Deconstructing Sponsor Prospectus Liability

Posted: 19 Jul 2016 Last revised: 19 May 2017

See all articles by Syren Johnstone

Syren Johnstone

Department of Law, University of Hong Kong; Asian Institute of International Financial Law

Antonio M. Da Roza

The University of Hong Kong - Faculty of Law; Faculty of Law, University of Hong Kong

Nigel Davis

University of Hong Kong

Date Written: May 1, 2016

Abstract

The question of whether a sponsor of an initial public offering (IPO) is subject to the criminal and civil liability provisions of Hong Kong’s prospectus law has been debated for over 15 years and remains untested in court. The interpretation of the law provided by the Securities and Futures Commission (SFC) in August 2014 is that sponsors are subject to prospectus liability because they are persons who authorize the issue of the prospectus, an interpretation based on certain non-statutory considerations to which sponsors are subject. To examine whether the SFC’s position is supported in law, this article considers three possible routes by which legal liability might be established: through the relationship between non-statutory regulations and law, the law on authority, and the legal, regulatory and commercial context of sponsor work. However, none of these routes provide clear support. An unexpected finding was that elements underlying the SFC’s position could potentially apply to underwriters of an IPO. While the SFC has significant powers over sponsors outside the scope of prospectus law, the position under prospectus law of private civil litigants vis-à-vis sponsors remains uncertain. The options for resolving the current disjunct between prospectus provisions originally introduced in the context of a largely unregulated market and expectations under current regulatory architecture are considered.

Keywords: sponsor, prospectus, initial public offering, IPO, regulation

Suggested Citation

Johnstone, Syren and Da Roza, Antonio M. and Davis, Nigel, Deconstructing Sponsor Prospectus Liability (May 1, 2016). Hong Kong Law Journal 46(1) 13, 2016 ; University of Hong Kong Faculty of Law Research Paper No. 2016/024. Available at SSRN: https://ssrn.com/abstract=2811000

Syren Johnstone (Contact Author)

Department of Law, University of Hong Kong ( email )

Faculty of Law, Pokfulam Road
Pokfulam
Hong Kong
Hong Kong

HOME PAGE: http://www.law.hku.hk/faculty/staff/syren_johnstone.php

Asian Institute of International Financial Law ( email )

Faculty of Law, Pokfulam Road
Pokfulam
Hong Kong
Hong Kong

HOME PAGE: http://www.law.hku.hk/faculty/staff/syren_johnstone.php

Antonio M. Da Roza

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

Faculty of Law, University of Hong Kong ( email )

Hong Kong

Nigel Davis

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

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