Public Offering of Securities

Raising capital through a stock exchange listing, a placing or other offer of securities provides a company and its shareholders with significant opportunities. However, the liabilities imposed on directors, the company and shareholders in such transactions can be onerous.

For instance:

• Investors may begin an action against these parties for an alleged misrepresentation, error, or omission in the prospectus on which they had relied to make their investment.
• The sponsor, nominated adviser, market maker or underwriter can pursue them by virtue of the warranties and the hold harmless indemnity given under the underwriting/placing/offer agreement.
• Regulatory bodies have authority to initiate proceedings against the parties to an offering in the event of allegations of wrongdoing or a breach of the listing rules.
• Other professional advisers to the offering may claim against them for financial loss pursuant to an indemnity.

These liabilities, along with the cost of defending such allegations, can potentially threaten the personal assets of the directors and the proceeds raised by the company or its shareholders.

Public offering of securities insurance is a specialist product which is tailored to indemnify these parties (and sometimes professional advisers to the offering) against claims arising from error, omission, misrepresentation, or non-disclosure in the documents issued to potential investors and the costs involved in defending such allegations. The policy can provide the directors, the selling shareholders and the company with a number of separate and distinct benefits including:

• Protection against some of the potential statutory and contractual exposures.
• The option of a stand-alone policy, specifically tailored to ‘ring-fence’ the exposures from the transaction, which does not dilute or erode existing directors and officers liability insurance arrangements.
• Coverage is typically negotiated to include protection against the liabilities arising from the issue of the path finder or ‘red-herring’ prospectus, the roadshow presentation, and any press releases, alongside specific coverage for warranties and indemnities given to the sponsor, nomad or broker.
• The policy can be extended to include other third parties who may assume liability by their contribution to the contents of the prospectus, e.g. specialist consultants, or controlling shareholders by virtue of their influence on the target.
• Policy coverage cannot be cancelled by insurers without the insureds’ consent, and is typically arranged for 3-6 years’ duration, with a one-off premium levied for the full period of the policy.
• The policy can be designed to cover exposures arising from many overseas jurisdictions.