SEC Issues New Rules On Issuance, Allotment of Private Companies’ Securities

…. Unapproved Issuance Of Securities To Attract N10m Penalty

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The Securities and Exchange Commission (SEC Nigeria) has issued new rules on Issuance and Allotment by Private Companies, declaring that any person who issues or allots securities without its prior approval or violates any provisions of its regulations will be liable to a penalty of not less than N10 million in the first instance and a further sum of N100,000 for every day the violation continues.

 

The recommended fine is contained in the proposed new rules on the issuance and allotment of private companies and securities prepared by the commission. The rules apply to Debt securities issuances by private companies either by way of public offer, private placement, or other methods as may be approved by the Commission; registered exchanges and platforms that admit debt securities issued by private companies for trading, price discovery, or information repository purposes; and registered capital market operators who are parties in the issuances and allotment of debt securities of private companies.

 

The Commission, which set out stringent punishment for violators of the regulation, stated: “Any person who issues or allots securities without the prior approval of the Commission, or violates any provisions of these rules shall be liable to any one or more of the following sanctions: i. A penalty of not less than N10 million in the first instance and a further sum of N100,000 for every day the violation continues; ii. Suspension or withdrawal of the capital market operator(s) registration involved; iii. Disgorgement of proceeds/income from the transaction; and iv. The Commission may ratify or rescind a transaction if it is in the public’s interest; v. Any other sanction the Commission deems fit in the circumstance”.

 

The Commission stated in the document that a private company may list its securities on a registered securities exchange, adding that such securities must be listed no later than 30 days after the completion of allotment.

 

SEC explained that for a private company to be eligible to issue securities under the regulations, it must be a company duly incorporated under the Companies and Allied Matters Act (CAMA) or other enabling Laws with at least three years of track record of operation.

 

The regulations pegged the maximum amount a private company can raise within one year at N15 billion, provided that where a private company intends to undertake any further debt securities issuance, it shall be required to re-register as a public company.

 

It added that the issuing house would, within 21 working days of allotment, file with the Commission a summary report containing post-allotment information, a summary of applications received, a list of allottees of 50,000 units of securities or more and allottees acquiring 5 per cent or more of the securities on offer, a list of all applications received, including a list of those rejected and the basis for rejection, among other things.

 

According to the proposed rule, for a private company with existing debt securities held by qualified investors, the company “shall no later than three months from the date of issuance of these rules, apply for the registration of the securities to the Commission through the securities exchanges. Failure to comply with this provision shall attract a penalty of not less than two million Naira and a further sum of N100,000 for every day the violation continues”.

 

It added that a private company “shall not offer its equity securities (shares) to the public under any circumstance. b) Debt securities issued under these rules shall be sold only to qualified investors. c) Only registered capital market operators shall be parties to debt securities issuances under these rules. d) No private company or any person acting on its behalf shall offer, sell or allot securities to the public without the prior clearance of the securities exchange and registration of the securities by the Commission. e) Securities purchased in a public offer under these rules shall only be traded on a registered securities exchange”.

 

On the utilisation of Proceeds, the Commission held that issuers are prohibited from using the proceeds of the issues for purposes other than those stated in the offer document without its prior approval, adding that “the issuer shall file with the Commission not later than 90 days after the conclusion of an issue on the appropriate SEC Form, detailed information on the utilisation of proceeds. Evidence of such utilisation shall be provided as an appendix to the report. The rendition shall be every quarter until issue proceeds are fully utilised”.

 

“The issuer is prohibited from using the proceeds of the issue for purposes other than those stated in the offer document without the Commission’s prior approval.

 

“The issuer shall file with the Commission on the appropriate SEC Form detailed information on the utilisation of proceeds not later than ninety (90) days after the conclusion of an issue.

 

“Evidence of such utilisation shall be provided as an appendix to the report. The rendition shall be every quarter until issue proceeds are fully utilised.”

The Commission said the rules were made under “Section 43 (1) (b) of the Business Facilitation (Miscellaneous Provisions) Act 2022, which amends Section 67 (1) of the Investments and Securities Act and empowers the Commission to prescribe regulation for the issuance and allotment of private companies’ securities”.

It stated that all comments and input should be forwarded to the Secretariat, Rules Committee via [email protected] or through the DG SEC not later than two weeks from the publication date on the website.