7.3.1 Information in Prospectus Regulation 4 of the SMR states that the prospectus shall disclose all the necessary information to enable investors to make an informed assessment of the financial position and prospects of the issuers and guarantors for the purpose of trading on a regulated market. It can be shown as a single document or as separate documents. If a prospectus is drawn up as a single document, it should contain the following: (1) Clear and detailed table of contents; (2) Prospectus summary; (3) Identified risk factors linked to the issuer and the type of security covered by the issuer; and (4) Any information required by the Authority. 5 If the prospectus is to be drawn up as a separate document, the items required to be shown are as follows, as stated under Regulation 4(5) of the SMR: (1) A registration statement; (2) 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; and (3) 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 also cautions the readers to read the information in proper context, as follows: (1) It shall be read as an introduction to the prospectus; and (2) An investor’s decision shall be based on consideration of the prospectus as a whole. Nonetheless, Regulation 6 of the SMR says that the Authority may authorise the omission of information from the prospectus for the following reasons: (1) The disclosure would not be in the public interest; (2) The disclosure would adversely affect the issuer (but this may be acceptable only if the omission would be unlikely to mislead the public); and (3) The information is only of little importance. In order to request for such omissions, the issuer needs to: (1) Put the request in writing; (2) Identify the specific information concerned and the specific reason for its omission; and (3) State the reason(s). One would normally expect a prospectus to state the final offer price and quantity of securities to be offered. But these items may not be disclosed under the following situations: (1) 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 6  price. Moreover, these information must be filed with the Authority as soon as practicable. (2) If either one (1) item is excluded, investors shall be entitled to withdraw their acceptance of the acquisition/subscription terms for the securities within two (2) trading days after the publication of these two (2) information items. The prospectus shall also state how proceeds from the offering of securities will be used: (1) The prospectus shall disclose the estimated net amount and percentage of the proceeds broken down into each main intended use; (2) 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; (3) 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; and (4) 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. The following table outlines some of the items to be disclosed according to how the proceeds are used, as required by Regulation 8 of the SMR: Proceeds Used To Disclosure Items Acquire assets not in the Describe the assets and their costs ordinary course of business Finance acquisition of other Briefly describe such businesses and information on the businesses acquisition status Discharge, reduce or retire (1) interest rate and maturity of such indebtedness indebtedness (2) for indebtedness incurred within one (1) year – how the proceeds were used 7 If the assets were or will be acquired from the issuer’s affiliates or associates, the prospectus shall disclose: (1) The persons from whom the assets will be acquired, and (2) 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, as stated in Regulation 10 of the SMR. The information shall be the latest available to the issuer. 7.3.2 Supplementary Prospectus There are instances whereby after the prospectus has been approved by the Authority, the applicant then realised or detected that there is a significant new factor, material mistake or inaccuracy on the information provided in the prospectus. In such instances, the applicant must, as stated under Regulation 15 of the SMR, 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. Regulation 15 of the SMR, the applicant must submit a supplementary prospectus which provides details of the significant new factor, material mistake or inaccuracy. He must submit the supplementary prospectus before the close of the securities offer date or when trading begins. After the supplementary prospectus is published, an investor who has accepted the offering (based on the earlier- approved prospectus) can choose to withdraw his acceptance if he so wishes. 7.3.3 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. For instance, the securities buyers or subscribers who feel they have been misled may pursue legal action to recover the loss or damage from the following persons: (1) The issuer and each director of the issuer at the time of the issue; (2) The person who consented or caused himself to be named in the prospectus form as a director, sponsor or solicitor; 8 (3) The promoter of the prospectus, such as the controlling shareholder and their associates, and executive directors who have interest in 5% or more; (4) The principal adviser who advises the issuer in submitting corporate proposal which includes prospectus to the Authority; (5) 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; and (6) 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. Moreover, a person who makes a statement, promise or forecast which he knows is misleading is guilty of an offence under Section 128 of the SMO if he: (1) Makes the statement to conceal the facts for the purpose of inducing, or (2) 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. 