Contemporary Legal Issues in Connection With Prospectus

PREPARED BY:
NUR AKMAL BINTI ADNAN 225543
SYARIFAH SYIFA BINTI SYED BAHAROM 225647
ASMAH BINTI CHE WAN 226388
WAN NUR FATIHAH BINTI MUKHTAR 226713
ZAM AQILAH BINTI GHAZILLI 229098

INTRODUCTION
Veracity and relevancy of facts
and information given to
investors are crucial in building
confidence in the investors
towards the capital market .
Depending on the information
given in each prospectus,
investors will make decision
whether or not to invest in such
company.
Therefore, the law seeks to
safeguard this element by
providing that all material
regarding company’s information
must be spilt to investors prior
to them in deciding their
investment.

 This can be achieved by establishing the prospectus which the
law has enforced criminal and civil liability to those who are
responsible in the ill-making prospectus, inaccuracy and
concealment of material facts towards the investors
 The aim of the prospectus provisions is to balance the needs of
investor protection with an efficient and reliable capital
market

WHAT IS PROSPECTUS?
Plainly, prospectus is defined as a printed
statement that describes something such as a new
business or investment and that is sent to people
who may be interested in it or invest in it or a book
or document that provides information about a
school, business, et cetera
Black’s Law Dictionary  prospectus means
a document published by a company or corporation, or
by persons acting as its agents or assignees, setting
forth the nature and objects of an issue of shares,
debentures, or other securities created by the company
or corporation, and also a statement inviting the
public to subscribe to the issuance of shares

legal point of view  prospectus is as a notice, circular,
advertisement or document inviting applications or offers to subscribe
for or purchase securities, or offering any securities for subscription or
purchase and unless expressly specified includes a supplementary
prospectus, replacement prospectus, shelf prospectus, short form
prospectus, profile prospectus, supplementary prospectus and abridged
prospectus
TYPES OF
PROSPECTUS
Main
Prospectus
Replacement
Prospectus
Supplementary
Prospectus

METHOD IN
ISSUING
PROSPECTUS
Printing
(Traditional
way)
Hawking
Electronic
Prospectus
(modern way)
• All these methods are need to be controlled by government to
safeguard investors from manipulation

DEVELOPMENT OF LAW ON PROSPECTUS IN
MALAYSIA
Nevertheless
prospectus registered through the SC must still be verified by the
Companies Commission of Malaysia (CCM)
1st July 2000
Securities Commission (SC) is the authority that is responsible in
approving and registering prospectuses that are issued to the public
for investment purpose

• Before this, matters related to prospectus
were governed by Securities Commission
Malaysia Act under Division 3.
• On 31st July 2007 Securities Commission
(Amendment Act) 2007 has been gazetted
after obtaining the Royal assent four days
prior to the gazetted date where
subsequently all the provisions of the Act
comes into operation except for the deletion
of Division 3 which then being enforced in
Capital Markets and Services Act 2007

• The principles in regard to the preparation,
registration and issues of a prospectus are governed
by Capital Markets and Services Act 2007 (CMSA)
under Part 6 Division 3 and also Prospectus
Guidelines imposed by the SC on 8th May 2009
which carried out from 3rd August 2009
• Nevertheless, it must be in cognizant that the
principal act is Companies Act 1965 (Act 125) under
Part IV on Shares, debentures and Charges;
Division 1 concerned particularly on Prospectuses
started from Section 36A up until Section 47B,
Schedule Fifth and Schedule Sixth.

1) prior to investing in any
company securities, the
prospective investor will be
provided with written information
that will facilitate his investment
decision-making in the said
company securities
2) to ascertain that information
comprehended in the prospectus
are material information which
such materiality is able to assist
the prospective investor in making
an informed decision as to his
investment
3) to guarantee that due diligence
is exercised accordingly by the
prospectus’ makers and finally it is
to forewarn those who give false or
make misleading information in a
prospectus that he or she will be
subjected to civil and criminal
liability correspondently

 As prospectus’ function is to guide and assist the investors prior making
their investment decision, it is of the essence that the prospectus
contains material information and misleading-free contents.
 Therefore, the CMSA has empowered the SC to regulate the contents of
a prospectus in assuring that the prospectus comprises thoroughly all
information vital to enable the investor to make an assessment of the
securities offered by the prospectus and also to ensure that due
diligence is unequivocally practised by the prospectus makers to avoid
any misleading or false statement is being included in the said
prospectus.

TUCCI V. SMART
TECHNOLOGIES INC. [2013]
O.J. NO. 4215; 2013 ON.C. LEXIS
4321; 2013 ONSC 5786 The plaintiffs brought a class action alleging that the prospectus for
the defendant company's initial public offering contained material
misrepresentations and that the plaintiffs acquired the defendant's
securities at an artificially inflated price. A settlement agreement
provided for a settlement at the amount of $ 15,250,000.
 The court then allowed the claim as a result of the alleged
misrepresentation is material and the defendant has failed to prove
otherwise.

SECTION 235 OF CMSA
Contents of prospectus
235.(1) Without prejudice to section 236, a prospectus–
(a) shall be dated and that date shall, unless the contrary is proved, be taken as the date of issue of the prospectus;
(b) shall state that–
(i) the prospectus has been registered by the Commission;
(ii) in respect of securities other than a unit trust scheme or prescribed investment scheme, a copy of the
prospectus is lodged with the Registrar and in respect of a unit trust scheme or prescribed investment scheme, a copy
of the prospectus is lodged with the Commission; and
(iii) the registration of the prospectus shall not be taken to indicate that the Commission recommends the
securities or assumes responsibility for the correctness of any statements made or opinions or reports expressed in
the prospectus;
(c) shall contain a statement that no securities will be allotted or issued on the basis of the prospectus later than such
period as the Commission may specify from the date of issue of the prospectus;
(d) shall, if it contains any statement made by an expert or contains what purports to be a copy of or an extract from
a report, memorandum or valuation of an expert, state the date on which the statement, report, memorandum or
valuation was made and whether or not it was prepared by the expert for incorporation in the prospectus;

(e) shall not contain the name of any person named in the prospectus as having made a
statement–
(i) that is included in the prospectus; or
(ii) on which a statement made in the prospectus is based, unless the requirements of
subsection 244(1) are satisfied; and
(f) shall set out such information, matters or reports as may be specified by the Commission.
(2) A condition requiring or binding an applicant for securities to waive compliance with any
requirement of this section or section 236, or purporting to affect him with notice of any
contract, document or matter not specifically referred to in the prospectus, shall be void.
(3) Notwithstanding the provisions of this Division, the Commission may, either on the written
application of any person referred to in section 232 or of its own accord, make an order
relieving such person from or approving any variation of the requirements of this Act relating
to the form and content of a prospectus.
(4) In making an order under subsection (3), the Commission may impose such terms and
conditions as it thinks fit.

(5) The Commission shall not make an order under subsection (3) unless it is satisfied that–
(a) compliance with the requirements of this Act is unnecessary for the protection of
persons who may normally be expected to deal in those securities, being persons who would
reasonably be expected to understand the risks involved; or
(b) compliance with the requirements of this Act would impose an unreasonable burden
on the issuer.
(6) A prospectus shall be deemed to have complied with all the requirements of this Act relating
to the form and content of a prospectus if it is issued in compliance with an order made under
subsection (3).
(7) Where a prospectus relating to any securities is issued and the prospectus does not comply
with the requirements of this section, the issuer and each director of the issuer at the time of
the issue of the prospectus commits an offence and shall, on conviction, be liable to a fine not
exceeding three million ringgit or to imprisonment for a term not exceeding ten years or to
both.
(8) Any person who contravenes any term or condition as may be imposed by the Commission
under subsection (4) commits an offence.

