Liability standards for private placements — first decision of the BGH
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”.
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.
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.