7.4 Exemptions from Public Offering Requirements Nonetheless, Section 117 of the SMO says that a company which issues exempt securities or exempt transactions are exempted from the public offering requirements. Exempt securities are as follows: (1) Securities which are issued and guaranteed by the Government; (2) Securities which are issued by a bank (provided these are not the bank’s own securities); (3) Commercial paper, promissory notes and debentures which mature within 270 days; and (4) Those which the Authority may determine as exempt securities under the SMR. 9 Exempt transactions are as follows: (1) Transactions for which a client instructed his brokers to execute; (2) A firm sells its securities to fewer than fifty (50) persons over a twelve (12)-month period and there is no public advertisement for this offering and these investors hold the securities for at least two (2) years; (3) The securities are sold to qualified buyers as defined in Section 20; (4) Sale of securities by order of the Court or by a Court officer relating to insolvency proceedings; and (5) Those which the Authority determine as exempt transaction under the SMR. Furthermore, several notices apply to securities offering, as follows: (1) Notice on Notification on Private Offerings and Exempt Securities and Transactions Under this Notice, issuers, licensed distributors or licensed persons acting as dealers are required to notify the Authority of any private offerings or those which relate to exempt securities/transactions within fourteen (14) days from the offer date. These parties must also submit monthly reports on all private offerings and any other offerings of exempt securities within fourteen (14) days after the end of each month. (2) Notice on Public Offering Registration Requirement of Investment-linked Insurance Contracts This Notice requires issuers and licensed or registered distributors of investment-linked insurance contracts to submit to the Authority a Product Highlight Sheet instead of a full prospectus. This must be done in accordance in a form which the Authority may determine from time to time. 10 (3) Notice on offering of Structured Products This Notice clarifies who the eligible issuers of structured products in Brunei Darussalam are. An eligible issuer comprises a licensed financial institution who is a dealer, bank and locally incorporated Special Purpose Vehicle (SPV) which is sponsored by a bank or a dealer. The eligible issuer is required to provide its investment rating status to investors. If the eligible issuer is not rated or is rated below investment grade, the structured product needs to be rated before an offering can be made. A structured product, as defined in the Notice, is a product that combines an instrument (e.g. a note, fund or insurance contract) with a derivative so as to provide economic exposure to some underlying tradeable assets (e.g. securities, equity interest, commodity or index or portfolios of these items). This economic exposure gives the investors some payoffs that are related to the performance of the underlying assets. In view of the inherent risks, structured products can be offered only to those specified in Section 20 of the SMO which is also known as sophisticated investors. By virtue of this, the eligible issuers have to comply with the reporting requirement under the Notice on Notification on Private Offerings and Exempt Securities and Transactions. The Notice on Structured Products also provides restricted advertisement requirements, disclosure requirements, and warning statement requirements to which the eligible issuer must adhere. The Notice also specifically highlights the suitability and fair dealing requirements for the offering of structured products. The dealer must adopt fair dealing best practices such as allowing an investor to a full refund of the principal investment during an offer period. The dealer should also attempt to make investors understand the risks of structured product investments by observing or conducting the following five (5) key principles: (a) Know Your Client: assess the investor’s financial position, investment experience and investment objectives. 11 (b) Duty of Care: ensure full explanation of financial risks and potential losses that may arise from investing in structured products are fully explained to eligible investor before he makes his investment decision. (c) Sales Personnel: ensure sales personnel attending to eligible investors of structured products are licensed representatives permitted to conduct regulated activity of dealing and arranging deals in investment. (d) Confirmation of Disclosure by Investor: ensure the eligible investor signs a confirmation that the relevant disclosure has been made and that they have read the risk disclosure statement. (e) Individual Investors: ensure a higher standard of diligence is exercised when dealing with individual investors. For Islamic structured products, the issuer is required to comply with the Syariah governance requirements which can be referred to in Chapter six (6). (4) Notice on Offering of Debentures This Notice imposes additional requirements on a licensed distributor in Brunei Darussalam who intends to distribute and offer debentures to sophisticated investors in Brunei Darussalam. The licensed distributor must ensure that any invitation to buy debentures must be clearly communicated and directed only to sophisticated investors and the distributor must also exercise due diligence in carrying out his functions and duties and in protecting the sophisticated investors’ rights and interests. Besides, the distributor must ensure the suitability of the debenture offered and must put in place internal procedures to ensure client suitability. He must also fulfil the reporting requirements under the Notice on Notification on Private Offering and Exempt Securities and Transactions. 