Hong Kong Ordinances

COMPANIES ORDINANCE - SECT 40

Civil liability for misstatements in prospectus

(Past version on 01/04/2003).
(Past version on 30/06/1997).

(1) Subject to the provisions of this section, where a prospectus invites
persons to subscribe for shares in or debentures of a company, the following
persons shall be liable to pay compensation to all persons who 
subscribe for any shares or debentures on the faith of the prospectus for the
loss or damage they may have sustained by reason of any untrue statement
included therein, that is to say-

   (a)  every person who is a director of the company at the time of the issue
        of the prospectus;

   (b)  every person who has authorized 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)  every person being a promoter of the company; and

   (d)  every person who has authorized the issue of the prospectus: Provided
        that where under section 38C the consent of a person is required to
        the issue of a prospectus and he has given that consent, he shall not
        by reason of his having given it be liable under this subsection as a
        person who has authorized the issue of the prospectus except in
        respect of an untrue statement purporting to be made by him as an
        expert.

(1A) Subsection (1)(d) shall not apply-

   (a)  to the Commission;

   (b)  where the relevant prospectus is authorized by a recognized 
        exchange company pursuant to a transfer order made under section 25 of
        the Securities and Futures Ordinance ( Cap 571), to the Commission or
        the recognized exchange company; or

   (c)  where the relevant prospectus is authorized by a recognized 
        exchange controller pursuant to a transfer order made under section 68
        of that Ordinance, to the Commission or the
        recognized exchange controller. (Replaced 5 of 2002 s. 407)

(2) No person shall be liable under subsection (1) if he proves-

   (a)  that, having consented to become a director of the company, he
        withdrew his consent before the issue of the prospectus, and that it
        was issued without his authority or consent; or

   (b)  that the prospectus was issued without his knowledge or consent, and
        that on becoming aware of its issue he forthwith gave reasonable
        public notice that it was issued without his knowledge or consent; or

   (c)  that, after the issue of the prospectus and before allotment
        thereunder, he, on becoming aware of any untrue statement therein,
        withdrew his consent thereto 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 of the shares or debentures, as the
               case may be, believe, that the statement was true; and

        (ii)   as regards every untrue statement purporting to be a statement
               by an expert or contained in what purports to be a copy of or
               extract from a report or 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 person had given the consent
               required by section 38C to the issue of the prospectus and had
               not withdrawn that consent before delivery of a copy of the
               prospectus for registration or, to the defendant's knowledge,
               before allotment 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: Provided that this subsection shall
               not apply in the case of a person liable, by reason of his
               having given a consent required of him by the said section 38C,
               as a person who has authorized the issue of the prospectus in
               respect of an untrue statement purporting to be made by him as
               an expert.

(3) A person who, apart from this subsection would under subsection

(1) be liable, by reason of his having given a consent required of him by
section 38C, 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 the said section 38C to the issue
        of the prospectus, he withdrew it in writing before delivery of a copy
        of the prospectus for registration; or

   (b)  that, after delivery of a copy of the prospectus for registration and
        before allotment 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 reason 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 of the
        shares or debentures, as the case may be, believe that the statement
        was true.

(4) Where-

   (a)  the prospectus contains the name of a person as a director of the
        company, or as having agreed to become a director thereof, 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 38C 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
        company, except any without whose knowledge or consent the prospectus
        was issued, and any other person who authorized the issue thereof
        shall be liable to indemnify the person named as aforesaid or whose
        consent was required as aforesaid, as the case may be, 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, as
        the case may be, or in defending himself against any action or legal
        proceeding brought against him in respect thereof: Provided that a
        person shall not be deemed for the purposes of this subsection to have
        authorized the issue of a prospectus by reason only of his having
        given the consent required by section 38C to the inclusion therein of
        a statement purporting to be made by him as an expert.

(5) For the purposes of this section-

        (a)	the expression "promoter" (發起人) means a promoter who was a 
party to the preparation of the prospectus, or of the portion thereof
containing the untrue statement, but does not include any person by reason of
his acting in a professional capacity for persons engaged in procuring the
formation of the company; and

        (b)	the expression "expert" (專家) has the same meaning as in section 
38C .

(6) This section shall apply to a publication falling within section 38B(2) as
if the publication were a prospectus. (Added 30 of 2004 s. 2)

(7) It is hereby declared that, for the purposes of this section,

"persons who subscribe for any shares or debentures"
(任何股份或債權證的認購人) includes persons specified in the
Twenty-second Schedule. (Added 30 of 2004 s. 2) (Replaced 78 of 1972 s. 7)
[cf. 1948 c. 38 s. 43 U.K.]

"promoter" (發起人)

"expert" (專家)

"persons who subscribe for any shares or debentures"
(任何股份或債權證的認購人)