 Section 235 requires a prospectus to encompass the date of the said prospectus being issued, a
statement that such prospectus has been registered legally with the SC and a disclaimer
showing that the registration does not an indication that the SC is recommending the
securities nor the SC will be held responsible if there is any wrongful on the part of the
statement made, opinion and reports expressed in the prospectus and also a statement to the
manifestation that no securities will be issued on the basis of the prospectus later than the
period specified by the SC.
 On the occasion of existence a copy or an extract from a report, valuation or memorandum
prepared by an expert in the prospectus, the said prospectus must contain the date of the
report, memorandum or valuation was made and also a statement implying whether that
report memorandum or valuation was made for the objective of such embodiment in the
prospectus.
 The section also restricts the prospectus from any insertion of names whom having made
statements that is admitted to the prospectus unless that person has consented to such
inclusion. In case of a statement is being included without that person consent or he has
already withdrawn his consent then he would not be subjected to any criminal or civil liability
if the facts incorporated in the prospectus were found false or misleading statements.
Explanation to Section 235

KIARA EMAS ASIA INDUSTRIES
BERHAD V TETUAN WONG
CHOOI & MOHD NOR [2012] 2 CLJ
438. It was contended that the defendant failed to make full disclosure of material particulars as
prescribed under the KLSE Listing Rules and Requirements relating to a charge, a shadow
director and related party dealings in the prospectus that was done in the listing process. The
omission to make such disclosure was the operative cause to the plaintiff being listed, albeit
wrongly, and the subscribers misled by the omission to purchase the shares under the
impression that the plaintiff was financially fit and sound when that was not the case. The
issues for determination were whether the proper party to claim for losses for relying on the
defective prospectus was the shareholders of the plaintiff, whether there was a cause of
action against the defendant and whether there was a causal link and losses.

 The claim was dismissed by the court as it was the investors who had purchased
shares in the plaintiff company that suffered losses upon reliance on the defective
prospectus.
 The plaintiff did not rely on it but was responsible for issuing it with the
misrepresentations. The plaintiff therefore did not suffer any loss and so could not
sustain a suit against the defendant who had acted in the listing process but it
was further held by the court that as the plaintiff's directors were responsible for
the issuance of the prospectus, they owed a duty to potential subscribers to
maintain the veracity of the content of the prospectus.
 If the information set out in the prospectus was wrong or misleading as alluded to
by the plaintiff, the injury and consequent damages/losses were due to the
plaintiff through its directors for failing to take reasonable care and not due to the
negligence of the defendant.

SECTION 236 OF CMSA
General duty of disclosure in prospectus
236. (1) For the purpose of determining whether a prospectus contains any statement or information which is false
or misleading or from which there is a material omission under subsection 246(1) or 248(1), regard shall be had to
whether the prospectus contains all such information that investors and their professional advisers would
reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed
assessment of–
(a) the assets and liabilities, financial position, profits and losses and prospects of the issuer and, in the
case of a unit trust scheme or prescribed investment scheme, of the scheme;
(b) the rights attaching to the securities; and
(c) the merits of investing in the securities and the extent of the risk involved in doing so.
(2) The information that investors and their professional advisers would reasonably require and reasonably expect to
find in the prospectus under subsection (1) is information–
(a) which is known to all or any of the following persons:
(i) a person who was a director of the issuer at the time of issue of the prospectus;
(ii) a person who has consented or caused 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;

(iii) a promoter;
(iv) the principal adviser in relation to an issue of, offer for subscription or purchase of,
or invitation to subscribe for or purchase, securities;
(v) a person named in the prospectus, with his consent, as having made a statement that
is included in the prospectus or on which a statement made in the prospectus is based;
(vi) a person named in the prospectus, with his consent, as a stockbroker, share broker
or underwriter, as the case may be, in relation to an issue of, offer for subscription
or purchase of, or invitation to subscribe for or purchase, securities;
(vii) a person named in the prospectus, with his consent, as an auditor, banker or
advocate in relation to an issue of, offer for subscription or purchase of, or invitation to
subscribe for or purchase, securities;
(viii) a person named in the prospectus, with his consent, as having performed or
performing any function in a professional, advisory or other capacity not mentioned in
paragraph (iv), (v), (vi) or (vii) in relation to an issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, securities; or
(b) which any of the persons referred to in paragraph (2)(a) would have been able to obtain by
making such enquiries as were reasonable in the circumstances.

(3) Without prejudice to the generality of subsection (1) or (2), in determining the
information that is required to be included in a prospectus under this section, regard shall
be had to–
(a) the nature of–
(i) the securities;
(ii) the business of the issuer of the securities; and
(iii) the unit trust scheme or prescribed investment scheme;
(b) the persons likely to consider acquiring such securities;
(c) the fact that certain matters may reasonably be expected to be known to any
professional adviser whom investors referred to in subsection 236(1) may reasonably
be expected to consult; and
(d) whether the persons to whom an issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, securities is to be made are the holders of
securities in the corporation, or unit holders in the unit trust scheme or prescribed
investment scheme, and if they are, to what extent (if any) relevant information has
previously been given to them by the issuer under any law or any requirement of the rules
of a stock exchange, if applicable, or otherwise.

Explanation to Section 236
 Section 236 basically implements the ‘reasonable investor standard of
disclosure’ in preparing the prospectus. The general duty of disclosure is that
those who are responsible for the prospectus’ contents are free to determine
the information and facts they wish to include in the said prospectus.
 The said information however must be that a reasonable investor or his
professional advisor ‘would reasonably require and reasonably expect’ to find
in a prospectus so as to enable the investor to make an informed assessment
to the assets and liabilities, financial position, profits and losses and
prospects of the issuer. Next, the rights attaching to the securities and finally
on the merits of investing in the securities and the extent of the risk involved
in doing so.

In conjunction with that, the CMSA had provided that in
determining such ‘reasonably require and reasonably expect’
issue the following circumstances must be taken into
consideration this is by virtue of Section 236(3) that has been
enunciated above;
 the nature of the securities.
the nature of the business of the issuer of the securities.
the person likely to consider acquiring such securities.
the fact that certain matters may reasonably be expected to be
known to a professional adviser and
whether the retrospective investors are holders of securities in
the corporation.

CHUAH TONG YEONG V KUALA
LUMPUR GOLF & COUNTRY CLUB BHD
[2003] 6 MLJ 577 The defendant was the developer and manager of the Kuala Lumpur Golf and Country Club. It
issued a brochure and prospectus listing out facilities and features such as a library, gymnasium
and health centre, 100 covered car parks, 500 open car parks, four tennis courts and a practice
court.
 The plaintiff paid a sum of RM90,000 to become a member. The plaintiff later lodged a written
complaint with the defendant over the non-existence of the listed facilities. The plaintiff thereafter
sought a declaration for the annulment of his membership agreement, the return of the RM90,000
and damages. His suit was based on misrepresentation.
 He claimed that: (i) no library was provided; (ii) only a gymnasium and massage facility was
provided; (iii) the 100 covered car parks were not provided and the number of open car parks were
100 less than represented; and (iv) no tennis and practice courts were built.
 The court held that since the plaintiff in becoming the member of the club by relying on such
prospectus aligned with the ‘reasonably required and reasonably expect’ the defendant must have
borne in his mind that such prospectus and brochure would definitely invite the Plaintiff and
anyone who interested in such offer.
 Hence by including misstatement by any misrepresentation is no excuse thus the defendant was
ordered to pay damages towards the Plaintiff due to the misleading facts in such representation.

PROSPECTUS GUIDELINES
 Prospectus Guidelines generally seeks to provide guidance on the
usage of plain language in preparing a prospectus and a guide in
following the procedural flow for a prospectus including the
advertisement procedure.
 It also comprehends a definite rules on how financial information
must be bestowed upon the prospectus.
 If the issuer fails to comply with the procedural guidelines, there
might be some issues that can be arisen from such failure.

RATUS MESRA SDN BHD V SHAIK OSMAN
MAJID & ORS
[1999] 3 MLJ 529
 The plaintiff was in the business of ostrich farming had advertised its business in the
newspaper inviting investment in ostrich farming. Following the publication of the
advertisement, the defendant published an article entitled 'Ostrich farms should provide
prospectus. The plaintiff claimed that the words contained in certain paragraphs of the article
in their natural meaning were understood to mean that the public or potential investors must
act with caution in respect of the plaintiff's dubious advertisement, that the advertisement was
deceiving, that there must be legal constraints on the plaintiff's freedom to trade, that
investors should be suspicious of the plaintiff's motives, that the plaintiff's scheme was a sham
and nothing less than an unscrupulous scheme.
 The plaintiff thus claimed for damages for libel as well as for malicious falsehood against the
defendant. The defendant submitted that the words in the article were not defamatory of the
plaintiff, that the article was a fair comment upon a matter of public interest and that there
was no proof of express malice shown to negative the defence of fair comment. The defendant
also denied the claim for malicious falsehood.