12 (5) Notice on Offering of Debentures to Retail Investors Retail (or individual) investors are those who invest in securities and assets on their own, usually in smaller amounts (Corporate Finance Institute, n.d.). In the event of loss, they may face challenges in affording protection for themselves. For this reason, the regulatory requirements surrounding retail investors are more stringent to ensure they are afforded protection. As such, the Notice on Offering of Debentures to Retail Investors requires licensed distributors and issuers of debentures who intend to target retail investors to ensure that the debentures are rated investment grade by a credit rating agency of global renown. Where a licensed distributor intends to distribute foreign debentures to retail investors in Brunei Darussalam, he must ensure that these foreign debentures are: (a) Listed on a securities exchange regulated by an IOSCO member country regulator, and (b) Publicly offered in its home country. Other requirements can be found in the Notice. 7.5 Reporting Requirements of a Public Company A public company includes a listed company, a publicly tradable company or any other company as the law may classify as being a public company. In essence, a listed company is one whose shares are listed on a stock exchange. A publicly tradable company is defined in Section 2 of the SMO as one that requires periodic reports because: (1) It has a class of securities which are listed for trading on a securities exchange, or (2) it has sold a class of its securities as registered under the SMO, and (3) Such securities are owned by fifty (50) or more non-accredited investors. The following sub-sections discuss the reporting requirements of a public company under nine sub-headers: periodic reporting, price-sensitive information, the Authority’s directives, directors’ interests, substantial shareholders’ interests, and proxy solicitations. 13 7.5.1 Periodic Financial Reporting Requirements Listed companies and publicly tradable companies need to publicly disclose an annual report which includes their financial statements, the auditor’s report and the directors’ report. The annual report shall contain all material information on the financial condition and operating performance of the company, including the following: (1) Financial and operating results of the company; (2) Company objectives; (3) Major share ownership and description of voting rights; (4) Remuneration policy for Board members and key executives; (5) Board members’ information including their qualifications, selection process, other company directorships and whether the board deems them as being independent; (6) Related party transactions; (7) Foreseeable risk factors; (8) Issues on employees and other stakeholders; and (9) Governance structures and policies. The company’s annual financial statements should: (1) Give a true and fair view of the company’s financial position, per Section 134(3), (4) and (5) of the SMO; (2) Be audited by an independent auditor; (3) Include a statement as to whether the company’s financial statements comply with International Financial Reporting Standards (IFRS); and (4) Incorporate consistent application of the IFRS unless there are reasonable grounds for a change (in such cases, the reasons must be disclosed). The annual report and annual financial statements should be disclosed on a timely basis. Regulation 18(2) of the SMR states that the annual report and annual financial statements should be filed with the Authority within ninety (90) days from the end of the financial period. 14 Moreover, under Sections 134(6), (7) and 147 of the SMO, the company needs to: (1) Keep the accounting records and documents to comply with the Authority’s regulations; (2) Disclose to the public a timely interim report which contains all material information relating to the company’s financial condition and operating performance; and (3) Have an internal accounting system that is in line with the IFRS or any others that the regulations may prescribe. 7.5.2 Disclosure and Handling of Price Sensitive Information (1) Types 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 (2) business days. These include information that: (a) Is necessary to enable appraisal of the position of the company and its subsidiaries; (b) Is needed to avoid the creation or continuation of a false market in the securities, e.g. based on incomplete or inaccurate information; and (c) 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: (a) Transactions in securities of the reporting entities made by their executive officers and directors; (b) Defaults and other events that may trigger acceleration of direct or contingent obligations; (c) Transactions that result in material direct or contingent obligations not included in a prospectus filed by the reporting entities with the Authority; 15 (d) Offerings of securities not included in a prospectus filed by the reporting entities with the Authority; (e) Waivers of corporate ethics and conduct regulations for officers, directors and other key employees; (f) Material modification to rights of security holders; (g) Departure of any senior management of the reporting entities; (h) Notices that reliance on a prior audit is no longer permissible or that the auditor does not consent to the use of this report; (i) Definitive agreement that is material to the reporting entities; (j) Loss or gain of a material client or contract; (k) Material write-offs, restructurings or impairments; (l) Material change in accounting policy or estimates; (m) Movement or de-listing of the securities from one quotation system or securities exchange to another; (n) Changes in rating agency decisions and other rating agency contacts; and (o) Any other material events. Nonetheless, the companies may request for non-disclosure of price-sensitive information if such disclosure