The Supreme Court of Canada has dismissed a shareholder class action brought against Danier Leather Inc. and its senior officers for an alleged misrepresentation concerning an earnings forecast in a prospectus. The issue arose from Danier’s failure to revise a sales forecast contained in the final prospectus for an initial public offering. Although the forecast was accurate when the prospectus was filed, at the time of closing, and as a result of unseasonably warm spring weather, sales were lagging behind the projection. Approximately two weeks after the closing, Danier issued a revised forecast reducing its projected financial results. Danier’s share value subsequently dropped by about 20%. Purchasers of the securities commenced a class action alleging that Danier’s prospectus contained a misrepresentation. In a unanimous decision, the Supreme Court held that issuers only have an obligation to amend a prospectus or make public disclosure after a receipt has been issued for a final prospectus where a “material change” has occurred. Under Ontario’s Securities Act, a material change is limited to a change in the business, operations or capital of an issuer. The notion is more limited than a “material fact”, which includes any fact which would reasonably be expected to have a significant effect on a security’s market price. The Supreme Court held that to impose a disclosure obligation for matters not amounting to a material change as defined in the legislation would be contrary to the disclosure scheme of the Act and the legislator’s intent. To learn more, please see our information bulletin on this case.
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Supreme Court confirms post-filing disclosure obligation limited to material changes
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