This article provides an overview of the legal requirements and practices concerning forward-looking statements in Swiss debt prospectuses, aiming to serve as a guideline for issuers, legal practitioners, and financial professionals navigating public offerings or listings in Switzerland of debt instruments.
By Benjamin Leisinger (Reference: CapLaw-2024-02)
1) Introduction
In the realm of Swiss prospectus regulations, the Swiss Financial Services Act (FinSA) and the Swiss Financial Services Ordinance (FinSO) provide a comprehensive framework governing the requirements for and content of prospectuses for the public offering and/or admission to trading on a trading venue in Switzerland. This article delves into the specific requirement for the inclusion of forward-looking statements (wesentliche Geschäftsaussichten or wesentliche Perspektiven) in such prospectuses for debt offerings, as outlined in article 40(1) lit. a. No. 4 of the FinSA and item 2.4.4 lit. c. of Annex 2 of the FinSO.
2) The Nature and Scope of Forward-Looking Statements
a) Legal Framework
According to the Swiss legal framework, forward-looking statements in debt prospectuses must encompass several key elements:
– Timeframe Coverage: Forward-looking statements to be included in Swiss prospectuses are mandated to also cover a period subsequent to the date of the prospectus. For example, a prospectus for an offering in January of a given year cannot simply include forward-looking statements in half-year financial statements of the preceding year that only cover the period until the end of such year. Ideally the forward-looking statements also cover the period until at least the end of the relevant quarter the instruments are issued in. In the author’s view, for debt offerings there is less need for disclosing expectations going beyond that time because, in contrast to equity instruments, the valuation of the debt instruments is less dependent on future developments of the issuer (unless they affect the solvency of the issuer).
– Content Requirements: As per the Swiss Federal Council’s message and explanatory reports in the legislative process, forward-looking statements may encompass information about the status of relevant research or development undertakings by the issuer for its business (Forschungs- und Entwicklungsstand) and market prospects (Marktaussichten) in relevant business areas. They must, however, reflect not only the market at large but also the specifics of the issuer’s business or its group in such market. However, required statements are limited to key prospects of the issuer significant for the investment decisions. When an issuer describes its outlook on the market, e.g., in the next quarter, and continues to say that it expects the issuer to perform in accordance with such market expectations, this should be sufficient.
– Existing Practices: Typically, Swiss issuers already include such statements in the management report of their financial report (Lagebericht) as stipulated under article 961c(2) No. 6 of the Swiss Code of Obligations. This was widely considered to be the benchmark for the relevant disclosure of forward-looking statements. Non-Swiss issuers should check whether similar statements are required in their financial statements that could be referred to, and incorporated by reference, and/or reproduced in the Swiss FinSA-prospectus. If issuers of debt instruments do not have existing statements in MD&A sections of the annual report, for example, they may have similar statements in previous non-Swiss prospectuses or base prospectuses that they could possibly use.
– Financial Targets and Profit Forecasts: Information about specific financial targets or profit forecasts is not mandatory in the prospectus. Issuers have the discretion to include or exclude such guidance in debt prospectuses and should carefully consider the implications to make such statements also outside of the Swiss issuance context.
b) Uncertainties and Legal Implications – Reduced Standard of Liability
Forward-looking statements inherently involve significant uncertainties and a high degree of speculation. Recognizing this, Swiss law, under article 69(3) FinSA, stipulates liability for such statements only if they are made “against better knowledge”, i.e., are intentionally wrong statements, or without acknowledging their uncertain nature. This aligns with the American “bespeaks caution doctrine”. The absence of a statement on the uncertain nature of forward-looking statements alone does not lead to a liability if the statements were made in good faith and based on proper assumptions and facts – but the absence of the disclaimer will certainly lead to comments from the relevant prospectus review body.
c) Practical Aspects
The two Swiss prospectus review bodies specifically scrutinize the inclusion and presentation of forward-looking statements in prospectuses and this aspect is a frequent subject of inquiry. Accordingly, foreign issuers in particular should be vigilant about this aspect early in the deal process to ensure compliance and avoid potential pitfalls. There are also some practical aspects worth noting:
– Consistency with existing disclosure: Issuers are advised to include statements already made in other financial documents or issuance documents in the FinSA-prospectus to maintain consistency and harmonized disclosure.
– Method of Inclusion in Prospectuses: The method of referencing or stating forward-looking statements in prospectuses is not explicitly regulated in the FinSA or FinSO. However, prevailing literature and practice suggest that the requirements should not be excessively stringent. An inclusion in the prospectus in a specific section on “outlook” or “material perspectives” is deemed sufficient, of course. Alternatively, a general reference in other parts of the prospectus with forward-looking statements, e.g. in the description of the general business of the issuer (item 2.4.1 of Annex 2 of the FinSO), is also acceptable. Inclusion in a separate section is, however, preferable in the author’s view to allow the Swiss review body to easily identify and review the relevant statements and a different approach should only be considered if (i) this is more in line with existing disclosure of the relevant issuer or (ii) the issuer also submits a completed rule check to the Swiss review body to help them identify the relevant statements.
3) Conclusion
The inclusion of forward-looking statements in debt prospectuses is a nuanced aspect of Swiss financial law, requiring careful consideration of various legal and practical elements. Issuers, especially those from abroad, must be cognizant of these requirements to ensure compliance as well as consistent communication with potential investors.
Benjamin Leisinger (benjamin.leisinger@homburger.ch)