• The court held that the defendant's comments
on the need to introduce rules or to require prospectus
from the plaintiff's company were perfectly reasonable
and were honestly made. At no time during the
proceedings in court or in any of the articles published
by the defendants had it been suggested that the
plaintiff was out to cheat or swindle investors, that it
was a liar or that the plaintiff's investment scheme was
no more than a trap set for investors as alleged in the
statement of claim hence the Plaintiff’s claim was
dismissed.

LIABILITY FOR MISSTATEMENT
OR OMISSIONS

 Misstatement in a prospectus refers to any false or
misleading information included in a prospectus may lead
to being liable for civil and or criminal liability if found
guilty.
 Not only that, it also lengthen the scope to cover material
omissions of fact and information from a prospectus. Such
liability is reasonably closely related to the ‘reasonable
investor standard of disclosure’ which has been discussed
formerly
 There are two liabilities that can be arisen that is criminal
and civil liability.

WHAT IS MISSTATEMENT?
 No specific definition of “misstatement” could be found in statutes. However,
by referring to Section 46(1) and Section 47(1) of the Companies Act 1965,
misstatement can impliedly means for any loss suffered by reason of any
untrue statement or by reason of the willful non-disclosure of any matter of
which person had knowledge and which he knew to be material.
 Also, any misleading statement included in a prospectus shall be deemed to
be untrue. In addition to that, any omission of a matter from the prospectus
that purposely made to mislead also can be considered as a wrongful
statement.
 Thus, the liability accrues where any person subscribes for any shares or
debentures on the faith of the prospectus for any loss or damage he may
have sustained by reason of untrue statement included therein.

DERRY V PEEK (1889) LR 14
APP CAS 337.
 A landmark case that illustrates on “misrepresentation”. In this case, the House of Lords
determined there was no general duty to use ‘care and skill’ in the context of issuing a
prospectus to refrain from making misstatements. However, it is no longer good law as can be
looked into cases of pure economic loss as a result of negligent misstatement in the law of
torts.
 Facts of case: Directors of a tramway company issued a prospectus stated that they had the
right to run tram cars with steam power instead of with horses as before. The Act
incorporating the company provided that such power might be used with the sanction of the
Board of Trade. But, the Board of Trade refused to give permission and the company had to be
wound up. One of the shareholders sued the directors for damages for fraud.
 Court Held: The House of Lords held that the directors were not liable in fraud because they
honestly believed what they said in the prospectus to be true. Lord Herschel in this case
observed that “Fraud is proved when it is shown that false representation has been made
knowingly, without belief in its truth, or, recklessly, carelessly whether it is false or true.

PP V. MOK CHIN FAN & ORS
[2015] 5 CLJ 52.
 The first, second and fourth respondents were directors of Inix Technologies Holdings Bhd
(‘Inix’), a company listed on the MESDAQ market of Bursa Malaysia through an initial public
offering in which RM10.14 million was raised.
 Prior to that, Inix had issued a prospectus dated 29 July 2005 in which 97.1% of its revenue as
reported was found to be false. Inix was required to submit a quarterly financial report to
Bursa Malaysia and again, it was discovered that 93.37% of the total sales reported in the four
quarters of the financial year were false.
 It was alleged that the impugned prospectus, which stated fictitious sales, was issued before
the listing of Inix and the abovementioned respondents as directors had approved the issuance
of the said prospectus.
 The third respondent, a senior financial executive of Inix, was in charge of the financial
matters of the company and had assisted in fabricating the fictitious sales as well as the false
figures in the financial reports.
 After the listing, the first, second and fourth respondents had authorised the furnishing of
false and misleading statements in Inix Condensed Consolidated Income Statement to Bursa
Malaysia in its four quarterly reports.

The court thus allowed the appeal on the basis of
the offences committed by the respondents were
serious in nature. An act of manipulating and
providing wrong information in relation to the
company’s financial standing, in order to invite
investor’s participation is a grave offence. On the
facts, the false prospectus of Inix had wrongly
impressed the public into thinking that the
company was viable and profitable. The falsity
would translate into presenting a company
which suffered a loss of RM5.084 million to a
company with a profit of RM2.448 million
instead.

PERSONS WHO COULD BE
HELD LIABLE
 It is the duty of the company to see that the statements made in the
prospectus are of true nature.
 Hence, misstatement in a prospectus which refers to any false or misleading
information included in a prospectus may lead to being liable for civil and or
criminal liability if found guilty.
 Thus, Section 248 of CMSA and Section 47 CA line down persons that could
not undertake liability of anything in the prospectus except his own
statement.

 An expert also could be liable for any misstatement made in the prospectus.
The liability of an expert is stated in Section 45 of the Companies Act 1965.
 These provisions make it clear that the liability would not accrue just
because of his position as an expert but be only for an untrue statement
made by him in the capacity of an expert.
 Also, it is vital that the statement that appears in the prospectus is made
with his consent. Any withdrawal of consent made by him shall estop any
legal action to be taken against the expert on this matter. However, if found
guilty by the law, that expert shall be punished with a fine of not exceeding
RM 3 million or imprisonment for a term of not exceeding ten years or both,
depending on the seriousness of the case.

SECTION 248 OF CMSA
Right to recover for loss or damage resulting from false or misleading
statement in prospectus, etc.
248.
(1) A person who acquires, subscribes for or purchases securities and suffers loss or damage as a result of
any statement or information contained in a prospectus that is false or misleading, or any statement or
information contained in a prospectus from which there is a material omission, may recover the amount of
loss or damage from all or any of the persons set out in paragraphs (a), (b), (c), (d), (e) and (f) and to the
extent provided for–
(a) the issuer and each director of the issuer at the time of the issue of the prospectus, for any loss or
damage;
(b) a person who consented or caused 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, for any loss or
damage;
(c) a promoter, for any loss or damage arising from the prospectus or any
relevant portion of the prospectus in respect of which he was a party to
the preparation thereof;

(d) a principal adviser, for any loss or damage;
(e) a person named in the prospectus with his consent as having made a statement that is
included in the prospectus or on which a statement made in the prospectus is based, for any
loss or damage caused by the inclusion of the statement in the prospectus;
(f) a person named in the prospectus with his consent as a stockbroker, sharebroker,
underwriter, auditor, banker or advocate of the issuer in relation to the issue of, offer for
subscription or purchase of, or invitation to subscribe for or purchase, securities, and who has
made a statement that is included in the prospectus or on which a statement made in the
prospectus is based, for any loss or damage caused by the inclusion of the statement in the
prospectus; or or the purpose of determining whether a prospectus contains any statement or
information which is false or
(g) a person who authorized or caused the issue of a prospectus in contravention of section
246, for any loss or damage caused by such contravention.

(2) For the purposes of paragraphs (1)(a) and (b), a director referred to therein shall include
any person by whom the issue of, offer for subscription or purchase of, or invitation to
subscribe for or purchase, securities is made.
(3) For the purpose of paragraph (1)(f), an underwriter shall not include a subunderwriter.

SECTION 45 OF THE
COMPANIES ACT 1965.Expert's consent to issue of prospectus containing statement by him.
45.
(1) A prospectus inviting subscription for or purchase of shares in or debentures of a corporation and
including a statement purporting to be made by an expert or to be based on a statement made by an
expert shall not be issued unless—
(a) he has given, and has not before delivery of a copy of the prospectus for registration withdrawn, his
written consent to the issue thereof with the statement included in the form and context in which it is
included; and
(b) there appears in the prospectus a statement that he has given and has not withdrawn his consent.
(2) If any prospectus is issued in contravention of this section the corporation and every person who is
knowingly a party to the issue thereof shall be guilty of an offence against this Act.
Penalty: Imprisonment for five years or one hundred thousand ringgit or both.

SECTION 47 OF THE
COMPANIES ACT 1965.Criminal liability for statement in prospectus.
47.
(1) Where in a prospectus there is any untrue statement or wilful non-disclosure, any person
who authorized or caused the issue of the prospectus shall be guilty of an offence against this
Act unless he proves either that the statement or non-disclosure was immaterial or that he
had reasonable ground to believe and did, up to the time of the issue of the prospectus,
believe the statement was true or the non-disclosure immaterial.
Penalty: Imprisonment for five years or one hundred thousand ringgit.
(2) A person shall not be deemed to have authorized or caused the issue of a prospectus by
reason only of his having given the consent required by this Division to the inclusion therein
of a statement purporting to be made by him as an expert.

