UK: Offering Securities Into The United Kingdom

Last Updated: 13 February 2012
Article by Jonathan Deverill

With companies these days exploring an increasingly broad range of options when it comes to funding, London continues to be a popular target for corporate road-shows and calls to potential investors alike. Fortunately, from an English legal perspective, marketing to institutional investors in the United Kingdom from overseas should normally be pretty straightforward.

Will the company need a UK prospectus?

Not normally. A UK prospectus is only required for (i) offers of transferable securities to be admitted to trading on certain UK stock markets, including the UK's flagship "Official List" but not AIM, and (ii) offers of transferable securities "to the public" in the United Kingdom. In each case there are various exemptions. Where the company concerned is not listed or becoming listed in the United Kingdom at all, only the "offer to the public" head is relevant; and there is an exemption from the need for a UK prospectus where the offer is made in the United Kingdom only to (i) "qualified investors", defined to cover most institutional investors, and/or (ii) fewer than 150 persons, not including any "qualified investors" to whom the offer is made.

Care needs to be taken when marketing to a fund manager or stockbroker acting for clients on a non-discretionary basis, since the legislation requires a look-through to the underlying clients who, of course, could be numerous and are unlikely themselves to be "qualified investors".

What about the UK's "financial promotions" regime?

This regime regulates the communication in or into the United Kingdom, in the course of business, of any invitation or inducement to engage in a variety of activities relating to investments, including buying, selling, subscribing for or underwriting securities as principal or agent. The definition of "financial promotion" is very broad and is taken to include, amongst other things, phone calls to potential investors, road-show presentations and presentation slides, "pathfinder" and formal prospectuses (under foreign law) and subscription agreements and placing letters. Whilst compliance with the regime is achieved where a person duly authorised by the UK Financial Services Authority (see further below) (i) makes the communication, or (ii) approves the content of the communication, in practice in most cases like this the company offering the securities and its advisors will seek to bring themselves within the scope of one of the many exemptions.

Prominent among these are the exemptions for "investment professionals" and "high net worth companies, unincorporated associations, etc" contained, respectively, in paragraphs 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (FPO). Whilst there are detailed criteria for each exemption, most marketing to institutional investors in the United Kingdom in cases like this is done in reliance on them. Other potentially useful exemptions include those for promotions to members and creditors of certain bodies corporate (FPO paragraph 43) or relating to the sale of a body corporate (FPO paragraph 62).

Whilst the FPO does contain certain exemptions for promotions to high net worth individuals – see in particular FPO paragraphs 48, 50 and 50A – in our experience these are quite restrictive compared with our understanding of certain "accredited investor", and similar, regimes in other jurisdictions. A particular feature is the need to establish at the very outset, before any communication of marketing or other promotional materials, that the individual concerned does indeed fall within the relevant exemption. If this is not done, and the necessary paperwork exchanged at the beginning of the process, there is a real risk of non-compliance, which unfortunately cannot be cured by obtaining the requisite documentation and confirmations at the time of signature of an investment agreement.

What about the UK Financial Services Authority (FSA)?

Under the United Kingdom's regulatory regime, a person may only offer securities in the UK if either they have an authorisation to do so from the FSA or an exemption applies. However, most companies benefit from broad exemptions when offering their own shares. Furthermore, investment banks and other broking firms offering securities into the United Kingdom as agent for their own corporate client will also be exempted where both:

  1. the transaction is entered into in compliance with the UK's "financial promotions" regime, mentioned above; and
  2. such investment bank or other broking firm does not offer the relevant securities into the United Kingdom, or offer to do so, from a permanent place of business maintained by them in the United Kingdom.

Accordingly, unless a UK prospectus is required, an offering by an overseas company into the United Kingdom - either as principal or through an investment bank or other broking firm based outside the UK - should not normally entail dialogue with the FSA.

What about liability?

There are both civil and criminal consequences of (i) failure to comply with the regimes relating to UK prospectuses and financial promotions, and (ii) carrying on regulated financial services activity in the United Kingdom without the appropriate authorisation from the FSA. In particular, subject to the court's discretion an agreement made following a breach of the financial promotions regime or by a person lacking the requisite FSA authorisation is unenforceable against the innocent party, who is entitled to compensation and the return of money or other property transferred by them.

Where a UK investor subscribes based on inaccurate or misleading information, they may be able to rely on one or more English law remedies in addition to any other redress which may be available to them. (A detailed description of those remedies, and other possible heads of criminal liability, is beyond the scope of this note.)

A CASE STUDY

XYZ Corporation is incorporated in the British Virgin Islands. Its shares are listed on the Toronto Stock Exchange and it does not currently have any shareholders in the United Kingdom. The company is undertaking a brokered private placement, seeking to raise C$20 million. The broker - which has no offices in Europe - suggests contacting a half a dozen pension funds, asset managers and insurance companies based in London by phone on behalf of the company, to see if they would be interested in participating in the private placement.

There should not be any particular issues for XYZ Corporation or its broker from an English regulatory perspective. Neither the company nor its broker will be contacting the prospective investors from within the United Kingdom, so there is no need to worry about having (or not having) an authorisation from the FSA. The institutions should all be "qualified investors", so no UK prospectus would be needed. Furthermore, all such institutions should also be exempt, as "investment professionals", for the purposes of the FPO. Confirmatory warranties could be added to any subscription agreement, and suitable selling restrictions added to marketing documentation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions