2 SL1 Fundraising-2022

1/10/2022
LW4657/LW5657Company Law II (Topic 2)
Fundraising and Listing (1)
筹资和上市（１）
Professor Alexander Loke
School of Law
City University of Hong Kong
January 2022
Company Law (Winding Up and Misc. Prov.)
Ordinance (Cap. 32) [Hereinafter “Cap32”]
考试时候需要分辨ｐａｒｔ　２和１２的不同，选一个
Pt II Share capital and Debentures 股本和债券
ｐａｒｔ　２．　ｆｕｎｄ－ｒａｓｉｎｇ　ｆｏｒ　ｔｈｅ　ｃｏｍｐａｎｙ　ｉｎｃｏｐｒａｔｅｄ　ｉｎ　ｈｏｎｇ　ｋｏｎｇ
Pt XII Restriction on Sale of Shares and Offers of
Shares for Sale ｐａｒｔ　１２．　　ｆｕｎｄｅｄ－ｒａｓｉｎｇ　ｆｏｒ　ｃｏｍｐａｎｙ　在外国注册，但在ＨＫ集资
Third Schedule (items for disclosure)
Fourth Schedule (items for disclosure)
Seventeenth Schedule (exempted offers)
ｅａｓｉｅｒ　ｗａｙ　－　１７　ｓｃｈｅｄｕｌｅ　－　ｅｘｅｍｐｔｅｄ　ｏｆｆｅｒｓ－很重要，最好找到相关情形来减少成本
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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
Investor B
Investor B A1002
Investor B
Investor B
Investor C Investor B
Investor C Investor B
Investor C
Investor Investor B
Investor
C32 B3045
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The contest of ideas in
mandatory disclosure 强制性披露中的理念之争
John C Coffee, “Market Failure and the
Economic Case for a Mandatory Disclosure
System” (1984) 70 Virginia L Rev 717
由投资人自己搜索公司信息太ｓｏｃｉａｌ　ｗａｓｔｅ
Compare, for example:
(a) Jensen & Meckling, “Theory of the Firm”
(1976) 3 Journal of Finance and Economics
305
(b) S Ross, “The Economics of Information and
the Disclosure Regulation Debate” in Issues
in Financial Regulation ed. F Edwards (1979)
5
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.
6
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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 ｉｓｓｕｅ　ａｎ　ｄｏｃｕｍｅｎｔ　ｎｏｔ　ｔｏ　ｔｈｅ　ｐｕｂｌｉｃ，　不是ｐｒｏｐｅｃｔｕｓ
“prospectus … (a) means any prospectus,
notice, circular, brochure, advertisement, or
other document – (i) offering any shares in or
debentures of a company … to the public for
subscription or purchase …”
Cap32 s. 2, Definition of prospectus
7
Proposition 2:
A covered prospectus must comply with the
prescribed requirements as to form and
content.
Non‐compliance amounts to an offence,
punishable with a fine
Cap32 s. 38(1) read with s 38(1B)
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Proposition 3:
Unless exempted, any form of application for
shares or debentures must be accompanied by
a prescribed prospectus.
Cap32 s. 38(3)
Proposition 4:
The prescribed prospectus must be registered.
Cap32 s. 38D(8)
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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
“prospectus … means any prospectus, notice,
circular, brochure, advertisement, or other
document – (i) offering any shares in or
Return to Hypothetical:
A mere informational document?
11
Hypothetical JCL
1. Jelutong Cable Ltd is a HK registered company
country club , and (b) members of the extended
Fung family to take up shares in JCL.
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
Quare: 就比如欢迎你来我公司看看，公司的运营情况报告，未来的发展计划
A mere informational document?
Does it satisfy the alternative definition?
招股说明书是指（ａ）［旨在邀请公众认购或购买的任何文件
prospectus means (a) [any document]
(ii) calculated to invite offers by the public to
subscribe for or purchase …”
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“Offer to the public”
An essential element to the definition of prospectus (s 2)
Exemption from the obligation to issue covered prospectus with any form for
application of shares/debentures: s 38(3)(b)
“prospectus … (a) means any prospectus,
notice, circular, brochure, advertisement, or
other document – (i) offering any shares in or
What amounts to an offering to the public”?