R V. KYLSANT [1932] 1KB 442
 In this old English case, the company sustained continuous losses for 6 years between 1921-
1927. The company issued a prospectus, which in all material facts was correct but it was
further specified that the dividends paid were high.
 In this case, the situation at the Royal Mail Group had become a matter of public controversy
when McLintock had admitted, at a meeting of debenture holders in the Royal Mail Steam
Packet Company, that the company had not traded profitably for many years although
dividends had been paid to the stockholders. Financial journalists were present and they
reported this statement, with some caution, but exchanges in the House of Commons were
more forthright and included the word 'fraudulent'.
 Soon after Kylsant returned from South Africa, he was charged, under section 28 of the
Larceny Act 1861, that he had published false statements of the Royal Mail Steam Packet
Company's accounts for 1926 and 1927. Harold J. Morland , the company's auditor, was
charged with same offence.
 When the two men appeared at the Mansion House Police Court, before the Lord Mayor as
Chief Magistrate, an additional charge was laid against Kylsant in that he had issued a
prospectus on 29 June 1928 that contained false information. It been revealed that the
dividends were being made out of abnormal profits from 1st world war and thus, the
prospectus was misleading in its context.

CMSA accordance with Companies Act 1965 both have regulation
regarding civil liability in relation with prospectus in such company.
In general, prospectus must contain all relevant and reasonable
information of such company which are required by the
investors.
Disclosure of material information in a prospectus must be
registered by the Malaysian Securities Commission.

 Right to recover for loss or damage resulting from false or misleading statement in prospectus,
etc.
 248. (1) A person who acquires, subscribes for or purchases securities and suffers loss or
damage as a result of any statement or information contained in a prospectus that is false or
misleading, or any statement or information contained in a prospectus from which there is a
material omission, may recover the amount of loss or damage from all or any of the persons set
out in paragraphs (a), (b), (c), (d), (e) and (f) and to the extent provided for–
 (a) the issuer and each director of the issuer at the time of the issue of the prospectus, for any
loss or damage;
 (b) a person who consented or caused 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, for any loss or damage;
 (c) a promoter, for any loss or damage arising from the prospectus or any relevant portion of the
prospectus in respect of which he was a party to the preparation thereof;
 (d) a principal adviser, for any loss or damage;

 (e) a person named in the prospectus with his consent as having made a statement
that is included in the prospectus or on which a statement made in the prospectus is
based, for any loss or damage caused by the inclusion of the statement in the
prospectus;
 (f) a person named in the prospectus with his consent as a stockbroker, share broker,
underwriter, auditor, banker or advocate of the issuer in relation to the issue of, offer
for subscription or purchase of, or invitation to subscribe for or purchase, securities,
and who has made a statement that is included in the prospectus or on which a
statement made in the prospectus is based, for any loss or damage caused by the
inclusion of the statement in the prospectus; or
 (g) a person who authorized or caused the issue of a prospectus in contravention of
section 246, for any loss or damage caused by such contravention.
 (2) For the purposes of paragraphs (1)(a) and (b), a director referred to therein shall
include any person by whom the issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, securities is made.
 (3) For the purpose of paragraph (1)(f), an underwriter shall not include a
subunderwriter.

In a simplest word, this section explains that liability
regards on any person who has suffered loss or
damage due to misleading statements of omissions in
a prospectus relied on the directors of the company.

 Civil liability for misleading or deceptive acts
249. (1) A person shall not act in a manner that is misleading or deceptive or is likely to
mislead or deceive in connection with–
 (a) any prospectus issued;
 (b) the allotment of, issue of, offer for subscription or purchase of, or invitation to
subscribe for or purchase, securities;
 (c) any notice referred to in subsection 241(4) or (5) or a preliminary prospectus
referred to in subsection 241(6), or any report referred to in subsection 241(7) or any
notice or report as may be specified by the Commission under paragraph 241(3)(d); or
 (d) the carrying on of negotiations, the making of any arrangements or the doing of
any other act preparatory to or in any other way related to any matter referred to in
paragraph (a), (b) or (c).
(2) A person who contravenes this section shall not be guilty of an offence but a person
who acquires, subscribes for or purchases securities and suffers loss or damage as a
result of any act referred to in paragraph.

Thus, any person who cause or authorise the
issuance of a prospectus by which it contains
inaccurate facts can be compelled to pay
compensation towards the investor who suffered
loss in consequence to that reliance.
The amount of compensation will be
subjected to circumstances of the case as
to whether the party being sued is
responsible for the prospectus wholly or
partially or only certain particulars in the
said prospectus.

 Civil liability for misstatements in prospectus.
46. (1) Subject to this section, each of the following persons shall be liable to pay
compensation to all persons who subscribe for or purchase any shares or debentures on
the faith of a prospectus for any loss or damage sustained by reason of any untrue
statement therein, or by reason of the wilful non-disclosure therein of any matter of
which he had knowledge and which he knew to be material, that is to say every person
who—
 ( a) is a director of the corporation at the time of the issue of the prospectus;
 ( b) authorized or caused 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) is a promoter of the corporation; or
 (d) authorized or caused the issue of the prospectus

(2)Notwithstanding anything in subsection (1), where the consent of an expert is
required to the issue of a prospectus and he has given that consent, he shall not by
reason only thereof be liable as a person who has authorized or caused the issue of the
prospectus except in respect of an untrue statement purporting to be made by him as
an expert, and the inclusion in the prospectus of a name of a person as a trustee for
debenture holders, auditor, banker, advocate or stock or share broker shall not for that
reason alone be construed as an authorization by such person of the issue of the
prospectus.
(3)No person shall be so liable if he proves—
 ( a) that, having consented to become a director of the corporation, he withdrew his
consent before the issue of the prospectus, and that it was issued without his
authority or consent;
 (b) that the prospectus was issued without his knowledge or consent and he gave
reasonable public notice thereof forthwith after he became aware of its issue;
 (c) that after the issue of the prospectus and before allot mentor sale thereunder he,
on becoming aware of any untrue statement therein, withdrew his consent and gave
reasonable public notice of the withdrawal and of the reason therefor; or

(d) that—
 (i) as regards every untrue statement not purporting to be made on the authority of an
expert or of a public official document or statement, he had reasonable ground to
believe, and did up to the time of the allotment or sale of the shares or debentures
believe, that the statement was true;
 (ii) as regards every untrue statement purporting to be a statement made by an expert
or to be based on a statement made by an expert or contained in what purports to be a
copy of or extract from are port of valuation of an expert, it fairly represented the
statement, or was a correct and fair copy of or extract from the report or valuation, and
he had reasonable ground to believe and did up to the time of the issue of the prospectus
believe that the person making the statement was competent to make it and that that
person had given the consent required by section 45 to the issue of the prospectus and
had not withdrawn that consent before delivery of a copy of the prospectus for
registration, or, to that person’s knowledge, before any allotment or sale thereunder;
and
 (iii) as regards every untrue statement purporting to be a statement made by an official
person or contained in what purports to be a copy of or extract from a public official
document, it was a correct and fair representation of the statement or copy of or extract
from the document.

 (4)Subsection (3) shall not apply in the case of a person liable, by reason of his
having given a consent required of him by section 45, as a person who has
authorized or caused the issue of the prospectus in respect of an untrue statement
purporting to have been made by him as an expert.
 (5)A person who apart from this subsection would under subsection (1) be liable,
by reason of his having given a consent required by him by section 45, as a person
who has authorized the issue of a prospectus in respect of an untrue statement
purporting to be made by him as an expert shall not be so liable if he proves.
 (a) that, having given his consent under section 45 to the issue of the prospectus,
he withdrew it in writing before a copy of the prospectus was lodged with the
Registrar;
 (b) that, after a copy of the prospectus was lodged with the Registrar and before
allotment or sale thereunder, he, on becoming aware of the untrue statement,
withdrew his consent in writing and gave reasonable public notice of the
withdrawal and of the reasons therefor; or
 (c) that he was competent to make the statement and that he had reasonable
ground to believe and did up to the time of the allotment or sale of the shares or
debentures believe that the statement was true.

