ALTERNATIVE FINANCING FORMS
FOR ENTREPRENEURS AND INVESTORS
3 questions to smart minds
Photo: Dr. Michael Zoller

Liability standards for private placements — first decision of the BGH

For this 3 questions to Dr. Michael Zoller

Wirsing Hass Zoller Attor­neys at Law
Photo: Dr. Michael Zoller
8. Octo­ber 2019

German supreme court rulings have not yet dealt with the ques­tion of what duties of disclo­sure and warning exist vis-à-vis a major inves­tor who places his assets in the hands of third parties in the context of a private place­ment. With the case number BGH II ZR 275/17, the second civil senate of the BGH has now clari­fied this ques­tion for the first time.


For this 3 ques­ti­ons to Dr. Michael Zoller, Part­ner at Wirsing Hass Zoller Attor­neys at Law

1. More than 25 years have passed since the BGH’s “Bond” decis­ion, the clas­sic in the field of liabi­lity in capi­tal invest­ments. Why is the BGH only now addres­sing the liabi­lity prin­ci­ples in the case of a private placement?

This is simple: The “Bond” decis­ion in 1993 anti­ci­pa­ted the legal requi­re­ments which were formu­la­ted into the German WpHG on the basis of the Euro­pean legis­la­tor with regard to the invest­ment of mainly “small savers”. Subse­quently, the legal frame­work up to the Small Inves­tor Protec­tion Act in 2015 also dealt with such invest­ments. To date, there are no such regu­la­ti­ons for liabi­lity in the case of private place­ments by major inves­tors. And since the prin­ci­ple of “case law” prevails in German law in the area of liabi­lity for capi­tal invest­ments, the BGH had to wait until such a constel­la­tion of facts reached its desk. “Where there’s no plain­tiff, there’s no judge”.

2. So what requi­re­ments does the BGH place on liabi­lity in the case of a private placement?

The BGH makes it very clear that the busi­ness expe­ri­ence of the inves­tor plays a major role in the ques­tion of which duties of disclo­sure exist vis-à-vis the inves­tor. Howe­ver, this inves­tor also deser­ves protec­tion in the context of a “private place­ment” to the effect that the infor­ma­tion owed to this inves­tor is “suffi­ci­ent”, accor­ding to the BGH. In the speci­fic constel­la­tion of facts, the inves­tor was provi­ded with infor­ma­tion by means of a memo­ran­dum and an inves­tor presen­ta­tion; these docu­ments showed that, in addi­tion to the investor’s contri­bu­tion, at least USD 250 million in total invest­ment volume was to be raised by a certain dead­line. Howe­ver, when the private place­ment (back­da­ted) was signed with legally binding effect, it was alre­ady clear that this total invest­ment sum had been missed by around 10%; the inves­tor was not infor­med of this.

The BGH states with all the clarity that can only be desi­ra­ble that even in the case of a private place­ment it may be of inte­rest to the inves­tor whether the place­ment fore­cast contai­ned in the invest­ment memo­ran­dum is adhe­red to or not. If it beco­mes appa­rent on the last day of subscrip­tion that this fore­cast cannot be met, this must also be commu­ni­ca­ted in prin­ci­ple in the context of a private placement.

3. Why did the inves­tor ulti­m­ately not prevail with his lawsuit?

In this decis­ion, the Fede­ral Court of Justice not only breaks new ground with regard to private place­ments, it also shar­pens the stan­dard of assess­ment of the infor­ma­tion density owed to a private inves­tor: the slug­gish place­ment does not require disclo­sure if — as here — only USD 225 million could be coll­ec­ted instead of the plan­ned USD 250 million, accor­ding to the Fede­ral Court of Justice. In the view of the BGH, falling short of the invest­ment amount by appro­xi­m­ately 10% does not per se impair the oppor­tu­ni­ties and risks of the invest­ment within the frame­work of the private place­ment, so that this infor­ma­tion was not rele­vant for the inves­tor. Howe­ver, if the latter had expli­citly asked about the achie­ve­ment of the total invest­ment volume, he should not have been served with a lie.

Dr. Michael Zoller, RA/FA for tax law, is a part­ner at Wirsing Hass Zoller Rechts­an­wälte Part­ner­schaft mbB, Munich. He has been advi­sing and repre­sen­ting clients in banking law, in parti­cu­lar in the defense of claims, for 25 years and is the author of the work “Die Haftung bei Kapi­tal­an­la­gen” (Liabi­lity in Capi­tal Invest­ments), which has just been published by C.H. Beck in its 4th edition.

Subscribe newsletter

Here you can read about the latest transactions, IPOs, private equity deals and venture capital investments, who has raised a new fund, how Buy & Build activities are going.

Get in touch

Contact us!
fyb [at] fyb.de