The Ministry of Finance recently issued the Report of the Prospectus Liability Working Group (the "Report") concluding that the current Finnish laws regulating prospectus liability are insufficient mainly because of lack of clarity and that they need to be revised. Legislative reforms based on the proposals in the Report are not expected until 2007.
Strict liability for misstatements or omissions in a prospectus has been rejected in the Report in favor of an approach based on negligence and a "business judgment" rule which reverses the onus of proof: issuers and underwriters would be liable for the accuracy of the information contained in the issuer's prospectus, to the extent that the issuer and/or underwriter could not prove that it had acted diligently when providing information in the prospectus. In a prospectus for the secondary sale of the issuer's existing securities, the above prospectus liability would attach to the issuer in respect of prospectus disclosure regarding the issuer, its shares and any other securities issued by it, to the extent that the issuer had participated in the preparation of the prospectus disclosure. The liability of the management of the issuer as towards the issuer's shareholders and investors will be based on negligence, according to the Report.
In regard to the calculation of damages, the Report proposes that as a general rule, the damages should be the difference between the amount paid for the securities and the amount that should have been paid but for the misstatements or omissions in the prospectus. In spite of this general principle, the damages payable should put the investor financially in the same position had he or she been in if there were no misstatements or omissions in the prospectus. According to the Report, the issuer could be liable for damages with all of its assets, without regard to e.g. company law rules on capital maintenance.
In line with the general statute of limitations, the Report suggests for cases of prospectus liability that in the absence of criminal offence, the limitation period for an investor to bring an action would be three years from the time the loss and the liable party were discovered, subject to a requirement for the investor to notify that liable party within a reasonable period after discovery.
The proposals above also apply to tender offer documents in takeover bids, public share buy-back offer documents and prospectuses intended for the exclusive purpose of admission of securities (without an offering of securities) to public trading in Finland.
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