Question (1):

What is a prospectus and what is its objective? In what circumstances a prospectus is required
and in what circumstances a prospectus is exempted? Please elaborately examine the question
with help of cases.

 Prospectus and its Objective.

Meaning of Prospectus

Prospectus is a legally mandated document published by every firm offering its securities
to public for purchase. Any document describe or issue as a prospectus includes any notice,
circular advertisement or other documents inviting deposits from the public or inviting offers
(1)
from the public for purchases of shares or debentures. In other words, a prospectus must be
available to investors when a company proposes to offer shares to the public for the first time
and the prospectus must disclose all the information which investors and their professional
advisers would reasonably need in order to make an informed decision whether to invest. (2)

In the case of Governments Stocks and Other Securities Investment Co Ltd v. Christopher
(3)
& Ors, a circular was sent to members of two companies by a newly formed company,
British and Commonwealth Shipping Co Ltd offering to acquire the whole of the issued
capital of the two companies in exchange for unissued shares in the New Company. The
circular was sent to all the members of the two companies accompanied by a form headed
“Form of Acceptance ad Transfer”. It was alleged by the plaintiff that the circular was a
prospectus.

However, Wynn-Parry J. held that the circular was not a prospectus because it did not
involve an offer for the purchase of any shares, as the shares to be acquired were unissued
shares of the new company.

1
() GUIDE TO COMPANY LAW, (1995), CCH Asia Limited, Pg. 10.
2
() Jacqueline Martin & Chris Turner, (2009), Key Facts: COMPANY LAW, Hachette UK Company, Pg. 71.
3
() [1956] 1 All ER 490.

1
Objectives of Prospectus

Prospectus is aimed to invite the public to invest in the shares or debenture of a market. It
is also to ensure that a minimum degree of disclosure of relevant and accurate information is
provided by the company to potential investors so as to enable them to make decision or
investment judgment as to whether or not to invest. (4) The potential investors must be ensured
that they have adequate and accurate information about the company and the securities to be
issued.

In the case of New Brunswick and Canada Railway Co v Muggeridge, (5) Lord Kindersley
VC stated that those who issued a prospectus were bound to state everything with strict and
scrupulous accuracy and to omit facts within their knowledge, the existence of which might
in any degree affect the nature, or extent, or quality of the privileges and advantages which he
prospectus holds out as inducements to take shares.

Contents of the Prospectus

Information provided in the prospectus is material to the prospective investor. Its aim is to
(6)
assists the prospective investor in making an informed decision for their investment. The
content should include:

 The nature of the securities.

 The business of the issuer.
 The date of the issue of the prospectus.
 A statement that the prospectus has been registered. As mentioned in section 37 (4) of
Companies Act of Brunei Laws:
“Every prospectus shall state on the face of it that a copy has been delivered for
registration.”
 A statement that no shares or debenture shall be allotted on the basis of the prospectus
later than 6 months after the date of the issue of prospectus.

4
() Ben Chan Chong Choon, Philip Koh Tong Ngee & Peter SW Ling, (2006), MALAYSIAN COMPANY
LAW: Principles & Practice, Sweet & Maxwell Asia: Selangor Malaysia, Pg. 233.
5
() (1860) 1 Dr & Sm 363: 62 ER 418.
6
() Shanthy Rachagan, Janine Pascoe and Anil Joshi, (2006), CONCISE PRINCIPLES OF COMPANY LAW
IN MALAYSIA, Pg. 111.

2
 (7)
In the case of Exeter Group Ltd v ASC, the company’s strategy was to negotiate an
investment with an appropriate target. The prospectus did not contain anything more than a
profile of the directors who were given the authority to make investment decision. The court
held that the prospectus issued did not comply with the standard Act of the country.

Inclusion of false and misleading information or omission of material information from

(8)
the prospectus is prohibited. Any condition seeking to waive compliance with the
requirement of the Act is void. Directors and others who are responsible for a non-complying
(9)
prospectus are guilty of an offence. Thus they are liable to pay compensation to a person
who has acquired securities to which the prospectus apply loss as a result of: (10)

 False and misleading statement in a prospectus.

 Failure to disclose information required.
 Failure to publish prospectus. As mentioned in section 37 (5) of Companies Act of Brunei
Laws:
“If a prospectus is issued without a copy thereof being so delivered, the company and
every person who is knowingly a party to the issue of the prospectus, shall be guilty of an
offence: Penalty, a fine of $25for every day from the date of the issue of the prospectus
until copy thereof is so delivered.”

 Circumstances a Prospectus is Required and Exempted.

Circumstances a Prospectus is required

Prospectus is required when an invitation is made to the public to apply for the shares in
(11)
or debentures of a corporation. It must be registered before it is issued. Thus, any person
who issues, offers or make an invitation to subscribe or purchase securities in the company,
must ensure that a prospectus has been registered.

7
() (1998) 16 ACLC 1382.
8
() Shanthy Rachagan, Janine Pascoe and Anil Joshi, (2006), CONCISE PRINCIPLES OF COMPANY LAW
IN MALAYSIA, Pg. 111.
9
() GUIDE TO COMPANY LAW, (1995), CCH Asia Limited, Pg. 268.
10
() Jacqueline Martin & Chris Turner, (2009), Key Facts: COMPANY LAW, Hachette UK Company, Pg. 71.
11
() Ben Chan Chong Choon, Philip Koh Tong Ngee & Peter SW Ling, (2006), MALAYSIAN COMPANY
LAW: Principles & Practice, Pg. 236.

