Liability for statements in prospectus

(1) Where a prospectus invites persons to subscribe for shares in or debentures of a company, every person who is a director of the company at the time of the issue of the prospectus, and every person who has authorised the naming of him and is named in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time, and every promoter of the company, and every person who has authorised the issue of the prospectus, shall be liable to pay compensation to all persons who subscribe for any shares or debentures on the faith of the prospectus for the loss or damage they may have sustained by reason of any untrue statement therein, or in any report or memorandum appearing on the face thereof, or by reference incorporated therein or issued therewith, unless it is proved– (a) with respect to every untrue statement not purporting to be made on the authority of an expert, or of a public official document or statement, that he had reasonable ground to believe, and did up to the time of the allotment of the shares or debentures, as the case may be, believe, that the statement was true; (b) with respect to every untrue statement purporting to be a statement by or contained in what purports to be a copy of or extract from a report or valuation of an expert, that it fairly represented the statement or was a correct and fair copy of or extract from the reports or valuation, provided that the director, person named as director, promoter, or person who authorised the issue of the prospectus, shall be liable to pay compensation as aforesaid if it is proved that he had no reasonable ground to believe that the person making the statement, report, or valuation was competent to make it; and 73 (c) with respect to every untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, that it was a correct and fair representation of the statement or copy of or extract from the document, or unless it is (i) that having consented to become a director of the company, he or she withdrew his or her consent before the issue of the prospectus and that it was issued without his or her authority or consent; (ii) that the prospectus was issued without his or her knowledge or consent, and that on becoming aware of its issue he forthwith gave reasonable public notice that it was issued without his or her knowledge or consent; or (iii) that after the issue of the prospectus and before allotment thereunder he or she, on becoming aware of any untrue statement therein, withdrew his or her consent thereto, and gave reasonable public notice of the withdrawal, and of the reason therefor. (2) Where a company existing on 18th August, 1890, has issued shares or debentures, and for the purpose of obtaining further capital by subscriptions for shares or debenture issues a prospectus, a director shall not be liable in respect of any statement therein, unless he or she has authorised the issue of the prospectus, or has adopted or ratified it. 74 (3) Where the prospectus contains the name of a person as a director of the company, or as having agreed to become a director thereof, and he or she has not consented to become a director, or has withdrawn his or her consent before the issue of the prospectus, and has not authorised or consented to the issue thereof, the directors of the company, except any without whose knowledge or consent the prospectus was issued, and any other person who authorised the issue thereof, shall be liable to indemnify the person named as aforesaid against all damages, costs, and expenses to which he or she may be made liable by reason of his name having been inserted in the prospectus, or in defending himself against any action or legal proceedings brought against him in respect thereof. (4) Every person who, by reason of his being a director, or named as a director or as having agreed to become a director, or of his or her having authorised the issue of the prospectus, becomes liable to make any payment under this section may recover contribution, as in cases of contract, from any other person who, if sued separately, would have been liable to make the same payment, unless the person who has become so liable was, and that other person was not, guilty of fraudulent misrepresentation. (5) For the purposes of this section“expert” includes engineer, valuer, accountant, and any other person whose profession gives authority to a statement made by him; “promoter” means a promoter who was a party to the preparation of the prospectus, or of the portion thereof containing the untrue statement, but does not include any person by reason of his or her acting in a professional capacity for persons engaged in procuring the formation of the company. 75