 (6)Where—
 (a) the prospectus contains the name of a person as a director of the corporation,
or as having agreed to become a director, and he has not consented to become a
director, or has withdrawn his consent before the issue of the prospectus, and has
not authorized or consented to the issue thereof; or
 b) the consent of a person is required under section 45 to the issue of the
prospectus and he either has not given that consent or has withdrawn it before
the issue of the prospectus, the directors of the corporation except any without
whose knowledge or consent the prospectus was issued, and any other person who
authorized or caused the issue thereof shall be liable to indemnify the person so
named or whose consent was so required against all damages, costs and expenses
to which he may be made liable by reason of his name having been inserted in the
prospectus or of the inclusion therein of a statement purporting to be made by him
as an expert, or in defending himself against any action or legal proceeding
brought against him in respect thereof.

This section particularly explains that if there is any person
who subscribe or purchase any shares or debentures and
subsequently suffered damages or losses due to the untrue
statement or wilfull non-disclosure in the prospectus, that
such person is entitled for compensation

-Dato’ Ariff Wan Hamzah
-Kiara Emas

The plaintiffs claimed against the defendants
for negligent misrepresentation as well as
negligent misstatement.
The plaintiffs claimed a sum of RM6,909,940
together with loss of earnings and interest which
they claimed to have lost as a result of investing in
the purchase of placement shares in a company
called Litespeed Education Technologies Bhd
('Litespeed'), based on the misrepresentations of the
two defendants.

It was alleged that the defendants' representations were false,
inaccurate and misleading and that they suffered losses and
damages as the value of the Litespeed shares plunged soon
after the Plaintiffs purchased the shares allotted to them under
the placement exercise.
Further or alternatively, the plaintiffs contended that the
defendants each owed them separate duties of care.
The first defendant, an agent of Litespeed responsible for
statements in the Prospectus, owed a duty to investors such as
the plaintiffs, to ensure that all information in the Prospectus
was accurate up until the date of their subscription of shares in
Litespeed, which the first defendant failed to do.

The plaintiffs' claim against the second defendant, who was
Litespeed's auditor and reporting accountant, premised on tort of
negligent misstatement on the ground that its statements for the
relevant financial years as well as the prospective forecast in the
Prospectus were reported favourably when they were actually
inaccurate, false and misleading.
A duty of care was owed, it was contended, to these plaintiffs to
ensure that the financial statements set out in the Prospectus
were accurate and fair, which the second defendant had
breached.

The court then dismissed the claim with cost holding
that, the plaintiff's cause of action which premised on
negligent misrepresentation by the first defendant
failed.
The plaintiffs were bound to act on their own
initiative and with the requisite professional advice
independently obtained in determining whether or not
to invest in the Litespeed placement shares.
Based on the case above, it can be proved that albeit
the presence of misleading facts or information the
reliance must be of essence and not merely general
reliance as it was not suffice for a cause of action.

The plaintiff engaged the services of the defendant
firm of solicitors for the purposes of listing on the
2nd Board of the then Kuala Lumpur Stock
Exchange (`KLSE').
The plaintiff was successfully listed but however
brought this action against the defendant claiming that
the defendant breached the terms of its appointment or
negligently failed to exercise reasonable skill and care in
its role as solicitors under the listing exercise.
It was contended that the defendant failed to make full
disclosure of material particulars as prescribed under
the KLSE Listing Rules and Requirements relating to a
charge, a shadow director and related party dealings in
the prospectus that was done in the listing process.

The omission to make such disclosure was
the operative cause to the plaintiff being
listed, albeit wrongly, and the subscribers
misled by the omission to purchase the
shares under the impression that the
plaintiff was financially fit and sound
when that was not the case.

the plaintiff's directors are responsible for issuance of
the prospectus.
if the information set out therein is wrong or misleading as
alluded to by the plaintiff in its own claim, the injury and
consequent damages/losses are due not to the defendant,
but to the plaintiff through its directors for failing to take
reasonable care.
Therefore in this case, claim made by plaintiff was
dismissed as it is too remote. The defendant not did not
authorise the issuance of the prospectus for the
consumption of the public.

The defendant not did not authorise the issuance of the prospectus for the
consumption of the public
The defendant therefore was not liable under s. 46(2) Companies
Act 1965.
The defendant should not have been made a party to the present suit
and the suit itself should not have been initiated against the
defendant.

 there are specifically three common defences that can be invoked by the person
charged under Section 246 and 248 namely due diligence defence, reliance defence and
withdrawal of consent defence.
 On the point of the first defence; due diligence defence a cross reference to section 250
is necessary where it is fixed as follows:
 Due diligence defence
250.
 A person shall not be guilty of an offence under section 246 and is not liable under
section 248 if he proves that–
 (a) he had made all enquiries as were reasonable in the circumstances; and
 (b) after making such enquiries, he had reasonable grounds to believe and did believe
until the time of the making of the statement or provision of the information that–
 (i) the statement or information was true and not misleading; or
 (ii) there was no material omission.

Based on the section
mentioned above, it can be
resorted to show that he has
made all reasonable queries
and thus believed on
reasonable grounds that the
inclusion of statement in the
prospectus is not misleading
neither deceptive nor such
prospectus did not include
any omission.

The first, second and fourth respondents were directors of
Inix Technologies Holdings Bhd (‘Inix’), a company listed on
the MESDAQ market of Bursa Malaysia through an initial
public offering in which RM10.14 million was raised.
Prior to that, Inix had issued a prospectus dated 29 July 2005 in
which 97.1% of its revenue as reported was found to be false. Inix
was required to submit a quarterly financial report to Bursa
Malaysia and again, it was discovered that 93.37% of the total
sales reported in the four quarters of the financial year were
false.
It was alleged that the impugned prospectus, which stated
fictitious sales, was issued before the listing of Inix and the
abovementioned respondents as directors had approved the
issuance of the said prospectus.

The third respondent, a senior financial executive of Inix, was in
charge of the financial matters of the company and had assisted in
fabricating the fictitious sales as well as the false figures in the
financial reports.
After the listing, the first, second and fourth respondents had
authorised the furnishing of false and misleading statements in
Inix Condensed Consolidated Income Statement to Bursa
Malaysia in its four quarterly reports.

The court thus allowed the appeal on the basis of the
offences committed by the respondents were serious in
nature.
An act of manipulating and providing wrong information in
relation to the company’s financial standing, in order to
invite investor’s participation is a grave offence.
On the facts, the false prospectus of Inix had wrongly impressed the
public into thinking that the company was viable and profitable. The
falsity would translate into presenting a company which suffered a loss of
RM5.084 million to a company with a profit of RM2.448 million instead.

 Reliance on statement and information in respect of false or misleading statement
 251. A person shall not be guilty of an offence under section 246 and is not liable
under section 248 if the person (hereinafter referred to as the “first-mentioned
person”) proves that the false or misleading statement or material omission from a
statement in a prospectus–
 (a) is or is based on a statement made by a person referred to in subsection 244(1)
(hereinafter referred to as the “second-mentioned person”); or
 (b) is contained in a copy of or what purports to be a copy of, or an extract from, a
report or valuation of the second-mentioned person, and it is proved by the first-
mentioned person that–

 (A) the statement accurately represented the statement made by the second-
mentioned person, or the copy or the purported copy or extract was a correct copy
of, or extract from, the report or valuation, as the case may be; and
 (B) after making such enquiries as were reasonable in the circumstances, the first-
mentioned person had reasonable grounds to believe, and did believe until the
time of the allotment of, issue of, offer for subscription or purchase of, or invitation
to subscribe for or purchase, the securities, that the second-mentioned person, in
making the statement, report or valuation, as the case may be–
 (i) was competent to make it;
 (ii) had given the consent required by subsection 244(1); and
 (iii) had not withdrawn that consent.

The defendant was the developer and manager of the Kuala
Lumpur Golf and Country Club. It issued a brochure and
prospectus listing out facilities and features such as a library,
gymnasium and health centre, 100 covered car parks, 500 open
car parks, four tennis courts and a practice court.
The plaintiff paid a sum of RM90,000 to become a member. The
plaintiff later lodged a written complaint with the defendant over
the non-existence of the listed facilities.
The plaintiff thereafter sought a declaration for the annulment of
his membership agreement, the return of the RM90,000 and
damages.

His suit was based on misrepresentation. He
claimed that:
(i) no library was provided;
ii) only a gymnasium and massage facility was
provided;
iii) the 100 covered car parks were not provided
and the number of open car parks were 100 less
than represented; and
(iv) no tennis and practice courts were built.

since the plaintiff in becoming the member of the club by relying on
such prospectus aligned with the ‘reasonably required and
reasonably expect’ the defendant must have borne in his mind that
such prospectus and brochure would definitely invite the Plaintiff
and anyone who interested in such offer.
Hence by including misstatement by any misrepresentation is no
excuse thus the defendant was ordered to pay damages towards the
Plaintiff due to the misleading facts in such representation.

