On 22 December 2022, the Supreme Court ruled in a dispute regarding board members’ liability under the Companies Act. Investors claimed damages from the board members for incorrect or incomplete information. Board members are responsible for ensuring that factual information is correct. The investors themselves must bear the risk of expectations about future.
The plaintiffs were investors who had subscribed for shares in a private placement, in a company that was to develop and sell a medical product. The completion and sale of the product was delayed, the company was taken into bankruptcy and the investment was thereby lost.
The investors filed claims against the board members on the basis of Section 17-1 of the Companies Act. The District Court acquitted all the defendants, but the Court of Appeal found two of the board members liable for damages. In the Supreme Court, these two were also acquitted.
The Court of Appeal based its decision on the fact that the two board members, who were particularly knowledgeable about the product being developed, should have provided more nuanced information about the product’s uncertainty.
The Supreme Court started from the fact that the board has an overall responsibility for ensuring that the information investors receive is correct. Although the Securities Trading Act’s obligation to prepare a prospectus does not apply in a case like this, the Supreme Court states that the requirements for information in the prospectus can provide some guidance for the disclosure obligation also in private issues.
The Supreme Court summarizes the legal basis in paragraphs (58) – (60). Liability does not automatically presuppose qualified defects, but errors or omissions must be of significant importance for the assessment of the company. If forecasts and statements about future are based on correct facts, investors generally bear the risk of their own assumptions and expectations.
The court came to the conclusion that the information given by the board was essentially correct. The board members had admittedly misjudged the situation when it came to uncertainty related to remaining testing and approval, but the threshold for subsequently imposing liability on such a basis is high. The court refers to statements in two previous cases, which do not apply to investment decisions. It is emphasized that, as a general rule, investors themselves must bear the risk that expectations about future will materialize.