would be unduly detrimental to its interests or if the information is commercially sensitive (Regulation 22 of the SMR). Reporting entities must also have a consistent procedure to determine whether the information is price sensitive. They must disclose full rather than selective information. The price-sensitive information should be disseminated such that the securities holders and investors have effective access to it at the same time; no portions are given earlier access (Regulation 27 of the SMR). If the company is also listed on a foreign exchange, when information is released to those markets, the same information is released in Brunei Darussalam simultaneously or soonest possible. Besides, if the requirements for disclosure are stricter in another jurisdiction than Brunei Darussalam, then the reporting entity must ensure that the same information is released in Brunei Darussalam. 16 Under Regulation 26 of the SMR, if information pertaining to earlier market announcements are superseded, then the company needs to make an announcement correcting that earlier market announcement e.g. of a profit forecast which is now likely to be inaccurate or misleading. (2) Recipients of Price Sensitive Information: Regulation 23 of the SMR states that publicly tradable and listed companies may only disclose price-sensitive information to their advisers, agents employed to release the information and persons with whom they are negotiating with a view to effecting a transaction or raising finance or where information is disclosed in the necessary course of business. The reporting entities must establish procedures to ensure that certain employees do not disclose such confidential information and that employees are trained to handle, distribute and announce price-sensitive information. Regulation 24 requires the directors and senior management to be responsible for ensuring that: (a) There is a policy to handle price-sensitive information, (b) There is a consistent procedure to determine whether the information is price sensitive and identify the persons responsible for market dissemination, and (c) There are adequate arrangements to ensure information confidentiality, including staff training to handle, distribute and announce price-sensitive information. If price-sensitive information is provided selectively, the reporting entity is deemed to have breached its disclosure obligation. It would have to ensure that a full announcement is made to the market (Regulation 25 of the SMR). (3) Items Which Cause Unusual Price or Volume Movements: Section 136 of the SMO requires public companies to promptly (within 24 hours) disclose items which cause unusual movements in the price or volume of their stock as follows: (a) Details of any matter or development which is or may be relevant to the unusual movements or 17 (b) A statement of the fact if it is not aware of any such matter or development. 7.5.3 The Authority’s directives and powers The Authority may issue directives and powers to protect the creditors, shareholders, the public and the securities market. This is shown in at least three instances. First, under Section 137 of the SMO, the Authority may direct some pertinent parties to furnish records and documents if it suspects that: (1) The company intends to defraud its creditors or shareholders; (2) The company’s management/founders are guilty of misconduct; and (3) The company’s officers have not given all pertinent information. Second, Section 138 of the SMO states that if the Authority suspects that a company’s affairs are being or has been conducted in an unfairly prejudicial way to some or all the shareholders’ interests, the Authority may apply to the Court for certain orders such as: (1) Restrain the company’s activities of carrying out the SMO provisions or conduct; (2) Order the company to bring the proceedings against the persons the Court thinks fit; (3) Appoint a liquidator; and (4) Any other order the Authority thinks fit. Third, to safeguard the interests of the securities holders or the public, the Authority may direct a company to refrain from: (1) Carrying out the SMO provisions or conduct to do or not to do any matter specified; or (2) Any other matter the Authority deems necessary. These directions may arise if the Authority reckons that the company: (1) Is in breach of its listing agreement; or (2) Is contravening, has contravened or is about to contravene; or (3) Has failed to comply with the SMO or regulations made thereunder; or (4) Has provided the Authority with false, inaccurate or misleading information. 18 7.5.4 Disclosure of directors’ interests Section 140 of the SMO states that a person who becomes a public company director needs to inform the company in writing about his shareholdings as follows: (1) The director’s interests in the securities (in terms of number, amount and description) of the company or other companies; (2) Events which alter his interests in the securities of the company or that of its Group- related companies; and (3) These interests include that of the director’s spouse and minor child. The director must notify the company and submit a statement of beneficial ownership of the listed securities to the Authority within five (5) days, as required by Section 140(4) of the SMO. The purpose of such disclosure is to avoid potential conflicts of interests. Moreover, each listed company or publicly tradable company must maintain a register of directors’ interests which should be correctly updated upon receipt of the directors’ notification. The Authority may make this register available to the public. 