 Reliance on statement and information in respect of misleading or deceptive act
 252. A person is not liable under section 249 in respect of an act that is misleading
or deceptive or is likely to mislead or deceive if the person (hereinafter referred to
as the “first-mentioned person”) proves that the act consists of a representation
made in reliance on–
 (a) a statement made by a person referred to in subsection 244(1) (hereinafter
referred to as the “second-mentioned person”); or
 (b) a report or valuation of the second-mentioned person, and it is proved by the
first-mentioned person that–
 (A) the representation accurately reflects the statement made by the second
mentioned person or is contained in the report or valuation of the second
mentioned person, as the case may be; and

 (B) after making such enquiries as were reasonable in the circumstances, the first-
mentioned person had reasonable grounds to believe, and did believe until the
time of the allotment of, issue of, offer for subscription or purchase of, or invitation
to subscribe for or purchase, the securities, that the second-mentioned person in
making the statement, report or valuation, as the case may be–
 (i) was competent to make it;
 (ii) had given the consent required by subsection 244(1); and
 (iii) had not withdrawn that consent

 Reliance on public official statement in respect of false and misleading statement
 253. (1) A person shall not be guilty of an offence under section 246 and is not liable
 under section 248 if the person proves that the false or misleading statement or
material omission from a statement in a prospectus (hereinafter referred as the
“defective statement”) is or is based on a statement made by a public officer in the
course of his duties or is contained in a copy of or what purports to be a copy of, or an
extract from, a public official document, and it is proved by the person that–
 (a) the defective statement accurately represented the statement made by the public
officer including the context and form in which it was originally made; or
 (b) the defective statement is contained in a copy of or what purports to be a copy of, or
extract from, a public official document, and the person had reasonable grounds to
believe, and did believe until the time of the allotment of, issue of, offer for
subscription or purchase of, or invitation to subscribe for or purchase, the securities,
that the defective statement was true and not misleading and that there was no
material omission from the defective statement, as the case may be.

 (2) A person is not liable under section 249 in respect of an act that is misleading
or deceptive or is likely to mislead or deceive if the person proves that the act
consists of a representation made in reliance on a public official document or
statement made by a public officer in the course of his duties and it is proved
that–
 (a) the representation accurately reflects the statement made by the public officer
including the context and form in which it was originally made; or
 (b) the representation is contained in a copy of, or an extract from, a public official
document, and the person had reasonable grounds to believe, and did believe until
the time of the allotment of, issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, the securities, that the representation was
not misleading or deceptive or is likely to mislead or deceive.

Basically, the three provisions enunciated above applicable to the
person charged with section 246 and 248 if he can successfully proves
that he had reasonably believed and relied on the information
supplied by another person categorically experts and public officer.

 Defence of withdrawal of consent
 254. (1) A person who is named in a prospectus as–
 (a) a proposed director or director of an issuer or a principal adviser in relation to an
issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase,
securities;
 (b) making a statement that is included in the prospectus; or
 (c) making a statement on the basis of which a statement is included in a prospectus,
 shall not be guilty of an offence under section 246 and is not liable under section 248
if–
 (A) in the case of a proposed director or director, having consented to become a
proposed director or director of the issuer, he withdrew his consent before the issue of
the prospectus, and the prospectus was issued despite such withdrawal; or
 (B) in any other case, where the prospectus was issued without his knowledge or
consent, he gave reasonable public notice thereof forthwith after he became aware of
its issue.

 (2) A person who is named in a prospectus as–
 (a) a proposed director or director of an issuer, or a principal adviser in relation to
an issue of, offer for subscription or purchase of, or invitation to subscribe for or
purchase, securities;
 (b) making a statement that is included in the prospectus; or
 (c) making a statement on the basis of which a statement is included in a
prospectus,
 shall not be guilty of an offence under section 246 and is not liable under section
248 if it is proved that the statement was not included in, or was not included
substantially in, the form and context that the person had consented to.

In this defence, when the director of
the company gave his full consent on
becoming director of such company
and before the issuance of the
prospectus, he withdrew his consent.
Apart from that, no one will liable to
pay compensation claimed by
suffered party if the issuance of
prospectus being done outside the
knowledge of director of that
particular company and after when
he is aware if the issue, he gives a
public notice.

hawking > nouns: any person who pursues an aggressive policy in business,
government, etc.
> verbs: an act of flying or hunting on the wing just like a hawk which
refers to numerous birds of prey of the family Accipitridae, having a short,
hooked beak, broad wings, and curved talons, often seen circling or swooping at
low altitudes. Informally, it is also can be said as a person who preys on others,
as a sharper.

 Legally > Kui Teong v Rex & Lee Keng Keh v Rex:
“To hawk is to act as a hawker and I do not know that it is in
every case necessary to follow the exact words of a section in
order to give sufficient notice. One must realise that charges of
this nature are brought in magistrates' Courts by the hundred
and I can see nothing wrong in shortening the words of the
charge provided that the abridged wording gives sufficient
notice of the offence charged. Nor do I think there is any
substance in the point taken that to hawk or to act as a hawker
is not the same thing as being or acting as an itinerant hawker.
Webster's dictionary defines a hawker as one who sells wares
from place to place or by crying them in the street. That
definition implies the element of itinerancy.”

Thus share-hawking can be
wrapped up as going from place
to place offering to the public
shares for subscription, or
seeking and receiving from the
public, offers to subscribe for or
purchase shares.

Section 363. Restriction on offering shares, debentures, etc. for subscription or
purchase which is read as follows:
(1) A person shall not, whether by appointment or otherwise, go from place to
place—
(a) offering shares for subscription or purchase to the public or any member of
the public; or
(b) seeking or receiving offers to subscribe for or to purchase shares from the
public or from any member of the public:
Provided that this section shall not apply to an offer for subscription or
purchase or invitation to subscribe for or purchase or recommendation to
which the Securities Commission Act 1993 applies.

(2) Subsection (1) shall not apply in the case of the shares of any corporation which, after notice of
intention in the form prescribed to apply for exemption from subsection (1) has been advertised in a
newspaper circulating generally throughout Malaysia, has applied to the Yang di-Pertuan Agong for
exemption and the application has on the recommendation of the Minister been granted, but the
exemption may at any time be revoked by order of the Yang di-Pertuan Agong.
(3) A person shall not make an offer to the public or to any member of the public (not being a person
whose ordinary business it is to buy or sell shares, whether as principal or agent) of any shares for
purchase.
(4) Subsection (3) shall not apply—
(a) where the shares to which the offer relates are shares of a class which are quoted on, or in
respect of which permission to deal has been granted by, any prescribed Stock Exchange and the
offer so states and specifies the Stock Exchange;
(b) where the shares to which the offer relates are shares which a corporation has allotted or agreed
to allot with a view to their being offered for sale to the public and the offer is accompanied by a
document that complies with all enactments and rules of law as to prospectuses;
(c) to any application for shares in or debentures of a corporation or to any invitation to deposit
money with or lend money to a corporation which is issued, circulated, distributed or made subject
to and in accordance with Division 1 of Part IV in accordance with the provisions of Division 3 of
Part IV of the Securities Commission Act 1993;

(d) where the offer relates to—
(i) an interest to which Division 5 of Part IV applies and is accompanied by a statement in writing as
required by that Division; or
(ii) deposits or loans to a corporation of the kind referred to in subsection 38(6); or
(e) to any advice as to the price at which a management company is prepared to buy or sell any interest to
which Division 5 of Part IV applies given or sent by the management company to any person to whom the
management company has given or sent a statement in writing relating to that interest which complies with
that Division within the period of six months immediately preceding the giving or sending of the advice.
(5) Every person who acts, or incites, causes or procures any person to act, in contravention of this section
shall be guilty of an offence against this Act.
Penalty: Imprisonment for ten years or two hundred and fifty thousand ringgit or both.
(6) Where a person convicted of an offence under this section is a corporation, every officer concerned in the
management of the corporation shall be guilty of the like offence unless he proves that the act constituting
the offence took place without his knowledge or consent.
(7) Where any person is convicted of having made an offer in contravention of this section, the court before
which he is convicted may order that any contract made as a result of the offer shall be void and may give
such consequential directions as it thinks proper for the repayment of any money or the retransfer of any
shares;
and an appeal against the order and any consequential directions shall lie to the Court.
(8) Subject to this section a person shall not make any oral invitation or offer to the public or to any member
of the public to subscribe for or to purchase shares.

