A Grim Prospectus: Directors' Liability of False or Misleading Prospectuses under s 58 of the Securities Act 1978

Abstract

In 2007 and 2008, financial markets worldwide suffered a severe beating. While first-tier financiers in New Zealand came out relatively unscathed, smaller operations were less able to weather the storm and collapsed under immense strain. The impact on individual investors has been significant, and public interest is such that for a number of months the trials of the company directors involved have frequently dominated newspaper business sections, and made front-page headlines The purpose of this paper is to examine the impact that three such cases have had on the law regarding directors duties for false or misleading prospectuses under s 58 of the Securities Act 1978, exploring the issues of audience, reliance and materiality. It considers the lessons that can be learned from these cases, and the messages sent to directors. Finally, it considers the impending changes under the Financial Markets Conduct Bill, and speculates on what the outcome of the cases would be if they were to be decided under that legislation.