14
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“Offer to the public”: 不一定是ｅｖｅｒｙｂｏｄｙ　ｏｆ　ｔｈｅ　ｓｏｃｉｅｔｙ，　ａ　ｓｅｃｔｉｏｎ　ｏｆ　ｐｕｂｌｉｃ　就可以了
… [shall] be construed as including a reference
to offering them to any section of the public,
whether selected as members or debenture
holders of the company concerned or as
clients of the person issuing the prospectus or
in any other manner
Cap32 s. 48A(1)
15
Lee v Evans (1964) 112 CLR 276 (HCA)
(SA) Registration of Business Names Act 1928‐
1961 s 4(a)(1)
“[In respect of a registered business under the
Act]… no person shall use or make reference to
that business name in any invitation to the public
… to deposit money with or lend money to that
firm individual or corporation.”
Lee solicited investments in Chowilla Timber Supply Co from
one Owen Clause Broadbent (£200) and one John Noel
Broadbent (£100).
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ｅｖｅｎ　ｔｈｏｕｇｈ　ｉｔ　ｉｓ　ｎｏｔ　ｕｎｉｖｅｒｓａｌ，　ｉｔ　ｉｓ　ｇｅｎｅｒａｌ　ｅｎｏｕｇｈ　ｔｏ　ａｍｏｕｎｔ　ｔｏ　ｏｆｆｅｒ　ｔｏ　ｔｈｅ　ｐｕｂｌｉｃ
Lee v Evans (1964) 112 CLR 276
“[T]he basic concept is that the invitation, though
not universal, is general; that it is an invitation to all
and sundry of some segment of the population at
large. This does not mean that it must be an
invitation to all the public either everywhere, or in
any particular community. How large a section of
the public must be addressed in a general invitation
for it to be an invitation to the public in the relevant
connexion must depend on the context of each
particular enactment and the circumstances of
each case.” – Barwick CJ
17
An essential element to the definition of “prospectus”
SEC v Ralston Purina Co. (1953) 346 U.S. 119 at
125:
"The natural way to interpret the private offering
exemption is in light of the statutory purpose. Since
exempt transactions are those as to which ‘there is
no practical need for * * * (the bill's) application,’ the
applicability of [Section 4(2)] should turn on whether
the particular class of persons affected need the
protection of the Act. An offering to those who are
shown to be able to fend for themselves is a
transaction ‘not involving any public offering.' ".
Purposive
approach
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“Offer to the public”:
An essential element to the definition of “prospectus”
** Corporate Affairs Commission v Australian Central
Credit Union (“CAC v ACCU”) [1985] HCA 64; (1985) 157 CLR 201
ACCU
credit union
u u u u u u u u
u u u u u u u u
u u u u u u u u Sell units in unit
u u u u u u u u trust to
members of the
u u u u u u u u
credit union
u u u u u u u u
u u u u u u u u
u u u u u u u u
23,000
HQ
19
Offer to the public: CAC v ACCU
Issue: whether the proposed sale of units in trust to members
amounts to an “offer to the public”[of prescribed interest covered
by Companies (SA) Code s. 169]?
1. Offer by a Stranger with no rational connection btw the
common characteristics of the group and the nature of the
offer
2. Special relationship ‐ Rational connection between the
common characteristic of members of a group and the offer
made to them. Consider these factors:
 Number of people comprising the group
 Nature and content of the offer
 Significance of any particular characteristic which identifies the
members of the group and any connection btw that
characteristic and the offer.
Analytical
approach
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Proposition 2:
Unless exempted, a covered prospectus must
comply with the prescribed requirements.
What are these
prescribed
requirements?
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Proposition 2:
Unless exempted, a covered prospectus must comply with the prescribed
requirements.
What are the prescribed requirements?
1. Content: s. 38
Language
Third Schedule
 Pt 1 Prescribed particulars
 Pt II Prescribed reports
Eighteenth Sch. Pt 1 statement
2. Registration by the Registrar of
Companies: s. 38D.
3. Advertising Restrictions: s. 38B
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Proposition 2:
Unless exempted, a covered prospectus must comply with the prescribed
requirements.
Note Cap 32 s 38A
The Commission’s power to grant exemptions.
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ｍａｋｅ　ｓｕｒｅ　ｔｏ　ｂｅ　ａｃｃｕｒａｔｅ 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
ｓａｆｅ　ｈａｒｂｏｕｒ　安全港
Small Offering Offers to no more
(≤ $5m) than 50 persons
Offers with min. Professional Qualifying persons

consid. (≥$0.5m) investors (ESOP)
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Exemptions 2
Exemption from the prescribed
requirements found in s. 38
Securities equiv.
Rights issue to currently listed
securities
ｏｕｔ　ｒｉｇｈｔ　ｅｘｅｍｐｔｉｏｎ
ｎｏ　ｎｅｅｄ　ｔｏ　ｄｉｓｃｌｏｕｒｅ
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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Summary ｆｒａｍｅｗｏｒｋ，　填充ｐｒｏｖｉｓｉｏｎｓ　．．．
of material covered thus far
1. Unless exempted, a document offering shares
in or debentures of a company to the public for
subscription or purchase is a covered
prospectus.
