Public Offer of Securities
The provisions of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 were largely re-enacted in Part 23 of the Companies Act 2014. The market abuse and transparency obligations of public companies are restated. There is both civil and criminal liability for breach of the requirements, including provision for large administrative fines.
A public offer is a communication to persons in any form, by any means, presenting sufficient information on the terms of an offer and on the securities to be offered, so as to enable an investor to decide to purchase or subscribe for a security (including a share). An offer of securities to the public requires the prior publication of a prospectus.
A prospectus approved by the home regulator, in Ireland’s case, the Central Bank, may be used through the EU. Correspondingly, offers may be made into Ireland as the host state, on the basis of a prospectus approved by the regulator in the home state of the issuer. Very detailed requirements are laid down as to the information to be published in a prospectus.
There are exemptions from the obligation to publish a prospectus. Amongst the most important exemptions are
- offers to qualified investors;
- offers to certain financial institutions;
- offers to less than 100 persons;
- where the minimum consideration is at least €50,000 per investor or
- where the total consideration is less than €100,000.
Liability for Statements
The general principle is that the below-mentioned persons are liable to pay compensation for loss caused by reason of any untrue statement or any omission of information required by EU prospectus law, to all persons who acquire any securities on the faith of the prospectus and who thereby suffer loss or damage. Securities included shares, debentures and other interests in a public company.
The compensation for loss incurred by reason of a misstatement in a prospectus is the difference between the value of the shares if the statement was correct and their actual value. The statutory liability does not limit liability under general principles of civil liability. The general principles of a rescission and negligence misstatement apply.
A person shall not be liable solely on the basis of a summary of a prospectus, including a translation thereof unless it is misleading, inaccurate or inconsistent when read with other parts of the prospectus.
In the case of non-equity securities, only,
- the offeror or person who has sought admission of the securities to a regulated market is liable unless the prospectus provides otherwise, or that other person has been convicted on indictment of an offence under Irish prospectus law.
- subject to, and to the extent provided below the guarantor (if any) and no other person generally liable below, shall be liable in the circumstances below unless the prospectus expressly provides otherwise; or that other such person is convicted on indictment of an offence under prospectus law.
No liability shall attach to a guarantor of such securities save in respect of statements included in, or information omitted from, the prospectus that relate to the guarantor or the guarantee given by the guarantor.
The persons who may be liable are
- the issuer of the prospectus;
- offeror of the securities;
- every person who has sought the admission of the securities in question to a regulated market;
- the guarantor of the issue;
- every person who is a director of the issuer at the time of the issue of the prospectus;
- every person who has authorised himself to be named and is named in the prospectus as a director of the issuer at the time of issue;
- every person who is a promoter of the issues;
- every person who has authorised the issue of the prospectus.
An expert who has given consent to the inclusion of a statement purporting to be made by him shall, subject to the above, be liable to pay compensation to all persons who acquire the securities on faith of the prospectus for any loss or damage that they sustain by reason of an untrue statement in the prospectus, purporting to be made by him as an expert.
A person shall not be liable for loss caused by reason of a false statement in a prospectus if he proves
- that having consented to become a director of the company concerned, he withdrew, in writing, his consent before the issue of the prospectus, and that it was issued without his authority or consent;
- that the prospectus was issued without his knowledge or consent and that, on becoming aware of the issue, he gave reasonable public notice that it was so issued;
- that after the issue of the prospectus and before the acquisition of shares by a person claiming compensation, he on becoming aware of any untrue statement in the prospectus or the omission of material information, withdrew in writing, his consent and gave reasonable public notice to the withdrawal;
- that as regards every untrue statement not purporting to be made under the authority of an expert or any omission under prospectus law, he had reasonable grounds to believe, and did up to the time of the issue of the securities believe, that the statement was true or that the matter whose omission caused loss was properly omitted;
- as regards every untrue statement purporting to be made by an expert or contained in what purports to be a copy or extract from a report, it fairly represented the statement or was a correct and fair copy of or extract from the report or valuation, and he had reasonable grounds to believe and did, in fact, believe that the person making the statement was competent to make it, where required; and where required that the person had given his consent to the inclusion of the statement and had not withdrawn it to the defendant’s knowledge, before issue of the security;
- as regards every untrue statement purporting to be a statement made by an official person or in an official public document, it was a correct and fair representation of the statement or copy or extract from the document.
An expert who would be liable by reason of giving his consent, in respect of an untrue statement, purporting to be made by him or her as expert, shall not be liable if he proves
- that having given his consent to the inclusion of it in the prospectus, he withdrew it in writing before publication;
- after the publication of the prospectus and before the acquisition of the securities, the person, on becoming aware of the untrue statement, withdrew his consent in writing and gave reasonable public notice of the withdrawal and the reasons for it; or
- that he was competent to make the statement and he had reasonable grounds to believe and did, in fact, believe that up to a point in time before the acquisition of the securities that the statement was true.
Obligation to Indemnity
The directors of the company which issues securities, except those without whose knowledge or consent the prospectus was issued, and other persons who authorise the issue, are liable to indemnify the below mentioned persons and those whose consent was required, in relation to damages, costs and expenses to which they are liable by reason of the person’s name having been inserted in the prospectus or in a statement purporting to be made by an expert and all legal expenses and costs in relation to proceedings brought against him, in respect thereof.
