Prospectus Directive

The definition given by Section 43(2) of the companies Act 1963 of a prospectus is “any prospectus, notice, circular, advertisement or other invitation, offering to the public for subscription or purchase any share or debentures of a company.” Ussher observes that the primary objective of the initiave is shareholder protection and the “chief weapon” available to the authorities in ensuring this is the compulsory disclosure of material facts upon the occasion of any invitation to member of the public to subscribe for shares of debentures in a company. This as noted by Cahill in Corporate Finance Law, is known as an offer to the public.

Traditionally judiciary looked to Section 61 of the 1963 Act for guidance as to what constituted an offer to the public. However, Eaton in “Implementing the Prospectus Directive” observes that this was more helpful in providing that certain offers were not “offers to the public.” Similarly, Cahill comments that it does not succeed in providing an all embracing definition that lends itself to easy elucidation.

OFFER TO THE PUBLIC

Warrington J attempted to analyse the concept of an offer to the public in Sherwell v Combined Incandescent Mantles Syndicate where he stated that an offer was one “to anyone who should choose to come in.” The court held that there had been no offer to the public as the 200 circulated prospectuses had been distributed to friends and family. The intent of this was to keep the share capital in the company to themselves and friends whom they would like to have as members of the company.

In the case of Corporate Affairs Commission V David James Finance Ltd an invitation to 12,500 company employees was also held not to amount to an offer to the public or a section of the public. However, in Re South of England Natural Gas and Petroleum Company Ltd a document circulated to 2000 members of certain gas companies was held to constitute an offer to the public. Swifin Early took the view that merely because the offer document was sent to those most likely to take up the offer that does not mean that it was not a valid offer.

This was a heavily criticised decision and it would appear that following this, the courts reverted back to Warringtons more “certain” test as evidenced in Nash v Lynde and Governments Stock and Other Securities Investment Co Ltd v Christopher. Eaton observes that the courts in these decisions considered who was eligible to apply for the securities and have their offer accepted when deciding whether an offer to the public had been made.

The courts continued to attempt a definitive definition through the case law, however, it was not until the enactment of the Prospectus Directive that the concept of an offer to the public became clear.

The Directive was implemented in Ireland on July 1 2005 by the enactment of the Prospectus (Directive 2003/71/EC) Regulations 2005 (the Irish Regulations) and Part Five of the Investment Funds, Companies and Miscellaneous Provisions Act, 2005. The principal purpose of this, as noted by the law society, was to repeal the existing legislation governing prospectuses, most of which had become obsolete and some of which was generally unworkable.

It is clear that prior to the enactment of the Irish Regulations, confusion reigned regarding the precise meaning of an offer to the public. The Directive alleviated such confusion, not by virtue of the definition introduced, but rather the exemptions to that definition. However, as noted by Cahill, it must be emphasised that these exclusions relate to public offers and not to admissions to trading.

Section 61 is repealed by Section 49. Public offer or offer securities to the public is defined as “a communication to person in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities.”

Section 49 now governs local offers and provides a range of lesser protections where local offers are concerned. There is a requirement to issue an “offering document” rather than a prospectus. The protections take the form mainly of including “health warnings” on literature.

A “local offer” is defined in Section 38 as those offers where the total consideration for the offer is less than €2,500,000. This does not apply to offers exempted or excluded from the Directive. For all other offers to the public, a prospectus which has been approved by the Central Bank and Financial Services Authority must be published.

MIS-STATEMENT

Cahill notes that where there are untrue statements in the prospectus, then as well as invoking a range