2. Unless exempted, a covered prospectus must
comply with the prescribed requirements as to
form and content.
3. Unless exempted, any form of application for
shares or debentures must be accompanied by
a prescribed prospectus
Summary
of material covered thus far
4. Exemptions from (a) definition of
prospectus; (b) prescribed form and content.
5. Contravention results in criminal liability
违反规定将导致刑事责任
How about civil liability toward investors?
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Hypothetical PT Jelutong
1. PT Jelutong is an Indonesian registered company
country club in HK, and (b) members of the
extended Fung family to take up shares in JCL.
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Hypo PT Jelutong (Hint)
1. Does “Pt II: Share Capital and Debentures”
still apply?
 See s. 38 and definition of company (s. 2)
2. Consider s. 342(1) in “Pt XII: Restrictions on
Sale of Shares and Offer of Shares for Sale”
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Action for Misrepresentation
Misrepresentation
ｏｐｔｉｏｎ　１．　Ｄａｍａｇｅｓ
ｏｐｔｉｏｎ　２．　Ｒｅｓｃｉｓｓｉｏｎ，　ｗａｎｔ　ｂａｃｋ　ｔｈｅ　ｍｏｎｅｙ　ｉ　ｈａｖｅ　ｐａｉｄ
Rescission (against
Damages counterparty to
contract)
Innocent
Misrepresentation Fraudulent Negligent misrepresentation
Ordinance s. 3(1) misrepresentation misrepresentation
X – (only under MA s.
2(2)
Revision on the law of
Misrepresentation
Rescission (equity):
All kinds of misrepresentations 只要ｍｉｓｒｅｐｒｅｓｅｎｔａｔｉｏｎｓ就行
Subject to bars ４　ｃｌａｓｓｉｃ　ｂａｓ　ｏｆ　ｒｅｓｃｉｓｓｉｏｎ：有一种是无法复原
Action for damages (common law)
欺骗（欺诈性虚假陈述）
Deceit (fraudulent misrepresentation)
Derry v Peek (1889)
Negligent misrepresentation:
Hedley Byrne v Heller (1963)
Damages under the Misrepresentation Ordinance
Premise: action between contracting parties
Section 3(1) The fiction of fraud
Section 3(2) Damages in lieu of rescission
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Was there a misrepresentation?
The King v Kylsant (Lord) (1931)
Criminal conviction under the Larceny Act s. 84
Issue: “whether statement false in any material particular…” (debenture stock)
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: ｍａｔｅｒｉａｌ　ｎｏｎ－ｄｉｓｃｌｏｕｒｅ　没有提供关键性信息，　ｍｉｓｌｅａｄｉｎｇ／ｕｎｔｕｒｅ
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.
Was there a misrepresentation?
Edgington v Fitzmaurice (1884)
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 ｔｈ
如果你说了某件事
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1. Action in deceit (fraudulent misrepresentation)
against directors?
2. The elements:
 Untrue fact
 Made knowingly
 Intending that statement be relied upon
 Reliance upon statement
Alleged misrepresentations:
1. Mortgage (£21.5k) – instalments
3. Real purpose: address liquidity crunch
Debenture
Alleged misrepresentations:
Prospectus
1. Mortgage (£21.5k) – instalments
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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Issue: Can a statement of purpose be a statement of fact?
“… the state of a man's mind is as much a fact as the state of
his digestion. It is true that it is very difficult to prove what the
state of a man's mind at a particular time is, but if it can be
ascertained it is as much a fact as anything else. A
misrepresentation as to the state of a man's mind is, therefore,
a misstatement of fact.”
- per Bowen LJ (at p. 483)
Other learning points:

1. Implied assertions
2. Half-truths (incomplete disclosures) ｃａｎ　ａｌｓｏ　ｂｅ　ｍｉｓｒｅｐｒｅｎｔａｔｉｏｎ
3. Causation/ Inducement
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.
38
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Hypothetical HMX
Suit against HMX Ltd.
 Rescission: Re Pacaya Rubber (1914) ｏｐｔｉｏｎ　１：　
 Action in deceit. ｏｐｔｉｏｎ：　ｐｅｒｓｏｎ　ｕｎｄｅｒ　ｔｈｅ　ｃｏｍｐａｎｙ
Derry v Peek (1889) 14 App Cas 337
“[F]raud is proved when it is shewn that a false representation
has been made (1) knowingly, or (2) without belief in its truth,
or (3) recklessly, careless whether it be true or false. Although I
have treated the second and third as distinct cases, I think the
third is but an instance of the second, for one who makes a
statement under such circumstances can have no real belief in
the truth of what he states. To prevent a false statement being
fraudulent, there must, I think, always be an honest belief in its
truth.”
