Article Board to compensate investors for misleading information in prospectus

19 December 2022

In June 2022, Sweden had its first court decision regarding a board’s responsibility under the Companies Act for breach of the Prospectus Regulation[1]. Following a share issue and a listing of a company on Nasdaq First North Growth Market, two investors sued the company’s board and sought compensation arguing that the prospectus prepared by the board was in breach of the Prospectus Regulation. The District Court’s judgment, which to a large extent agrees with the investors, has been appealed. [1] Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market and Commission Delegated Regulation (EU) 2019/979 of 14 March 2019 supplementing Regulation (EU) 2017/1129 (Commission Delegated Regulation)

Takeaways to avoid prospectus liability

  • Monitor financial forecasts and do not rely on general risk sections and disclaimers for protection against liability.
  • Make sure that the marketing of an offer is in accordance with the prospectus.
  • Do not use alternative performance measures (APMs) in marketing unless the APMs are included in the prospectus.
  • Be vigilant when preparing the working capital statement in the prospectus.


A company (the Company) had made an offering to subscribe for shares in connection with the Company’s listing on Nasdaq First North Growth Market in February 2020. Two investors, among other, had subscribed for shares in accordance with a previously made commitment.

At the center of the dispute, apart from the prospectus, was an analysis prepared in October 2019 (the Analysis), which among other things included a forecast regarding the Company’s future net turnover in 2019 (negative, neutral, and positive) as well as a presentation that was used when the Company was introduced to investors in November 2019 (the Presentation). Among other things, the Presentation included a forecast regarding the group’s net turnover for 2019.

In January 2020, a prospectus was published and posted on the Company’s website together with the Analysis and the Presentation under the headline “IPO.” No forecast was included in the prospectus (at least no information was presented as a forecast). As usual, the prospectus also included a section with risk factors (such as risks associated with financing) and a disclaimer regarding forward looking statements.

At the end of March 2020, the Company published its annual statement where it was evident that the actual net turnover was significantly lower as compared to the forecasts. By the end of June 2020, the Company announced that its wholly owned subsidiary had filed for bankruptcy.

In their suit, the two investors argued that the board had breached the Prospectus Regulation and caused the investors damage as they would not have subscribed for shares if the information had been in accordance with the Prospectus Regulation requirements. The Court agreed with the investors to a large extent. Its decision referred to the Companies Act pursuant to which a board member may be held liable for damages caused by negligence or intent as a result of incorrect or incomplete information in a prospectus (29 Chapter 1 Section Companies Act).

Were the forecasts marketing and, if so, were they inaccurate or misleading?

The Court stated that even though the Analysis and the Presentation had not been presented as “advertisements” (which is a requirement under the Regulation), they were indeed advertisements (marketing) of the offer because, among other things, they had been posted on the website under the headline “IPO” together with the prospectus.

The Court noted that in the beginning of February 2020, at the latest, the board should have realized that the actual outcome deviated significantly from the forecast. The Court was not persuaded by the board’s argument that the board could not have known the outcome until the annual statement was presented at the end of March 2020.

Given that the period to which the forecasts referred had come to an end, it did not matter that the Analysis included a disclaimer regarding forward looking information.

Consequently, the Court state that the Analysis and the Presentation were misleading and in breach of the Prospectus Regulation.

Were the forecasts alternative performance measures?

Information to the public regarding an offer (whether written or verbal and whether or not the information is intended to promote the offer) must not include so-called alternative performance measures (APMs) unless these are also included in the prospectus. According to the Court, the forecasts included APMs. Because they were not included in the prospectus, the board was in breach of the Prospectus Regulation (Commission Delegated Regulation) also in this respect.

Did the prospectus include all material information?

A prospectus must contain the necessary information material to an investor for making an informed assessment of the assets and liabilities, profits and losses, financial position, and prospects of the issuer. In this case, the board had stated that in the board’s view, there would be sufficient working capital for the next twelve months provided that the share issue was executed according to plan. According to the Court, the working capital statement was misleading as it did not clearly state that it was made on the presumption that the business plan would be realized, among other things.

Had the board been negligent?

The Court stated that the board was not liable per se for the actual outcome as compared to the forecasts. However, because the forecasts were regulated by the Prospectus Regulation’s rules on advertisements (marketing), the board had an obligation to continuously monitor the accuracy of the forecasts and inform the market as soon as it was clear that they substantially deviated from the actual outcome. Given that the board had not done so, the board had been negligent.

Did the investors suffer damage and if so, how much?

According to the Court, there was no reason to question that the investors would not have subscribed for shares if the Company’s actual financial situation had been presented to them. Consequently, the investors had suffered damage as a result of subscribing for shares in accordance with their commitments. The precise reasons for the decrease in the share price was not relevant.

Were all board members liable?

Because none of the board members had objected to the information that was presented to the investors, the Court stated that all the board members had caused the damage jointly and were jointly liable for the damage (District Court of Attunda 2022-06-07 case No T 10146-20).