Keenan and Riches’BUSINESS LAW

Chapter 6Companies

Exemptions from disclosure

Section 82 of the FSMA 2000 gives the Financial Services
Authority power to authorise the omission of material
from the listing particulars which would otherwise be
required. The discretion is limited to particular grounds,
e.g. discretion is given for international securities which
are only dealt in by those who understand the risks. This
will, for example, preserve the informality and speed
which is vital to the Eurobond market (s 82(1)(c)).

Prospectuses

The Prospectus Regulations 2005 (SI 2005/1433) sub-
stitute sections in the FSMA 2000 relating to offers of
shares through a prospectus. The regulations imple-
ment the EU Prospectus Directive. The prospectus con-
tents is under the supervision of the Financial Services
Authority, which must approve the contents before the
prospectus can be used in share offers to the public.
Thus, in a placing by brokers, an approved prospectus
must be available for consultation. The contents relate
largely to financial information about the company.

Compensation for false or misleading
particulars

Section 90 (as amended by the CA 2006) gives express
liability to those responsible for the Listing Rules and
prospectus for material misstatements, material omis-
sions, and misleading opinions. The remedy given is for
persons suffering loss to sue for a money compensation.
However, under s 90(6) any liability, civil or criminal,
which a person may incur under the general law con-
tinues to exist. Thus, a claimant could still sue for fraud
or misrepresentation under the Misrepresentation Act
1967, or for a negligent misstatement under the rule
in Hedley Byrne & Co v Heller & Partners(1963). (See
further, Chapter 11.)
As regards who can sue, s 90(1) states that ‘any person
responsible for the listing particulars is liable to pay
compensation to a person who has – (a) acquired sec-
urities to which the particulars apply; and (b) suffered
loss in respect of them.. .’. This would seem to include
all subscribers whether they have relied on the prospec-
tus or not. Materiality in terms of loss appears to be the
test and not reliance. It seems, therefore, that a sub-
scriber need not be aware of the error or even have seen
the listing particulars.
Section 90(1) would seem also to cover subsequent
purchases in the market. However, such a purchaser could
presumably only sue if he bought while the particulars

were the only source of information affecting the price

of the securities. Once the company issues new informa-

tion, e.g. supplementary particulars, or other new mate-

rial has been published, e.g. the loss of a major contract,

then it would presumably be unreasonable to allow a claim.

The Prospectus Regulations 2005 add a new subsec-

tion, s 90(12), which provides that a person is not to be

subject to civil liability solely on the basis of a summary in

a prospectus unless the summary is misleading, inaccurate

or inconsistent when read with the rest of the prospectus.

In other words, a summary is not to be regarded as the

source of a claim just because it is a summary.

Persons responsible

As regards civil claims, regulations made under s 79(3)

set out those who can be regarded as responsible for all

or some part of the Listing Rules. These include the issu-

ing company and its directors and anyone who expressly

takes responsibility for a part or parts of the particulars,

e.g. an expert who authorised the contents of the par-

ticulars or part of them.

Exemption is given for those who merely give advice

in a professional capacity but who do not give specific

reports for inclusion as experts.

As regards criminal liability, there is, under s 397 of

the Financial Services and Markets Act 2000, a sanction

of up to seven years’ imprisonment and/or a fine for

those who make false statements in the particulars.

Section 91 of the FSMA 2000 gives the Financial

Services Authority power to impose financial penalties

on issuers who have breached the Listing Rules. In addi-

tion, the Authority may issue public or private censures

and suspend or cancel the listing of the securities.

Defences

Section 151 provides that a person responsible for non-

compliance with or a contravention of s 150 shall not be

liable if he can prove:

(a) that he had a reasonable belief in the truth of the

statement or that it was reasonable to allow the

relevant omission;

(b) that the statement was by an expert and that he had

reasonable belief in the expert’s competence and

consent to inclusion of his statement; and

(c) if (a) and (b) above cannot be proved, that he pub-

lished a correction or took reasonable steps to see

that one was published and he reasonably believed

it had been.

169