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Mergers & Acquisitions

A deep understanding of organisations, their people,
culture and risk profile.

Prospectus Liability Insurance

What is Prospectus Liability Insurance?

When a company seeks to raise capital through the offer of securities to the public, or seeks an admission to trading of securities, a prospectus or listing particulars will be issued detailing in-depth financial information about the company and its future objectives and strategies.

If capital is being raised in the UK, the issuing directors must be satisfied they have complied with the requirements laid down by the Financial Services Markets Act (2000), the listing rules, and the London Stock Exchange’s admission and disclosure standards. The capital raising may be through simultaneous offerings on one or more stock exchanges, in which case care must be taken to comply with the relevant laws and regulations of the territory in which each of the stock exchanges is domiciled.

In all jurisdictions, signatories to the prospectus have a personal responsibility for the accuracy of the contents.

Liabilities may be incurred if the prospectus contains errors or omissions that are relied upon by investors in making their decision to purchase the company’s securities.

These liabilities, which potentially represent the greatest risk exposure that the directors (and the company) may incur in the corporate life of the company, can be insured through the purchase of a prospectus liability policy (variously known as Initial Public Offering insurance (IPO) or Public Offering of Securities Insurance (POSI)).

Who is covered by Prospectus Liability Insurance?

The company, its directors (including non-executive directors) and officers and employees for a securities claim. Additional interested parties to the prospectus may also be covered:

  • The issuing underwriter
  • Selling shareholders
  • Controlling shareholders
  • Advisors to the transaction.

Benefits of Prospectus Liability Insurance

  • A prospectus liability policy ensures that a ring-fenced limit of cover is in place for specific prospectus exposures
  • Policy covers the strict liability exposures relating to the prospectus
  • The one-off premium can be attributed as a transaction cost of the listing
  • Cover is provided for claims arising from issue of the prospectus, and the policy period covers the statute of liability for those claims (six years in the UK, three years in the US)
  • The insured does not have to buy extended levels of Directors’ & Officers’ Liability cover in relation to prospectus risks
  • The prospectus liability policy remains in place in the event the company is taken over or merges with another
  • The policy may help attract directors who are joining the board for the offering.