Following a statement released by the Securities Commission Malaysia (SC) on 26 January 2021, which reminded unlisted public companies to comply with the requirements in the SC’s prospectus guidelines and securities laws, we believe that the following information will be useful to industry players.
What is a Prospectus
A prospectus[1] is a mechanism that invites applications or offers to subscribe for or purchase securities. Alternatively, it is a mechanism that offers securities for subscription or purchase. It can take the form of a notice, a circular, an advertisement, or a document.
Importance of a Prospectus
A person is prohibited from issuing, circulating, or distributing any form of application for securities unless the form is accompanied by a copy of a prospectus that has been registered by the SC.[2]
Failure to do so amounts to an offence punishable with a fine not exceeding RM10 million or imprisonment for a term not exceeding 10 years, or both.[3]
Content of a Prospectus
A prospectus should contain, among others, the following:[4]
(a) the date of issue of the prospectus;
(b) a statement that it has been registered by the SC;
(c) if it contains any statement made by an expert, the date on which the statement was made and whether it was prepared by the expert for incorporation in the prospectus.
Failure to comply with these requirements amounts to an offence. As a result, the issuer and each director of the issuer at the time of the issue of the prospectus are punishable with a fine not exceeding RM3 million or imprisonment for a term not exceeding 10 years, or both.[5]
In addition, a prospectus must also contain all information that investors and their professional advisers would reasonably require, and reasonably expect to find, in a prospectus.[6] This information must assist investors or their professional advisers in making an informed assessment of the following:
(a) the assets and liabilities, financial position, profits and losses, and prospects of the issuer and, in the case of a unit trust scheme or prescribed investment scheme, of the scheme;
(b) the rights attaching to the securities; and
(c) the merits of investing in the securities and the extent of the risk involved in doing so.
Part II of the Prospectus Guidelines issued by the SC provides more specific requirements to be observed by issuers.
Requirement to be Registered
A prospectus is required to be registered by the Commission before the date of issue of the prospectus.[7]
Liability for Misstatement
Stop Order[8]
The SC can issue a stop order if, in its opinion, a prospectus contains a statement or information that is false or misleading.[9] Subject to a hearing by the SC, the issuer is not allowed to allot, issue, offer, make an invitation to subscribe for, or sell further securities to which the prospectus relates.
If the securities to which the prospectus relates have not been issued to the applicants, the applications shall be deemed to have been withdrawn. The issuer who received the monies shall repay all monies received from the applicants within 14 days of the stop order.
If the securities have already been issued to the applicants, the issue of securities shall be deemed void. The issuer shall repay all monies received from the applicants within 14 days of the date of service of the stop order.
Criminal Liability[10]
A person who authorises or causes the issue of a prospectus that contains:
(a) any false or misleading statement or information; or
(b) any statement or information from which there is a material omission,
is punishable with a fine not exceeding RM3 million or imprisonment for a term not exceeding 10 years, or both.
Liability for Damages[11]
A person who acquires, subscribes for, or purchases securities may suffer loss or damage as a result of any statement or information contained in a prospectus that is false or misleading, or from which there is a material omission.
Such a person may recover the amount of loss or damage from all or any of the following:
(a) the issuer and each director of the issuer at the time of the issue of the prospectus;
(b) a person who consented to be named and was named in the prospectus as a director;
(c) a promoter;
(d) a person responsible for preparing the prospectus or conducting due diligence on the information or statements contained in the prospectus;
(e) a person named in the prospectus with his consent as having made a statement that was included in the prospectus;
(f) a person named in the prospectus with his consent as a stockbroker, sharebroker, underwriter, auditor, banker, or advocate of the issuer who made a statement included in the prospectus;
(g) a person who authorised or caused the issue of the prospectus.
Exclusion of Liability Clause Void
Liability for loss or damage cannot be excluded or restricted by any provision, clause, or term contained in any agreement, contract, document, or prospectus that is given to an investor.[12]
Defence
The CMSA provides the following defences, among others, for the above persons:
(a) due diligence has been exercised;[13]
(b) the false or misleading statement accurately represented a statement made by a person who consented to it and was competent to make it;[14]
(c) the false or misleading statement was made based on a statement made by a public officer in the course of his duties.[15]
Judicial Attitude
The courts have consistently upheld the importance of making accurate and true statements in prospectuses, as seen from the excerpts below:
“That means that liability of any person for false and/or misleading statements or statements for which there are material omissions pursuant to s 57 of the SC Act, applies across the board irrespective of the nature of the investor.”
– AmTrustee Bhd & Ors v Aldwich Bhd (in receivership) & Ors [2018] 7 MLJ 152
“The underlying rationale for all investors, sophisticated or otherwise, is that such information as is provided must be accurate or true. Primary facts stated must be true. If they are false, that will occasion a basis for culpability under s 38(3) and other relevant attendant sections.”
– Maybank Trustees Bhd (formerly known as Aseambankers Malaysia Bhd) v AmTrustee Bhd & Ors and other appeals [2020] 4 MLJ 405
“When such information is incomplete, thereby giving impressions that are false and misleading, then the duty of care is breached, as are MIBB’s express contractual obligations. The statutory duties prescribed by the SCA 1993 are equally breached.”
– Maybank Trustees Bhd (formerly known as Aseambankers Malaysia Bhd) v AmTrustee Bhd & Ors and other appeals [2020] 4 MLJ 405
This article is authored by:
Kang Mei Yee FCIArb
Partner, Gan Partnership
E: meiyee@ganlaw.my
Endnotes
[1] CMSA, s 226
[2] CMSA, s 232(2)
[3] CMSA, s 232(7)
[4] CMSA, s 235(1)(b)
[5] CMSA, s 235(7)
[6] CMSA, s 236(1)
[7] CMSA, s 234
[8] CMSA, s 245
[9] CMSA, s 245(b)
[10] CMSA, s 246
[11] CMSA, s 248
[12] CMSA, s 256
[13] CMSA, s 250
[14] CMSA, s 251
[15] CMSA, s 253
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as at the date of publication on 27 January 2021. For any enquiries on this article, please contact our partner Kang Mei Yee (meiyee@ganlaw.my).
