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Report on aspects of the initial public offering of Vertex Group Holdings Limited in 2002

The Securities Act 1978 imposes criminal and civil liability for breaches of the Act and for use of offer documents containing untrue statements. These are set out in Appendix D of this Report.

Under section 37A(1)(b) of the Securities Act 1978 a security offered to the public must not be allotted if at the time of the allotment the investment statement or registered prospectus relating to the security is known by the issuer of the security, or any director of the issuer, to be false or misleading in a material particular by reason of failing to refer, or give proper emphasis, to adverse circumstances. This applies whether or not the investment statement or registered prospectus becomes false or misleading as a result of a change of circumstances occurring after the date of the investment statement or registered prospectus.

If an allotment of securities is made in contravention of this section then that allotment is voidable if the subscriber gives notice in writing to the issuer. The Commission has not found any evidence to suggest that the issuers or directors of Vertex knew that the offer document was misleading at the time of allotment.

Section 56 of the Act provides shareholders with civil remedies where a registered prospectus contains untrue statements and the shareholder can establish loss or damage caused by the untrue statements. As noted above, the Act deems a statement to be untrue if it is misleading by reason of the omission of a particular which is material to the statement in the form and context in which it is included. In the Commission's opinion, the statement relating to risk in the offer document was likely to mislead.

Section 56 provides defences against liability in certain circumstances. It is not for the Commission to determine liability under this provision - that is the role of the Courts. The Commission refers this report to the shareholders of Vertex who subscribed for shares in the IPO, for them to consider the questions of civil liability. Whether any action should be taken is a matter for those shareholders to determine.