The indemnity applies to a person named as director or expert in the prospects, who has not consented to be a director or named as an expert, or who has withdrawn his consent before the issue of the prospectus.
An expert must give his consent to the inclusion of a statement by him in a prospectus. A notice of such consent must be incorporated. This requirement applies only insofar as EU prospectus law mandates the inclusion of such notice or consent. Contravention is an offence.
It is a criminal offence to make a misstatement or to omit to make a required statement in a prospectus. Where a prospectus contains an untrue statement or omits information required under prospectus legislation, any person who authorised the issue of the prospectus, other than the Central Bank, may be convicted on indictment and is thereby subject to imprisonment up to five years or a fine of up to €1 million or both. He is liable on summary conviction to a fine up to €5,000 and imprisonment up to 12 months or both.
In any proceedings for such an offence, it is a defence to prove that
- as regards any matter not disclosed, that the person did not know it;
- that the contravention arose from an honest mistake of fact; or
- the contravention was in respect of matters, which having regard to the circumstances of the case, were immaterial or as respects which, having regard to those circumstances, the person ought otherwise reasonably to be excused.
Where a prospectus is issued, which includes any untrue statement or omits information required by EU prospectus law, any person who authorised the issue of the prospectus other than the competent authority, is guilty of a category 2 offence.
It is a defence to prove that as regards the untrue statement, either that the statement was, having regard to the circumstances of the case, immaterial or that he honestly believed and did believe, up to the time of the issue of the prospectus, that the statement was true;
- as regards information omitted, either the omission was, having regard to the circumstances of the case, immaterial or that he did not know it; or
- that the making of the statement or omission was otherwise such as having regard to the circumstances, that he ought reasonably to be excused.
Summary offences in respect of proceedings in respect of an offence under prospectus legislation may be brought by the competent authority under prospectus law.
If in a trial for an offence under prospectus law, a judge or jury has to consider whether the defendant honestly believed a particular thing or was honestly mistaken in relation to a particular thing, then the presence or absence of reasonable grounds for such belief or having been so mistaken, is a matter which the judge or jury is to have regard to in conjunction with other relevant matters, in considering whether the defendant so believed or was so mistaken.
An offer of securities to the public, where the offer states that the total amount of the consideration for the offer is less than €5 million and the security falls within certain other criteria set out in prospectus law, may be treated as a local offer. A local offer is outside the scope of the Prospectus Directive, and separate requirements apply to the offering documents.
An offering document for a local offer must contain the following in clearly legible type:
- that the document has not been prepared under prospectus legislation;
- that the document has not been reviewed, by any regulatory authority and therefore may not contain all the information required, in the case of a document prepared pursuant to prospectus law.
It must contain certain specified statements in the document, including:
- “Past performance may not be a reliable guide to future performance.”;
- “Simulated performance may not be a suitable guide to future performance.”;
- “Investments may fall as well as rise in value.”;
- where the securities are described as likely to yield income or as suitable for an investor seeking income from his investment, and where income can fluctuate, it must state “Income may fluctuate in accordance with market conditions.”;
- where the primary market for the securities or the currency of the underlying business is other than the euro, it must state “Changes in exchange rates may have an adverse effect on the value, price or income of the securities.”;
- where the securities do not constitute a readily realisable investment, it must state “It may be difficult for investors to sell or realise the securities and obtain reliable information about their value or the extent of the risks to which they are exposed.”.
Failure to comply with the above requirements is an offence on the part of the offeror.
No offering document prepared for a local offer shall be issued on behalf of a PLC or an intended PLC unless a copy of the offering document has been filed with the Registrar of Companies.
Prospectus Law Regulations
The competent authority (the Central Bank) has the power to make rules and guidelines and impose requirements on persons on whom an obligation is imposed by prospectus law. This may include
- requirements to do or not to do specified things so as to secure that the provisions of Irish prospectus law are complied with;
- requirements for the adoption of specified procedures and the use of specified forms in the provision of information to the competent authority;
- requirements to do or not to do things so as to secure effective supervision by the competent authority in relation to matters within the scope of prospectus law, including the making of reports and the disclose of matters, at such times and such manner, to the authority or other specified persons as are provided for by the rules;
- rules in relation to the manner in which, or with reference to which a determination is to be made of any issue as to whether a transaction is of a significant size for the purpose of Irish prospectus law.
The provisions of Irish prospectus law that are expressed by law to be made for the purpose of enabling the imposition of administrative sanctions shall apply in relation to contravention of rules so made, as they apply to of contravention of other provisions or Irish prospectus law. A sanction may be imposed in respect of the contravention of rules made under this provision.
The competent authority may issue guidelines in writing in relation to compliance with Irish prospectus law.
A condition requiring or binding an applicant for securities to waive compliance with any of the provisions of the Companies Act relating to prospectus or with EU prospectus law; or in the case of EU prospectus law, purporting to affect him with notice of any contract, document, not specifically referred to in the prospectus, is void.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.31 Courtney
Keane on Company Law 5th Ed. (2016) Ch. 8 Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Gore Browne on Companies
Palmer’s Company Law