Directors' and shareholders' liability for capital increases

Key issues


Following the bankruptcy of online betting startup OneBet Holding AS (OBH), the founders of the company were sued by 18 investors who claimed repayment of the invested amounts based on alleged incorrect, misleading, and deficient information in connection with a capital increase. The founders were acquitted by both the District Court and the Borgarting Court of Appeal (LB-2022-82142).

In the context of share issues in limited liability companies, the company itself, the board of directors, the shareholders, the financial intermediary/brokerage house and other advisers may, depending on the circumstances, be held liable for losses incurred by investors if the individual investor's decision to subscribe for shares is made on the basis of false, misleading or incomplete information.

Those involved in the preparation of a capital increase therefore have a responsibility to ensure both that the information provided is accurate, complete and not misleading, and that no information on material aspects of the company is omitted.

In the case related to the issue in OBH, the founders of the company were defendants, both as such and by virtue of their positions as board members and general manager of OBH. No external facilitator/brokerage house was used.

The complexity of the case and the judgment is quite wide-ranging, but illustrates, inter alia, the following which are useful reminders for both investors and companies to keep in mind in the context of share issues and their marketing:

- Allegations in the investor presentation: The Claimants argued that OBH's operations were correctly described in the investor presentation, including, for example, that technical solutions were less developed than they expected. The investor presentation contained only limited wording on the status of the gaming platform itself, limited to phrases such as "Lean operation with top of the line IT partners", while including certain limiting risk factors related to the company's technical solutions. Based on such limited "claims" by the company, the Court of Appeal held that "the wording of the presentation does not say anything specific about the status of the gaming platform at the time of the presentation" and that investors could thus not build any expectations about this relationship based on the wording of the investor presentation. The lesson for companies is not to make more specific promises than they can safely stand behind. The lesson for investors is to read investor presentations and other investor material very carefully and be very cautious about building specific expectations based on general/non-specific wording - if the information is vague and non-binding, this will in practice indicate a higher risk of the investment and one must act accordingly.

- Subsequent deviation from expectations:
The Plaintiffs argued that after the investment, OBH had not developed as expected based on the information provided in the context of the issue. As regards the general development after the share issue, the judgment states that the parties in the case agreed that the presentation in the investor presentation and other contexts was "characterized by strong optimism". Although the Court of Appeal highlights that one of the defendants in particular "can be blamed to some extent for being overly optimistic", the Court of Appeal holds that as long as the figures presented to investors are based on accurate information, this will allow investors to make their own independent assessments and that failure to do so, seek advice or obtain further information will be at the investors' own risk.

- The importance of risk factors:
Many people are aware that investor presentations often include a separate section containing so-called "Risk Factors". The purpose of these is to highlight to investors both company-specific and other factors that may entail a risk that the future will be different from what the company wishes and hopes at the time of the issue. The plaintiffs argued that the risk factors appeared to be "standard" and that, due to their relationship with one of the founders in particular, they did not attach particular importance to them. However, the Court of Appeal states in broad terms that "investors must be presumed to have read the reference to risk in the investor presentation and on the subscription form. Failure to do so, for whatever reason, is the risk of the individual investor". In practice, the Court of Appeal is stating the obvious - investors cannot only read the selling and optimistic part of the investor presentation, but must consider the totality of the information provided. For companies, of course, this illustrates the importance of including carefully considered risk factors in any investor presentation used in connection with raising capital, even if you do everything yourself and do not use a facilitator.

AGP regularly assists both companies and investors in connection with share issues, bond issues and other capital market transactions, both in listed and unlisted instruments. As the Court of Appeal's judgment shows, in line with a number of other previous court decisions, the liability risk for companies, directors and arrangers is real, while investors are required to actively assess the investment opportunities presented to them and to safeguard their rights.


AGP is a law firm specializing in transactions, capital markets, and corporate. Advisory services related to capital increases in stock and public limited liability companies are one of our core competencies.

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