The Western Division of the High Court recently found a local bank, Himmerlandsbanken A/S (now in bankruptcy), liable towards private investors pursuant to the Supreme Court ruling discussed in the previous "Case Law Update" of August 9 2002.

The bank had suffered a number of significant losses in previous years and had struggled to meet the solvency ratio requirement of the Danish Financial Supervisory Authority. The bank decided to issue a number of bonds with a view to bolstering its equity.

The bonds were sold to private investors. However, the prospectus on which the investors relied did not give true and fair information as to the bank's financial situation (in particular, it failed to mention a significant risk related to the bank's loan portfolio, even though the bank had received legal opinion on some of the loans to the effect that significant losses were very likely).

The court found that the prospectus:

  • failed to comply with the requirements of domestic law;
  • did not supply the investors with sufficient information; and
  • did not describe all relevant risks in a sufficiently detailed manner.

The omissions were found to be material and, overall, the prospectus was ruled to be misleading. In effect, the bank’s financial status at the time of issuing was such that it failed to comply with the mandatory financial requirements for being a bank under Danish law.

The court's judgment establishes that prospectuses must include an accurate description of all relevant issues and risks (even those which are not considered to be material). It also establishes that investors should read a prospectus in its entirety in order to evaluate the risks involved; they cannot isolate parts of the prospectus which, in hindsight, might be seen to be misleading if the prospectus as a whole gives a fair and balanced description of all risks involved.

A number of banks, including the Danish Central Bank, have announced their intention to appeal the ruling before the Supreme Court. However, the decision as to whether an appeal can be brought rests with a special committee and there are no legal grounds to be settled as the relevant legislation has been amended since the case began. Thus, an appeal is unlikely to be allowed.

For further information on this topic please contact Anders M Hansen at Osborne Clarke by telephone (+45 33 12 95 12) or by fax (+45 33 12 95 15) or by email ([email protected]).