Where the Commission suspends a prospectus this means any subscriptions received after that date must be held on trust. The Commission cannot make any public comment about suspending a prospectus unless it formally cancels the prospectus after giving the company a chance to comment.
The Commission cancelled the prospectuses of Bridgecorp and BIL yesterday.
The Commission suspended the prospectuses as soon as it was told by the trustee that Bridgecorp had failed to repay investors on the due date. The Commission understands that Bridgecorp had been in default since 20 June 2007 but did not tell the trustee.
The suspension meant that Bridgecorp and BIL were obliged to hold on trust any money subscribed by investors since 29 June. The Commission has now cancelled the prospectuses. "This means investors who subscribed during the suspension are now entitled to be immediately repaid by the companies," Director, Primary Markets, Kathryn Rogers said.
"However, we understand from the receivers and liquidators that this will apply only to a very small number of investors."
The Commission cannot step in to stop a finance company failing, or take action against a finance company that fails, or help investors recover their money. The Commission can intervene only if a finance company does not provide the required information for investors to make a decision on whether or not to invest.
The prospectuses, dated 21 December 2006, had become false or misleading because the companies did not disclose their inability to meet their obligations to investors. In particular they did not contain material information about the failure since 20 June 2007 of Bridgecorp to repay investors on the due date. This affected BIL because BIL depended on Bridgecorp to repay BIL, so that BIL could repay its own investors.
The Commission can suspend a prospectus for up to 14 days without notice, but is prohibited by law from publicly disclosing a suspension unless the prospectus is subsequently cancelled. This allows the issuer of the prospectus an opportunity to make submissions to the Commission.
The Commission can either revoke a suspension if the breach is rectified, or it can go on to cancel the prospectus. If, as in the Bridgecorp case, the Commission cancels the prospectuses the money paid by investors during the suspension must then be repaid by the company to those investors.
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