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Personal Liability of Company Organs for Completeness and Correctness of Information Provided to Investors - Comment on the Federal Court of Justice's Decision of June 2nd, 2008, II ZR 210/06

The German Bundesgerichtshof (Federal Court of Justice) has recently passed a judgement in which it held board members of a company liable for oral information given to investors during a "road show". After the company had decided on an increase in its capital, the members of its managing board met with potential investors and explained the company's business plan to them. During their oral presentation they misrepresented a material fact by claiming that the company's projected liquidity for the end of 2000 was DM 40.5 million although it was - because of the costs of an already planned-for advertisement campaign - in fact only DM 20.4 million. Based on the information received, the investors subscribed shares. In May 2001 the company became insolvent. The Bundesgerichtshof based its judgement on Sec. 280 (1), 241 (2), 311 (3) Buergerliches Gesetzbuch (German Civil Code), i.e. provisions that sanction breach of trust. In this article it is, however, argued that the Bundesgerichtshof in fact developed a new strand of prospectus liability that - a contradictio in adiecto - can be triggered by oral statements. Board members of a company who give an oral presentation to investors are liable for the completeness and correctness of the information given to the investors. This liability is not based on the board members having asked the investors to trust them personally, but rather on their status as the organs authorised to represent the company.