SEC issues new rules on issuance, allotment of private companies’ securities

The Securities and Exchange Commission (SEC) has exposed new rules on issuance and allotment by private companies securities 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 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 Securities and Exchange 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 which admit debt securities issued by private companies for trading, price discovery or information repository purposes; registered capital market operators who are parties in issuances and allotment of debt securities of private companies.

The commission also listed other stringent punishments to include suspension, or withdrawal of the registration of the capital market operator(s) involved, disgorgement of proceeds/income from the transaction and the commission may ratify or rescind a transaction if it is in the interest of the public to do so.

The commission in the document stated that a private company may list its securities on a registered securities exchange, adding that such securities must be listed not later than 30 days after 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 Companies and Allied Matters Act (CAMA), or other enabling Laws with at least three years’ track record of operation.

The regulations pegged the maximum amount a private company can raise within a one-year period 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; summary of applications received; list of allottees of 50,000 units of securities or more and list of all allottees acquiring 5 per cent or more of the securities on offer; list of all applications received including list of those rejected and the basis for rejection, among others.

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, file an application for the registration of the securities to the commission through the securities exchanges.