Rights Issues By Unlisted Public Companies Are Regulated By The Public Offers Of Securities Regulations
A rights issue by an unlisted public company is subject to the Public Offers of Securities Regulations 1995. The detailed discussion in 17 of the concept of an offer to the public for the purpose of these regulations is not repeated here: in summary, for all practical purposes any offer of securities in the UK for the first time triggers the requirement under the Regulations to register and publish a prospectus unless it is covered by an appropriate exemption. There are certain general exemptions from the requirement to produce a prospectus which, depending on the structure adopted, could apply to a rights issue, such as the offer to no more than fifty persons exemption (where, to ensure compliance, the offer would have to be made in a non-renounceable form).
A specific exemption for rights issues made by companies quoted on the Alternative Investment Market is provided by the Public Offers of Securities Regulations 1995, reg 8 (5) which permits the London Stock Exchange to authorise the making of an offer on a pre-emptive basis without a prospectus where uptodate information equivalent to that required to be included in a prospectus is available as a result of the requirements of the ExchangeDocuments issued in connection with a rights issue which is exempt from the requirement to produce a prospectus remain subject to the Financial Services Act 1986, s 57 unless an appropriate exemption applies.
Rights Issues by Listed Companies are Regulated by the Financial Services Act 1986, Pt IV and the Requirements of the London Stock Exchange's Listing Rules In the case of a listed company, it is a condition of admission to listing for securities which are to be offered to the public in the UK for the first time before admission that a prospectus, approved by the Exchange, be published.In circumstances where the requirement to produce a prospectus is not triggered for example where admission precedes the offer (although this would be unusual in a rights issue) there is still a general requirement to produce listing particulars.
As permitted by the Listing Particulars Directive, art 6, para 3 and the Public Offers Directive, art 11.6,the Stock Exchange normally waives the requirement to produce a prospectus or listing particulars for new issues of shares which would increase the shares of a class already listed by less than 10 per cent. Many rights issues by listed companies are too large to be able to take advantage of these small issues exemptions, so a prospectus is usually required.The prohibition on private companies offering their shares or other securities to the public remains in the Companies Act 1985 and has not been incorporated into the legislation which governs public offers generally, namely the Financial Services Act 1986 and the Public Offers of Securities Regulations 1995. The Companies Act 1985 has its own interpretation of 'offer to the public' which is not the same as that in the 1986 Act or the 1995 Regulations.
The relevant provision is the Companies Act 1985, s 81 which provides that a private company commits an offence if it offers its shares or debentures to the public or allots, or agrees to allot, its shares or debentures with a view to all or any of those securities being offered for sale to the public. Under the Companies Act 1985, s 59 references in the Act to offering shares or debentures to the public are to be read as including a reference to offering them to any section of the public, such as the members of the company concerned.
This is, however, subject to the Companies Act 1985, s 60 (1) which provides that an offer does not have to be regarded as an offer to the public if it can properly be regarded, in all the circumstances, as not being calculated to result, directly or indirectly, in the securities becoming available for subscription or purchase by persons other than those receiving the offer or otherwise as being a domestic concern of the persons receiving and making it.
By virtue of the Companies Act 1985, s 60 (4) (a) an offer to existing members falls to be regarded as a domestic concern.
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