A recent case has highlighted the potential liability of a company to its investors. There are lessons for all companies seeking equity or debt investment, from start-ups through to established companies looking to raise money on the capital markets.
Roskilde, a Danish Bank, has been found liable to compensate an investor. The investor successfully claimed it had invested in reliance on various false statements made by Roskilde in slides from an investor presentation and in an announcement relating to its financial results. Although the investor concerned did not attend the presentation, Roskilde had directed its attention to the slides on its website. Similarly, although companies will not generally be liable to investors at large as a result of public announcements of financial results, Roskilde had again specifically referred the investor to the relevant announcement. As a result, Roskilde was taken to have made the false statements in the slides and announcement to the investor with the intention of inducing it to invest and had also assumed a duty of care to the investor. Roskilde was therefore liable in damages to the investor for its losses on the investment.
As is usual in such cases, Roskilde had included various disclaimers in the investor presentation. However, these were not effective to enable it to avoid liability. Statements to the effect that no representation was made in relation to any information in the presentation, and that it should not be relied on or act as an inducement to enter into any contract, were not effective as, to quote from the judgment in the case: "a mere declaration of non-liability by the representor cannot have the effect of preventing a representor from incurring liability for misrepresentation". Other disclaimers, stating that no liability was accepted by Roskilde for errors and omissions in the presentation or for any liability arising from the use of the presentation for any purpose, were not sufficiently clearly drafted to exclude liability for misrepresentation. The court accepted, however, that a clearly drafted disclaimer could be effective, although it would have to satisfy the reasonableness requirement set out in the Unfair Contract Terms Act 1977.
The case is also of note as the investor had acquired the investment, in subordinated loan notes, from a third party and not directly from Roskilde.
Companies seeking investment, and their promoters and directors, must take care to ensure the accuracy of all information they use to persuade investors to come on board. The use of carefully worded disclaimers may assist, but avoiding misleading statements is the best way to ensure that no liability arises for misrepresentation.
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