(9) In this section—
"shares" means shares of a corporation whether a corporation in existence or to be formed and includes
debentures and units and (without affecting the generality of the expression "debentures") all such
documents (including those referred to as "bonds") as confer or purport to confer on the holder thereof any
claim against a corporation, whether the claim is present or future or certain or contingent or ascertained
or sounding only in damages and also includes any interest to which Division 5 of Part IV applies.
(10) In this section a reference to an offer or offering of shares for subscription or purchase or for purchase
shall be construed as including an offer of shares by way of barter or exchange and a reference to an offer
of shares shall be construed as including an offer by means of broadcasting, television or cinematograph;
but where an offer is made by means of broadcasting, television or cinematograph the prospectus by which
the offer is required to be accompanied by virtue of this section shall be deemed to accompany the offer
if—
(a) the prospectus is prepared by the person on whose behalf the offer is made;
(b) the public are informed at the same time and by the same means as that by which the offer is made
that a copy of the prospectus will be supplied on request being made at a specified address;
(c) where request for a copy of a prospectus is made at that address within one month after the offer was
made the person making the request is supplied with a copy within seven days after the request was
made; and
(d) the offer contains no more information or matter than the information or matter referred to in
paragraphs 40(1)(a) to (f).
(11) For the purposes of subsection (1) a person shall not in relation to a corporation be regarded as not
being a member of the public by reason only that he is a holder of shares in the corporation or a purchaser
of goods from the corporation.

 share-hawking is considered as an offence which is punishable by law where every
officer attentive and involved in the management shall be guilty of the same offence
except he can prove to the contrary that the offence took place without his knowledge
nor consent.
 the section also specifies the “shares” that is intended to be included in the prohibitory
provision. This can be referred to sub-section (9) of the said section to consist of
debentures, units and any other documents including bonds that confers on the holder
any claim against the corporation that is applicable under Division 5 of Part IV.
 subsection (5) of the section also pertinent to an incitation, causing or procure
whoever to share-hawking.

The charge against each was that he had committed an offence punishable
under section 39(4) read with section 43 of the Companies Act (Cap. 185) in that
being a director of C.C.C (Holdings) Ltd. he had during April and May 1982
"caused documents to be sent out offering for sale shares in the C.C.C.
(holdings) Ltd. to the public and these documents are deemed to be
prospectuses issued by the company by virtue of section 43 of the Companies
Act, (Cap. 185), and the documents do not comply with the requirements of the
Companies Act.
It was held that the five applicants in furtherance of the common intention of
them all, made offers to members of the public to purchase shares in the C.C.C.
(holdings) Ltd. in contravention of section 363(3) of the Companies Act thus
guilty of the said offence

So what is the relationship
in between share-hawking
and prospectus or how did
the issue of share-hawking
can be arisen from
prospectus?

TO ANSWER THE QUESTIONS, IT IS
BEST TO REFER TO THE CASE OF
ATTORNEY-GENERAL V. DERRICK
CHONG SOON CHOY & 3 ORS QUEK
LENG CHYE & 3 ORS V. ATTORNEY-
GENERAL COURT OF APPEAL,
SINGAPORE [1984] 1 LNS 101
WHERE THE LEARNED JUDGE
METICULOUSLY EXPLAINED THE
REASONS.

 “So, it being our view that it is the duty of directors to issue a prospectus and, on the facts
we have reviewed, the only proper finding is, as the learned Chief Justice found, the
applicants had intentionally and unlawfully avoided the issue of a prospectus. He rightly
rejected the submission that the offences to which the applicants had pleaded guilty were
technical in nature and of the character of strict liability offences. We agree with him that
the submission altogether disregards the defences provided in the Act that were available to
the applicants had they wanted to claim trial to the charges. The applicants were
represented by counsel, and as the learned Chief Justice has observed the only inference
that can be drawn from their plea of guilty is that they could not "plausibly put forward
before the trial court a defence based on (a), (b) or (c) of section 39(5)" of the Act. The
applicants having pleaded guilty to the charges, we are not disposed to analyse any of the
defences in the Act in the abstract.

 To sell the shares of the Company, the Act requires the applicants to issue a prospectus.
They have to make a full and true disclosure of the Company's financial and other affairs.
Amongst other matters, the prospectus would disclose the value of the shares offered and
the net tangible asset backing for each share. It would contain an audited account of the
Company showing its assets and liabilities. It would show how the assets were valued. It
would show to whom the proceeds of the sale would go to. It would disclose the share
capital of the Company and the number of shares which were issued and whether they
were fully-paid, only partially paid or nil paid. It would require disclosure on the manner
in which the Company proposed to finance the total cost of the development of the club,
estimated in February 1982 to be about $26 million, the extent of its loans from Hong
Leong Finance which was then already $11 million and how the Company proposed to
repay the loans and interest.

 Why did the applicants not want to issue a prospectus? It is because they did not want to
disclose to the buyers that the shares were being sold at an exorbitant price. They did not
want to disclose that as vendors they will realise $30 million as profit from the sale of 2,000
shares and continue to hold 50% of the equity of the Company. The applicants feared that
this disclosure would render their shares unmarketable leading to a financial disaster to
them. We accordingly reject the contention, as did the learned Chief Justice that the
applicants had acted honestly. We accept that in failing to act honestly, they might not have
acted dishonestly within the strict definition of the criminal law. But the lack of honesty
displayed by the applicants as directors of a public company in selling the shares to the
public shows that their commercial integrity is suspect. The letter of invitation reflects the
wilful failure on the part of the applicants to disclose matters which the law required them
to publish. When they were prosecuted they pleaded guilty to the charges. They accepted
without any qualification whatsoever the summary of facts read out in the District Court. In
mitigation of the offences, they put forward the excuse that they had acted honestly and ran
foul of the law only because they were wrongly advised. The learned Chief Justice rejected
these assertions. As we have shown, they are untenable in law and not quite the truth. In
our view, the learned Chief Justice rightly exercised his discretion to refuse the applicants
leave to be directors of companies.”

Hence, in a simpler words it is clear that the share-
hawking issue is closely related to the prospectus as
in order to hawk the issues it must be in accordance
to the prospectus that is full disclosure basis and
comply with the requirements of the Act.
If on the other hand such prospectus failed to give a
full disclosure as well as provides a fraudulent
statement instead in order to hawk the shares then
the person whom concerned with the managerial and
attentive to such fraudulent acts will be held guilty
for such an offence.

an offence punishable by law. The company directors and staffs
concerning the managerial matters must strictly apply the work
ethics and in fact as a decent human being such unethical works
must not be in practice by all. Nevertheless, the shareholders and
interested netizens too must have a self-awareness attitude in
order to protect themselves against this malpractices rather than
blaming the companies afterwards as ignorance must be differed
from error.

• YES
Basically, due to the lower cost
o ‘disinter- mediation’ nature- no
middleman= cut cost
o No printing cost
• NO
 take a longer time to complete following
its effective date
 Still haveto pay the webpage developer
electronic prospectus?

To catch up with the modern day’ technology, the SC
comes up with several ideas in implementing the
electronic prospectus:
Only be made available in relevant authorized website
 Will be monitor by the authority
 To ensure the validity and originality of the information
given
Carry out a review on the writing format of the paper- based
prospectus

Requirement of issuing the form of application of shares
or debentures together with a prospectus
 Facilitate the investor- to- be to make
knowledgeable decision, not merely bought by the
advertisement or offer.
electronic prospectus and traditional prospectus should
disclose equal information
 in order to avoid unfair profit making by the better-
informed investors.
 Disadvantage to the investors who had not been
revealed with full disclosure of fact
who is eligible for the offer
 Should clearly stated offer opens to who

For the time being, multimedia
prospectus such as graphics, pictures,
video clips and audio clips is still
considered as novelty in this country.
However, the SC is open to accept any
changes in the future in order to cope
up with the needs of the people.

