Issuing debt securities
I previously covered the restrictions on the issue of shares under s.755 CA 2006 and the Financial Services and Markets Act 2000 (‘FSMA’).
These restrictions also apply to the issue of debt securities. Therefore, private companies can only issue bonds to targeted investors and not to the public indiscriminately. To do otherwise risks contravention of s.755 CA 2006. Similarly, if a private company makes an ‘offer to the public’ of bonds within the meaning of s.85 FSMA and cannot take advantage of an exemption, it will be required to produce a prospectus.
However, the other formalities of share issues, such as authority to allot and disapplication of pre-emption rights, do not apply to debt securities (unless they are convertible into shares).
Giving advice on financing – FSMA
If you are giving your client advice in relation to their financing requirements you should bear in mind the rules governing such advice under FSMA (which will be considered in detail in the Professional Conduct and Regulation module). Shares and bonds are regulated (‘specified’) investments and ‘advising’ is a specified activity if the advice concerns the merits of the investments e.g. making a recommendation relating to a particular bond or share, rather than simple abstract advice as to the difference between bonds and shares.