(At p. 374, per Lord Herschell)
39
Hypothetical HMX
 Action under the Misrepresentation Ordinance
3‐(1) Where a person has entered into a contract after a
misrepresentation has been made to him by another party
thereto and as a result thereof he has suffered loss, then,
if the person making the misrepresentation would be liable
to damages in respect thereof had the misrepresentation
been made fraudulently,
that person shall be so liable notwithstanding that the
misrepresentation was not made fraudulently,
unless he proves that he had reasonable grounds to believe and
did believe up to the time the contract was made that the facts
represented were true.
40
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Hypothetical HMX
 Rescission
 Action in deceit.
Houldsworth v City of Glasgow Bank and Liquidators
(1880)
1. Problem with action in deceit
Distinction between an action for deceit in:
 a contract to buy goods, and
 a contract to buy shares Cap. 32 s. 40B
2. Problem with rescission
41
Hypothetical HMX
Suit against the directors of HMX Ltd.
 Rescission
 Misrepresentation Ordinance s. 3(1) and (2)
 Action in deceit.
Derry v Peek (1889) 14 App Cas 337
“[F]raud is proved when it is shewn that a false representation
has been made (1) knowingly, or (2) without belief in its truth,
or (3) recklessly, careless whether it be true or false. Although I
have treated the second and third as distinct cases, I think the
third is but an instance of the second, for one who makes a
statement under such circumstances can have no real belief in
the truth of what he states. To prevent a false statement being
fraudulent, there must, I think, always be an honest belief in its
truth.”
(At p. 374, per Lord Herschell)
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Hypothetical HMX
Suit against the directors of HMX Ltd.
 Action in negligent misrepresentation
Hedley Byrne v Heller (1963)
1. Duty of care
 Reasonable foreseeability
 Proximity
Proximity?
2. Breach of duty of care • Assumption of
3. Damage responsibility
• Knowledge of possible
reliance
• Fair, just and
reasonable
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Hypothetical HMX (vers. 2)
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. Before this was revealed,
Jennifer Chee paid $80,000 for the shares she bought
from the secondary market. They are now worth only
$1,000. She is is deeply unhappy. ｓｔｏｃｋ　ｅｘｃｈａｎｇｅ　
Advise Jennifer Chee.
44
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Hypothetical HMX
Subsequent purchasers: suit against the directors of
HMX Ltd for misrepresentation in prospectus?
“intention that statement be relied upon” ‐ whether
prospectus exhausted?
 Action in deceit:
 Peek v Gurney (1873)
? Duty
of care ?
 Action in negligent misrepresentation.
Possfund Custodian Trustee v
Diamond (1996)
Al Nakib Investments v
• Changed market conditions
Longcroft (1990, ChD)
• Superadded purpose: inform
Whether directors owe a
and encourage after‐market
duty of care toward
purchasers (factual question
 subscribers
with legal consequences)
 subsequent purchasers
Read esp. All ER 787‐788
(2o market)
45
Hypothetical HMX
Subsequent purchasers: suit against the directors of
HMX Ltd for misrepresentation in prospectus?
auditors
 Action in negligent misrepresentation.
? Duty ｎｏ　ｄｕｔｙ　ｏｆ　ｃａｒｅ
of care ?
Caparo v Dickman [1990] 2 AC 605 (Revision)

Whether auditors owe a duty of care toward investors who
make investment decisions relying on the audited financial
statements
46
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The immediate reaction to Derry v Peek (1889) 14 App Cas 337
Fraud threshold too onerous ~!
(UK) Directors Liability Act 1890
 (HK) Company Law (WUMP) Ordinance (Cap32)
s. 40 Civil liability for misstatements in prospectus
(1) Subject to the provisions of this section, where a prospectus invites
persons to subscribe for shares in or debentures of a company, the
following persons shall be liable to pay compensation to all persons 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 included therein, that is to say‐
(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; and
(d) every person who has authorized the issue of the prospectus
***
Cap32 s. 40(1)
The elements
1. Who is liable?
2. Who is entitled to sue?
3. What are the elements?
 Untrue statement
 Subscribe for shares on the faith of the
prospectus
 Loss/damage
4. Defences esp. s. 40(2)(d)(i) and (ii)
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Hypothetical JinenTech (JT)
1. JinenTech Ltd is a biotech company developing drugs to
fight lymphoma (cancer). Early and development stage
financing was provided by Cedar Capital Inc, who took
up convertible preference shares.