 This research entitled, “Contemporary Legal Issues In Connection With Prospectus”, is
intended particularly to enlighten prospectus as a legal issue that should be given
consideration by the law-makers. Even though it is not a hot debating issue for now, but we
believe that the development of Malaysian law is crucial. Thus, in this part of research paper,
we will make an analysis on prospectus as one of the sections in law. Apparently, our greatest
concern is on the enforcement of the law of prospectus through Companies Act 1965 as well as
Capital Market and Services Act 2007. As we know, the creation of company needs a huge sum
of money and that sum can be obtained by issuance of share. In relation to law governing
prospectus, issuance of share must be accompanied by prospectus. Here, the directors of
company have duty of care to make full and frank disclosure on prospectus to public in order to
avoid any misstatement and to secure the investors’ protection.
 From this study, we discover that issuance of prospectus can be carried out in many ways as
long as it is a document offering subscription. This may include the traditional way, which are
printing or brochure form, share hawking, apart from, through the modern way which is
electronic prospectus. These three types of prospectus are authorized, as long as it follows the
procedure and guidelines given by law. Denial to follow the law governing prospectus may
create civil or criminal liabilities. Hence, this law on prospectus should not be taken lightly by a
person.

 From this study, we are in opinion that there are few loopholes in enforcing prospectus based
on our Malaysian law. Firstly is on electronic prospectus where there is still inadequate law
governing electronic prospectus. In fact, there is no single law that exactly mentioning or
governing this kind of prospectus in Malaysia. Nowadays, technology is rapidly growing,
enabling us to obtain any information online. Therefore, we should walk at the same pace
with the technology and make life easier by adopting it in or everyday life. As mentioned
earlier, there are few benefits of doing online prospectus. One of it is it can reduce the cost
for each company in issuing prospectus. Also, it is easier for investors to make review on
company before deciding on subscribing securities.
 However, it must be noted that this method is holds exorbitant risk. Investors have higher
chance of being exposed to false and misleading statement made by companies. Herein, the
law should come into effect. Since Capital Market and Services Act 2007 and Companies Act
1965 are the main Acts that regulate law on prospectus and thus, provide protection for
investors, there is a need for amendment to be made in regards to prospectus. This can be
done by having appropriate law governing on electronic prospectus.

 In addition to that, we are also in our opinion that the law should also employ some recommendations
related to electronic prospectus made by SC, inter alia, the prospectus should only be made available
only in authorized websites, and make it compulsory for prospectus to be registered with authority.
These recommendations would ensure the credibility of information and also, enhance the investor’s
confidence that they are safe from manipulation. In fact, in our view, this way seems to be safer than
traditional way of issuing prospectus to public as it would prevent share hawking among public persons.
This is under the rationale that people would trust the authorized website more than merely invitation
of shares orally or from traditional way. Nonetheless, this only can be made under the condition that the
law governing electronic prospectus must be strictly implemented to prevent false and misleading
statement. That is the main reason why we are in opinion that there should be an exact law in governing
electronic prospectus. Perhaps, CMSA as well as the Companies Act 1965 should be amended to deal
with this matter.
 It is our belief that the current law governing prospectus is insufficient to safeguard the investors by
creating civil or criminal liabilities upon any company that had issued false or misleading prospectus.
Section 235 and 236 of CMSA had clearly stated on contents of prospectus and upon what should be put
in prospectus as a disclosed-based document. Therefore, in issuing prospectus, the directors in company
have duty of care in fulfilling all requirements needed and also make complete and frank disclosure
towards the public and investors. Refusal to abide such regulations would amount to offense and may be
liable under civil or criminal offense. However, based on the reference made from previous cases, the
judgment made by court in proving the liability of a person concerned with such misstatement or false
statement is not as easy as it seems. Plaintiff need to prove that firstly, defendant make error or false
statement in prospectus issued. Secondly, because of such false statement, plaintiff suffered damage or
loss.

 Here, specific inducement of the false statement is needed for the plaintiff to create a
liability upon defendant. General reliance will not amount to an offense as it has been held
in the case of Dato' Ariff Wan Hamzah & Ors v HwangDBS Investment Bank Bhd & Anor .
 Based on the case above, we are of the view that it is pertinent for plaintiff to sought action
over specific reliance of misrepresentation in a prospectus, however, defendant also to
certain extend should be liable. Since company owes duty of care towards what they have
issued, they should not conveniently ignore those duties. For instance, a person runs a hotel
suite and had admitted in his prospectus that he also provides wireless network as an
additional service, should not make such statement when he actually did not provide for it.
As for us, even though a person rent a room in the hotel only to spend the night there and is
not relying on that offer for wireless network, the hotel runner still owe duty to provide
wireless network as mentioned in his brochure or prospectus.

 In another word, even if the plaintiff may not succeed in his claim due to the general reliance, to certain
extend, the defendant should still be liable. Perhaps they should be fined for not providing the promised
infrastructure completely or based on any other reason as they fail to fulfil what has been stated in their
own prospectus. This may probably avoid directors from merely insert anything they wanted in a
prospectus in order to attract investors. This is on the basis that, even when the plaintiff subscribe into
the company over general reliance, they still relied upon such matter. Therefore, company should be
responsible for their own prospectus. Again, we would like to recommend that CMSA and Companies Act
1965 should be amended in regards to company’s responsibility over each and everything they insert on
prospectus for public interest. Despite the fact that there are already statutes governing civil and
criminal liability over misstatement and false statement as provided in Section 246, 249 of CMSA and
Section 46 of Companies Act 1965, we have to admit that it is still insufficient to safeguard the
subscribers.
 Apart from two loopholes in law that we found as being stated above, we consider that the other
provisions and law governing prospectus are already comprehensive in giving protection to investors as
well as public. In share hawking for instance, like what has been disclosed before, the implementation of
share hawking is mostly prohibited under Section 363 of Companies Act 1965 unless it follows the
guidelines stated under Securities Commission Act 1993. This is on the sense that offering shares
directing to public or receiving shares directly by public will increase the probabilities of public being
manipulated by certain companies. This is because, through share hawking, most companies did not
provide registered prospectus in inviting public people to subscribe.

 Apart from that, we can see the development of Sharia compliance in many aspects and
prospectus is one of the examples available. Under section 231 of the CMSA, Islamic
securities may be structured as an ‘excluded offer, excluded invitation or excluded issue’
whereby the prospectus is not required but the issuer of Islamic securities has to provide for
the information memorandum to the investors. A copy of the information memorandum has to
be submitted to the Securities Commission within seven days after it is first issued. Failure to
give information memorandum will constitute civil liability on part of the issuer as being
explained in The Outlook of The Malaysian Islamic Capital Market .
 Therefore, the information in that prospectus is doubtful. Ignorance on this issue may result
to more people being deceived into subscribing without making relevant consideration before
investing. That is the reason; we believe that prohibition of share hawking is a wise step to
protect the public interest at large.

 Besides that, in creating civil and criminal liabilities over false statement, it is a general rule
that directors and all persons included in issuing such false prospectus would share the same
liability, however, there is few exceptions acting as a defence mechanism from such liabilities.
This situation arises when the company practice separate legal entity unlike partnership and
sole proprietorship. Here, only those who are responsible for issuance of false information
shall be liable.
 Therefore, we feel that defenses available are acceptable to exclude a person from being liable
over things they did not do. Under civil liability for instance; defence may be invoked if
defendant, or directors of company had successfully prove few conditions under Section 48(3)
that he withdrew his consent over that false statement, or such prospectus been issued
without his authority, or he believed or ought to believe that such statement in prospectus
were true.
 Other than that, there are also few other defences that may be invoked which are due
diligence defence, reliance defence and also withdrawal of consent defence. Defences that
available here proves that, the law is not just serious in safeguarding investors from
manipulation, but also serious in protecting those who did not commit such offense.

 Issuance of prospectus may appear in several method which is through printing
method, share hawking, and also electronic prospectus.
 These types of prospectuses need to be registered and authorized as accordance with
the law to make it a credible and reliable prospectus as failure to do so would be
constitute as an offense under civil or criminal offense
 Defences available to be invoked by defendant over civil liabilities include due diligence
defence, reliance defence and also withdrawal of consent defence
 Companies should not take the issuance of prospectus lightly, rather, they need to take
serious precaution in drafting prospectus.
 Public should also need to have self-awareness in preventing themselves from easily
believing the prospectus circulated by any company.

Contemporary Legal Issues in Connection With Prospectus

Contemporary Legal Issues in Connection With Prospectus

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