Professional Documents
Culture Documents
2 SL1 Fundraising-2024
2 SL1 Fundraising-2024
January 2024
2
1
1/18/2024
Private investment
Parties
Process
Investor A
Shares
Corporation Investor B
Investor C
Public offering
Parties
Process
Investor A
Shares Reg
Investor A
Investor A
Investor A
Investor A
Investor A
Corporation Investor A
Investor B Investor A
Investor B Investor A
Investor B Investor A
Investor B Investor A
Investor B Investor A
Investor
Investor B
Investor B A1002
Investor B
Investor B
Investor C Investor B
Investor C Investor B
Investor
InvestorC Investor B
Investor
C32 B3045 2
1/18/2024
Hypothetical JCL
1. Jelutong Cable Ltd is a HK registered company
owned by the Fung family. The company seeks
additional share capital of HK$50m to grow its
cable-laying business division.
2. At the request of John Fung, the chairman of the
board, the managers prepare a summary of the
business operations over the last 3 years, as well as
the plans for expansion (“Profile Statement”).
3. John Fung hopes to interest (a) the members of his
country club , and (b) members of the extended
Fung family to take up shares in JCL.
Advise John Fung on his proposed course of action.
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3
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Proposition 1:
Unless exempted, a document offering shares in
or debentures of a company to the public for
subscription or purchase is a covered
prospectus
Proposition 2:
A covered prospectus must comply with the
prescribed requirements as to form and
content.
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Proposition 3:
Unless exempted, any form of application for
shares or debentures must be accompanied by
a prescribed prospectus.
Proposition 4:
The prescribed prospectus must be registered.
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Hypothetical JCL
1. Jelutong Cable Ltd is a HK registered company
owned by the Fung family. The company seeks
additional share capital of HK$50m to grow its
cable-laying business division.
2. At the request of John Fung, the chairman of the
board, the managers prepare a summary of the
business operations over the last 3 years, as well
as the plans for expansion (“Profile Statement”).
3. John Fung hopes to interest (a) the members of his
country club , and (b) members of the extended
Fung family to take up shares in JCL.
Advise John Fung on his proposed course of action.
11
Proposition 1:
Unless exempted, any document offering shares in or debentures of a company to the
public for subscription or purchase is a covered prospectus
12
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Proposition 1:
Unless exempted, any document offering shares in or debentures of a company to the
public for subscription or purchase is a covered prospectus
Query:
A mere informational document?
Does it satisfy the alternative definition?
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15
Why?
• There was invitation to specific persons - but this did
not amount to an invitation to the public.
• Merely because the specific persons were members
of the public did not mean there was ‘an invitation to
the public’. (HCA reversed Full Court on this point.)
17
Barwick CJ
How does s. 48A(1) alter the common law understanding of the phrase…
“Offer to the public”?
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23,000
HQ
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Analytical
approach
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Hypothetical JCL
1. Jelutong Cable Ltd is a HK registered company
owned by the Fung family. The company seeks
additional share capital of HK$50m to grow its
cable-laying business division.
2. At the request of John Fung, the chairman of the
board, the managers prepare a summary of the
business operations over the last 3 years, as well
as the plans for expansion (“Profile Statement”).
3. John Fung hopes to interest (a) the members of his
country club , and (b) members of the extended
Fung family to take up shares in JCL.
Advise John Fung on his proposed course of action.
24
12
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Proposition 2:
Unless exempted, a covered prospectus must
comply with the prescribed requirements.
25
Proposition 2:
Unless exempted, a covered prospectus must comply with the prescribed
requirements.
Proposition 2:
Unless exempted, a covered prospectus must comply with the prescribed
requirements.
27
Exemptions 1:
Exclusions from the definition of ‘prospectus’
i.e. these offer documents are not considered
prospectuses: para (b) in definition of
‘’prospectus”+ Seventeenth Schedule
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Exemptions 2
Exemption from the prescribed
requirements found in s. 38
Securities equiv.
Rights issue to currently listed
securities
3. Exemptions (Safe-harbours)
How do these dovetail with HK’s aim to be an
international financial centre?
USA EU
AU
CHINA
HK
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Hypothetical PT Jelutong
1. PT Jelutong is an Indonesian registered company
owned by the Fung family. The company seeks
additional share capital of HK$50m to grow its
cable-laying business division.
2. At the request of John Fung, the chairman of the
board, the managers prepare a summary of the
business operations over the last 3 years, as well as
the plans for expansion (“Profile Statement”).