2. Having successfully developed the drug, Jinentech
would like to like to raise capital for manufacture and
worldwide distribution of the drug. It proposes to do
this through an IPO of its common shares.
3. Cedar Capital Inc would like to cash out – by converting
its preference shares into common shares and selling
its shareholdings in the IPO along with Jinentech.
4. Suppose there are misstatements in the prospectus.
Are the shareholders entitled to sue under Cap32 s.
40?
49
(HK) Company Law (WUMP) Ordinance (Cap32)
s. 40 Civil liability for misstatements in prospectus
(1) Subject to the provisions of this section, where a prospectus
invites persons to subscribe for shares in or debentures of a
company, the following persons shall be liable to pay
compensation to all persons 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 included therein, that is to say‐
(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; and
(d) every person who has authorized the issue of the prospectus
***
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(HK) Company Law (WUMP) Ordinance (Cap32)
s. 40‐***(7) It is hereby declared that, for the
purposes of this section, persons who subscribe
for any shares or debentures *** includes
persons specified in the Twenty‐second Schedule.
Twenty‐second Sch.
1. Persons who subscribe for or purchase shares
or debentures pursuant to an offer in a
prospectus.
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)
(b) to acquire an interest in or participate in, or offer to acquire an interest in
or participate in, a collective investment scheme, the first‐mentioned person
shall, whether or not he also incurs any other liability (whether under this
Part or otherwise), be liable to pay compensation by way of damages to the
other person for any pecuniary loss that the other person has sustained as a
result of the reliance by the other person on the misrepresentation.
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SFO s 108
Civil liability for inducing others to invest money in certain cases
* * *
(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.
SFO s 277
Disclosure of false or misleading information inducing
transactions
(1) Disclosure of false or misleading information inducing transactions
takes place when, in Hong Kong or elsewhere, a person discloses,
circulates or disseminates, or authorizes or is concerned in the
disclosure, circulation or dissemination of, information that is likely‐
(a) to induce another person to subscribe for securities, or deal in futures
contracts, in Hong Kong;
(b) to induce the sale or purchase in Hong Kong of securities by another
person; or
(c) to maintain, increase, reduce or stabilize the price of securities, or the
price for dealings in futures contracts, in Hong Kong,
if‐
(i) the information is false or misleading as to a material fact, or is false
or misleading through the omission of a material fact; and
(ii) the person knows that, or is reckless or negligent as to whether, the
information is false or misleading as to
27
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SFO s 281
Civil liability for market misconduct
(1) Subject to subsection (2), a person who has
committed a relevant act in relation to market
misconduct shall, whether or not he also incurs any other
liability (whether under this Part or otherwise), be liable
to pay compensation by way of damages to any other
person for any pecuniary loss sustained by the other
person as a result of the market misconduct, whether or
not the loss arises from the other person having entered
into a transaction or dealing at a price affected by the
market misconduct.
(2) No person shall be liable to pay compensation under
subsection (1) unless it is fair, just and reasonable in the
circumstances of the case that he should be so liable.
Remedial orders under SFO s. 213(2)(b)
(1) Where—
(a) a person has—
(i) contravened—
(A) any of the relevant provisions;
(2) it appears … to the Commission that any of the matters referred to in
paragraph (a)(i) to (v) has occurred, is occurring or may occur,
the Court of First Instance, on the application of the Commission, may, subject to
subsection (4), make one or more of the orders specified in subsection (2).
(2) The orders specified for the purposes of subsection (1) are—
(a) an order restraining or prohibiting the occurrence or the continued
occurrence of any of the matters referred to in subsection (1)(a)(i) to
(v);
(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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SFC v Qunxing [2018] 4 HKC 465
Misleading disclosures and non‐disclosures in financial statements:
(1) Turnover over‐ stated
(2) Loans not stated
(3) Restructuring in PRC not disclosed
SFC v Qunxing [2018] 4 HKC 465
Learning Points:
(1) Substantive provision. Not merely a representative mechanism
(procedural in nature). [47]‐[50].
(2) Persons against whom order may be made.
Not limited to counterparties of those who have suffered damage.
(3) Broad discretion, limited only by s 213(4):
 Whether desirable that order should be made;
 The order will not unfairly prejudice any person.
(4) Broad‐brush approach: [57]‐[61].
 Quare: whether this goes too far.
29

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Caparo v Dickman [1990] 2 AC 605 (Revision)

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