Inaccurate Information Investors Remedies
The remedies that are generally available to investors who have acquired securities on the basis of false or incomplete information given about those securities when they were offered to the public are considered in 17. A few points of specific relevance to shares offered by way of rights may be made here.In a rights issue the new shares are offered by the company for subscription. The provisional allotment letters sent to the existing shareholders are offers. The contract to take the shares is between the company and the investor and it would be against the company that the investor would seek to exercise any right of rescission
The initial investor in the shares may be the existing shareholder to whom they were first offered or another person, or persons, in whose favour the offer has been renounced. To rescind, the innocent person must demonstrate 'inducement' to take the shares and for this purpose must show that he was within the class of persons to whom the inducement was addressed. There is clearly no difficulty about this where the initial investor is an existing shareholder who took up rights, but what if the initial investor is a person in whose favour rights have been renounced? Given that the company knows from the outset that the shares offered might be taken by the existing shareholders or by person in whose favour the offer was renounced it would seem reasonable to regard renouncees as being included in the class of persons to whom the inducement was directed.
Initial subscribers and subsequent market purchasers of the shares should be able to pursue a statutory claim for compensation under, as the case may be, the Financial Services Act 1986 or the Public Offers of Securities Regulations 1995. It has been held, however, that the sole purpose of a rights-issue prospectus is to facilitate the initial allotment of the shares and that no claim in tort may be brought in respect of subsequent market purchases of shares, even by persons who were existing shareholders prior to the rights issue.Specific items of information required to be included in a rights-issue prospectus issued by a listed company are set out in The Listing Rules.
The matters on which information is required include the following:
the pro rata entitlement to the new shares to be issued by way of rights; the last date on which transfers were or will be accepted for registration for participation in the issue;
how the new shares rank for dividend or interest;whether the new shares rank pan passu with any existing listed securities; the nature of the document of title and its proposed date of issue; the treatment of any fractions; and how shares not taken up will be dealt with and the time, not being less than 21 days, in which the offer can be accepted.
A rights-issue circular relating to securities that are to be listed must also contain a table of market values for securities of the class to which the rights issue relates for the first dealing day in each of the six months before the date of the circular, for the last dealing day before the announcement of the rights issue and (if different) the latest practicable date prior to despatch of the circular. Statements on the amount of borrowings must be included and the issuer must give an opinion on the adequacy of its working capital.
The general duty of disclosure under the Financial Services Act 1986, s 146, the general nature of which is discussed in 17, applies, but in determining the information that is required to be included in order to satisfy this duty regard can be had to information that is already available to investors or their professional advisers by virtue of the continuing obligations to which the issuer is subject under The Listing Rules.
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