3
Registration of the Prospectus

It will be an offence for a person to issue a prospectus unless a copy has been registered
by the Registrar. A copy of the prospectus will not be registered if it contains a statement or
matter which in the opinion of the Registrar is misleading in the form and context in which it
is included. The prospectus should be: (12)

 Signed by every director and every person who is named therein as a proposed director is
lodged with the Registrar on or before the date of its issue. As mentioned in section 37 (2)
of Companies Act of Brunei Laws:
“A copy of every such prospectus, signed by every person who is named therein as a
director or proposed director of the company, or by his agent authorized in writing, shall
be delivered to the registrar for registration on or before the date of its publication.”
 Complied with the requirements of the Act. As mentioned in section 38 (3) of Companies
Act of Brunei Laws:
“It shall not be lawful to issue any form of application for shares in or debentures of a
company unless the form issued with prospectus which complies with the requirements of
the Act.”
 Verified the copies of consents of experts and the consents of persons named as trustee.
 Not contains a statement of information that is misleading or false.

Refusal of Registrar to Register

Registrar plays a role that he must not register any prospectus unless he is of the opinion
that it does not contain any statement or matter which misleading and false. If the prospectus
is found to be misstatement or willful non-disclosure or untrue statements, those who are
(13)
authorizing are guilty in both civil and criminal liability. Thus the Registrar has the power
to refuse to register a prospectus if: (14)

 It contains any statement or matter which is misleading in the form and context in which it
is used in the prospectus.

12
() Ben Chan Chong Choon, Philip Koh Tong Ngee & Peter SW Ling, (2006), MALAYSIAN COMPANY
LAW: Principles & Practice, Pg.243.
13
() GUIDE TO COMPANY LAW, (1995), Pg. 262.
14
() Shanthy Rachagan, Janine Pascoe and Anil Joshi, (2006), CONCISE PRINCIPLES OF COMPANY
LAW IN MALAYSIA, Pg. 111.

4
 The copy which is signed by every director and every person named in it as proposed
director is not lodged with the Registrar on or before the date of issue.
 It does not comply with the requirements of the Act. The Penalty is a fine of $5,000
according to the Companies Act that had mentioned in section 38(3).
 It appears to the Registrar that it is not in the public interest to do so.

Other than the Registrar, any of the member of the company that involved in the
preparation or registration of the prospectus, may as well be liable in their misdoing such as
giving false information in the prospectus. As mentioned in section 40 (1) of Companies Act
of Brunei Laws:

“Where a Prospectus invites persons to subscribe for shares in or debentures of a company;

(a) Every person who is a director of the company at the time of the issue of the prospectus.
(b) Every person who has authorized himself to be named and is named in the prospectus as
a director or as having agreed to become a director either immediately or after an
interval of time.
(c) Every person being a promoter of the company.
(d) Every person who has authorized the issue of the prospectus.

Shall be liable to pay compensation to all person who subscribe for any shares or
debentures on the faith of the prospectus for the loss or damage they may have sustained by
reason of any untrue statement therein, or in any report or memorandum appearing on the
face thereof, or by reference incorporated therein or issued therewith.”

Supplemental Prospectus (15)

If the person who lodged the prospectus becomes aware of any change in circumstances
relating to the prospectus between the time after the registration of the prospectus and before
its issue, he must lodge with the Registrar a supplemental prospectus.

These changes of circumstances will include:

() Ben Chan Chong Choon, Philip Koh Tong Ngee & Peter SW Ling, (2006), MALAYSIAN COMPANY
15

LAW: Principles & Practice, Pg.244.

5
 A significant new matter has arisen being a matter, the information of which is required by
the Act to be disclosed in a prospectus.
 There has been a significant change affecting a matter disclosed in the prospectus.
 The prospectus contained a material that is false or misleading.
 There is a material omission from the prospectus.

The supplemental prospectus must clearly identify the prospectus where it is relates, by
bold or coloured print that it needs to be read in the conjunction with the prospectus. Any
supplemental prospectus that is lodged with the Registrar are said to be part of the
Prospectus. Thus every copy of the prospectus shall be issued accompanied by a copy of the
supplemental prospectus.

Circumstances a Prospectus is Exempted

There is no need to issue a prospectus with a form of the application for shares or
debentures if the application form is issued, circulated or distributed in connection with: (16)

a) Not an offer to the public.

b) A take-over scheme which complies with the provisions of the Act.
c) Shares which are offered for purchase or subscription by employees of a company or its
related corporation in accordance with a scheme.

An offer or invitation in respect of shares and debentures for sale to the public where the
offer or invitation relates to shares or debentures that have previously been issued and the
shares or debenture are of a class listed for quotation on a stock exchange.

As mentioned in section 38 (3) (a) & (b) of Companies Act of Brunei Laws, a Prospectus
is not required when:

“(a) In relation with an invitation made in good faith to a person to enter into an underwriting
agreement with respect to the shares or debentures.

(b) In relation to shares or debentures which were not offered to the public.”

16
() Ben Chan Chong Choon, Philip Koh Tong Ngee & Peter SW Ling, (2006), MALAYSIAN COMPANY
LAW: Principles & Practice, Pg. 236.