Feltex investors claiming losses following its 2004 public float need not have read the prospectus to claim damages for any loss suffered provided they did read the short-form investment statement, the Supreme Court ruled. It is back to the High Court for some 3000 aggrieved investors after a Supreme Court ruling forecast revenue in the prospectus was misleading.
Investors buying into Feltex at $1.70 a share took legal action after Feltex went into liquidation in just over two years. The Supreme Court ruled a prospectus forecast of revenue for the year ended June 2004 was misleading. A ‘forecast’ is expected to reflect the most probable outcome. Total operating revenue of $335.4 million was forecast for the 2004 year. This forecast was prepared on the basis of actual sales for the first nine months of the 2004 financial year combined with forecast sales for the remaining three months. This three month forecast proved to be out by ten per cent and was known by Feltex directors to be incorrect at the time Feltex shares were later issued to investors. Prospectus figures were not updated.
The Supreme Court ruled Securities Act liability arose from the fact this revenue forecast was untrue and misleading. There was no need to prove materiality. Rules governing public floats are now in the Financial Markets Conduct Act.
Credit Suisse and the then directors of Feltex face liability for any proved loss resulting from this misleading statement. The Supreme Court signalled likely arguments will be that the issue was overpriced. Investors need not have read the prospectus. Most will have worked only from the abbreviated offer document: the Feltex investment statement. By law, investment statements make reference to a full prospectus being ‘available’. A prospectus is assumed to have been ‘distributed’ to a potential investor reading the investment statement even if it has not been asked for or received. Claims under the Fair Trading Act are also open. Double jeopardy, with liability under both the Fair Trading Act and securities legislation, was closed off by government legislation for future claims with effect from 2008. It remains open for Feltex claimants the Court ruled.
Houghton v. Saunders – Supreme Court (15.08.18)
18.165