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.