7.5.5 Disclosure of substantial shareholders’ interests A person who becomes a substantial shareholder or who can exert significant control of a listed or publicly tradable company shall inform the company in writing of the details of his or his nominees’ shareholdings. The listed or publicly tradable company shall then provide such notification received from the person to the Authority and the securities exchange in writing before close of business the next day. In the event the person’s ownership of outstanding voting securities of a listed or publicly tradable company reaches five percent, whether acting alone or with others, he must notify the Authority and the securities exchange within two days after such acquisition or change, as required by Section 148 of the SMO. Any changes in beneficial ownership by more than one percent (1%) of the outstanding voting securities must be reported within two (2) days. 19 Just as in the case of the directors’ interest, a listed or publicly tradeable company shall maintain a register of substantial shareholders which the Authority may make available to the public. 7.5.6 Proxy solicitations Section 149 of the SMO requires that proxies must be issued and proxy solicitation must be according to the Authority’s regulations. Proxies must be in writing, signed by the CMSL holder or his authorised representative and filed before the scheduled meeting with the corporate secretary. Summary This chapter discussed the concept of public offering which entails selling securities to at least fifty (50) non-accredited investors in order to raise funds. This differs from a private offering which involves selling securities to a select investor group or to fewer than fifty (50) investors. Public offering is subject to greater regulatory requirements because it seeks to obtain funds from effectively the public at large. A key document required in a public offering is the prospectus. A prospectus shows all the necessary information to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the issuers and guarantors. The company issuing the securities must file the prospectus with, and obtain the approval of, the Authority. If the issuer provides wrong information to the Authority or if the offering of the security results in a fraud to the investors, then the Authority may consider suspending the public offering. In the interest of accountability and transparency, the pre-allotment funds obtained must be kept in a separate bank account. The key information to be provided in the prospectus was discussed. Should there be material new factors, mistakes or inaccuracies subsequent to the filing of the prospectus, the issuing company should submit a supplementary prospectus. The issuing company and the 20 capital market service provider which facilitate the fund-raising exercise may be sued should there be misleading statements and practices in the preparation and filing of the prospectus. Offerings which involve exempt securities and exempt transactions are exempted from the public offering requirements. A public company must fulfil the reporting requirements which include periodic financial reports, the disclosure and handling of price-sensitive information, and the disclosure of directors’ interests and substantial shareholders’ interests. This chapter also discussed the Authority’s directives and powers which are aimed at protecting creditors, shareholders and the investing public. Finally, proxies and proxy solicitation must adhere to the Authority’s regulations and be properly documented. Questions 1. What does a “Public Offering” of securities entail? 2. How does a Public Offering differ from a Private Offering? 3. Under what circumstances can an offering be exempted from the requirements of a Public Offering? 4. What purposes does the prospectus serve? 5. What are the key content requirements of a prospectus? 6. What are the conditions which must be fulfilled when a prospectus makes references to advertisements for a Public Offering? 7. What are the consequences of making misleading statements in the prospectus? 8. Outline the disclosure requirements of directors’ interests in a listed or publicly tradable company. Why is this necessary? 9. Outline the main types of price-sensitive information. 10. Why is it necessary to disclose price-sensitive information? 11. How does one decide the items which come under price-sensitive information? 12. What are the key financial reporting requirements which must be reported regularly? 21 Additional Recommended Reading 1. Brunei Darussalam Central Bank (2013), Securities Markets Order, 2013, available at https://www.bdcb.gov.bn/SiteAssets/Download/SMO2013.pdf 2. Brunei Darussalam Central Bank (2015), Securities Markets Regulations, 2014, available at https://www.bdcb.gov.bn/SiteAssets/Pages/Securities-Market-2015,-Compunding- Offenses-and-Fees/Securities%20Markets%20Regulations,%202014%20V2.pdf 3. Brunei Darussalam Central Bank (2014), Notice on Exemption from Public Offering Registration Requirement Notice No. CMS/1/2014 4. Brunei Darussalam Central Bank (2016), Notification on Private Offering and Exempt Securities and Transactions Notice No. CMU/N-1/2016/5 5. Brunei Darussalam Central Bank (2017), Notice on Public Offering Registration of Investment-Linked Insurance Contracts Notice No. CMU/N-2/2017/7 6. Brunei Darussalam Central Bank (2017), Notice on Public Offering Registration of Investment-Linked Insurance Contracts Notice No. CMU/N-2/2017/7 7. Brunei Darussalam (2018), Notice on offering of Structured Products Notice No. CMU/N- 3/2017/8 8. Brunei Darussalam Central Bank (2018), Notice on Offering of Debentures and Notice on Offering of Debentures – Amendment No. 1, notice No. CMU/N-3/2017/8 9. Brunei Darussalam Central Bank (2018), Notice on Offering of Debentures to Retail Investors Notice No. CMU/N-1/2018/12 10. Corporate Finance Institute. (n.d.). Types of investors. https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/investor/ 22