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ARTICLE · 22 MARCH 2006

Prospectus Disclosure And The Business Judgment Rule: Lessons From Danier

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In an important decision, the Ontario Court of Appeal has recently (a) clarified the scope of prospectus disclosure, (b) established that forecasts in prospectus need not necessarily be objectively reasonable, and (c) reinforced the legitimacy and application of the business judgment rule.

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Originally published in the Securities & Public Markets Bulletin, February 2006

PROSPECTUS DISCLOSURE AND THE BUSINESS JUDGMENT RULE: LESSONS FROM DANIER

In an important decision, the Ontario Court of Appeal has recently (a) clarified the scope of prospectus disclosure, (b) established that forecasts in prospectus need not necessarily be objectively reasonable, and (c) reinforced the legitimacy and application of the business judgment rule.

The Facts

In May 1998, Danier Leather Inc.'s ("Danier") founder decided to sell his shares by way of an initial public offering ("IPO") to the public. Danier, a manufacturer and retailer of leather goods, completed the IPO under a prospectus. The prospectus included actual revenues and earnings through the third quarter and a forecast of revenue and earnings for the company's fourth quarter of its fiscal year, which ended in June 1998.

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