3. John Fung hopes to interest (a) the members of his
country club in HK, and (b) members of the
extended Fung family to take up shares in JCL.
Advise John Fung on his proposed course of action.
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Misrepresentation
Rescission (against
Damages counterparty to
contract)
Innocent
Misrepresentation Fraudulent Negligent misrepresentation
Ordinance s. 3(1) misrepresentation misrepresentation
X – (only under MA s.
2(2)
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Prospectus: "The interest on the present issue of debenture stock will amount to 100,000
pounds per annum. Although this company, in common with other shipping companies, has
suffered from the depression in the shipping industry, the audited accounts of the
company show that during the past ten years the average annual balance available (including
profits of the insurance fund) after providing for depreciation and interest on existing
debenture stocks, has been sufficient to pay the interest on the present issue more than five
times over. After providing for all taxation, depreciation of the fleet, &c., adding to the
reserves and payment of dividends on the preference stocks, the dividends on the ordinary
stock during the last seventeen years have been as follows"
[table of the dividends paid from the year 1911 to the year 1927 inclusive]
[dividends varied from 5 up to 8 per cent / 1926 - 4 per cent / 1927 again rising to 5 per cent]
Omissions:
1. For a number of years preceding date on which the prospectus was
issued, the company had sustained losses on its trading and investment
income, after allowing for depreciation; or
2. The dividends for those years had ultimately been paid out of income of
a nonrecurring character derived from the abnormal years of the 1914-
18 war.
Learning Point:
Apart from the individual representations contained in
the distinct express statements, there might be a
broader representation to be gathered from the
statements taken together.
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Edgington Company
Debenture
Prospectus
Objects:
1. Buildings The board of directors
2. Horses and vans • Fitzmaurice
Alleged • Snow
misrepresentations: 3. Develop biz
• Taylor etc.
1. Mortgage (£21.5k) –
instalments
2. No other mortgage
3. Real purpose: liquidity
crunch
Alleged misrepresentations:
1. Mortgage (£21.5k) – instalments
2. No other mortgage
3. Real purpose: address liquidity crunch
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Debenture
Alleged misrepresentations:
Prospectus
1. Mortgage (£21.5k) – instalments
2. No other mortgage
Objects:
3. Real purpose: address liquidity
1. Buildings
crunch
2. Horses and vans
3. Develop biz
Issue:
Can a statement of purpose be a statement of fact?
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1/18/2024
Hypothetical HMX
1. HMX Rail Ltd raised $800m through an issue of
common shares on the back of a prospectus.
2. The prospectus stated that its subsidiary in China
has been given operating rights over the high
speed rail-link between Shanghai-Wuhan-Chengdu.
This is inaccurate. In fact, the Central Government
was only considering opening up the market for
private rail operators.
3. When this was revealed the share price fell from
the issue price of $800 to $100. Kenneth Lee, who
had paid $80,000 to subscribe for the shares, is
deeply unhappy.
Advise Kenneth Lee.
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45
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47
48
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? Duty
of care ?
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1/18/2024
Twenty-second Sch.
1. Persons who subscribe for or purchase shares
or debentures pursuant to an offer in a
prospectus.
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SFO s 108
Civil liability for inducing others to invest money in certain cases
(1) Where a person makes any fraudulent misrepresentation, reckless
misrepresentation or negligent misrepresentation by which another person is
induced-
(a) to enter into or offer to enter into-
(i) an agreement to acquire, dispose of, subscribe for or underwrite securities; or
(ii) a regulated investment agreement or an agreement to acquire, dispose of,
subscribe for or underwrite any other structured product; or (Replaced 8 of 2011
s. 7)
***
(2) For the purposes of this section, where a company or
other body corporate has made any fraudulent
misrepresentation, reckless misrepresentation or
negligent misrepresentation by which another person is
induced to do any act referred to in subsection (1)(a) or
(b), any person who was a director of the company or
body corporate at the time when the misrepresentation
was made shall, unless it is proved that he did not
authorize the making of the misrepresentation, be
presumed also to have made the misrepresentation.
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(b) where a person has been, or it appears that a person has been, is or
may become, involved in any of the matters referred to in
subsection (1)(a)(i) to (v), whether knowingly or otherwise,
an order requiring the person to take such steps as the Court of
First Instance may direct,
including steps to restore the parties to any transaction to the
position in which they were before the transaction was entered
into;
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