On 1 February 2024, a new criminal offence was introduced in Switzerland’s public takeover law. According to the new criminal offence, anyone who willfully provides untrue or incomplete information in the offering prospectus or the announcement of a public takeover offer can be penalized with a fine of up to CHF 500,000. If the offender acted through negligence, a reduced fine of up to CHF 150,000 can be imposed. This article describes the prerequisites for imposing a fine for such a breach of duty by the offeror.

By Pascal Hodel (Reference: CapLaw-2024-20)

1) Introduction

With effect as of 1 February 2024, article 152a of the Financial Market Infrastructure Act (“FinMIA“) penalizes a breach of duty by the offeror in a public takeover offer. Specifically, a fine not exceeding CHF 500,000 shall be imposed on any person who willfully provides untrue or incomplete information in the prospectus or announcement of the offer (article 127 and 131 (a) FinMIA). A fine not exceeding CHF 150,000 shall be imposed on any person who commits the foregoing act through negligence.

The introduction of this new criminal offence is due to the identification of a gap in Swiss takeover law. While previously only a breach of duty by the target company was penalized (see article 153 FinMIA), the introduction of article 152a FinMA also covers a breach of duty by the offeror. However, due to the similarities and the close relation between article 152a and article 153 FinMIA, the case law of the latter serves as basis for the interpretation of the prerequisites of the breach of duty by the offeror (see explanatory report of Swiss parliament on the FinMIA bill dated 5 May 2022 (hereinafter the “Explanatory Report 2022“), p. 5).

2) History of origin

The gap in the Swiss takeover law was identified by the Swiss Takeover Board (“Takeover Board“) in the particular case of the public takeover offer of HNA Aviation (Hong Kong) Air Catering Holding Co., Ltd. (“HNA Aviation“) to the shareholders of gategroup Holding AG taking place in 2016.

In its decision 630/03 dated 22 November 2017, the Takeover Board stated that the offeror provided untrue and incomplete information in the prospectus, in particular, untrue information about the shareholders of HNA Aviation. The Takeover Board subsequently alerted the Swiss criminal prosecution authorities and the Swiss Financial Market Supervisory Authority (“FINMA“) and at the same time stated that there was no legal basis for imposing a fine on HNA Aviation. This was due to the fact that at the time there was no criminal provision in existence which could penalize untrue or incomplete information by the offeror in the prospectus (see CapLaw-2018-32, p. 23 et seqq.).

Subsequently, in late 2018, politicians called for an amendment of the FinMIA to the effect that a breach of duty by the offeror in a public takeover offer should be penalized going forward (Explanatory Report 2022, p. 3). The final wording of the bill was adopted by the Swiss parliament and brought into force on 1 February 2024.

3) Function and purpose of the new criminal offence

The purpose of article 152a FinMIA is to ensure the transparency and fairness of a public offer as well as the equal treatment of the target company’s shareholders by reducing the information asymmetry between the offeror and the target company’s shareholders. Therefore, article 152a FinMIA primarily protects the target company’s shareholders (i.e. investor protection) and thus the functionality of the Swiss financial markets (i.e. functional protection). The purpose of article 152a FinMIA is thus also to ensure that the target company’s shareholders can make a free and informed investment decision based on complete and correct information (see article 17 (1) of the Swiss Public Takeover Ordinance (“TOO“).

4) Scope and applicable legal standards

Swiss takeover law differentiates mainly between two forms of public takeover offers: mandatory offers and voluntary offers. A mandatory offer is required if an offeror exceeds the applicable thresholds pursuant to article 135 FinMIA, and is thus required to make an offer. A voluntary offer is an offer made by the offeror on its own initiative. Regardless the offer form, the offeror has the duty to publish an offering prospectus containing true and complete information (see article 127 (1) FinMIA). Therefore, the criminal offence pursuant to article 152a FinMIA is applicable with both forms i.e. a mandatory offer and a voluntary offer, because both offer forms require the offeror to publish a prospectus. This is reasonable, because the target company’s shareholders should be able to rely on true and complete information for their investment decision regardless of whether there was an obligation to make a public offer.

Violations of the criminal provisions of the Swiss Financial Market Supervision Act (“FINMASA“) including the criminal provisions of the FinMIA are prosecuted in accordance with the Administrative Criminal Law Act (“ACLA“) (see article 50 (1) FINMASA). 

5) Offenders

5.1) Circle of eligible offenders

Article 152a FinMIA states that a fine shall be imposed on “any person” who willfully provides untrue or incomplete information in the prospectus or announcement of the offer. A suitable offender under article 152a (1) FinMIA is the person who prepares the prospectus or the announcement. The obligation to prepare and publish a prospectus or an announcement is the responsibility of the offeror (see article 127 (1) FinMIA and article 5 (1) TOO). In a mandatory offer, the offeror is anyone who acquires equity securities directly or in concert with third parties and thereby exceeds the threshold of 33⅓ of the voting rights of the target company (see article 135 (1) FinMIA). This means that not only the offeror but also persons acting in concert with the offeror are liable to prosecution (see also Explanatory Report 2022, p. 6).

The offeror in a mandatory or a voluntary public offer is usually a company. Therefore, it must be determined within the company who is to be held criminally liable for the untrue or incomplete information in the prospectus or the announcement. According to the wording of article 152a FinMIA, the actual creator of the prospectus or the announcement is liable to prosecution. This applies to the following people: first, the person that actually wrote the prospectus or the announcement. Second, the person that is – according to the internal organization of the company – responsible for the creation of the prospectus or the announcement (e.g. the CFO). Third, the person who delivers the untrue or incomplete information that is used in the prospectus or in the announcement. Persons who do not exert any influence on the content of the prospectus or the announcement on their own initiative, but who should exert influence due to their position within the offeror, are also liable to prosecution.

5.2) Complicity and incitement

Complicity is penalized under article 152a FinMIA, i.e. any person who willfully assists another to make untrue or incomplete information in an offering prospectus or an announcement shall be liable for a reduced penalty (article 5 ACLA in conjunction with article 25 and article 105 (2) of the Swiss criminal code (“CC“)). Incitement is also penalized under article 152a FinMIA, i.e. any person who has willfully incited another person to make untrue or incomplete information in the offering prospectus or the announcement shall be liable to the same penalty as applies to the person who has committed the offence (article 5 ACLA in conjunction with article 24 and article 105 (2) CC). However, the mere attempt to make untrue or incomplete statements in a prospectus or an announcement is not an offence (see article 105 (2) CC).

5.3) A company is not an offender

In general, a company cannot be penalized based on article 152a FinMIA because a company is not considered a suitable offender. A company can only be penalized under specific circumstances. This is the case if (i) the investigation of the responsible person within the company requires disproportionate efforts by the prosecutors and (ii) the penalty imposed in the specific case is a fine of no more than CHF 50,000 (see article 49 FINMASA).

6) Intention and negligence

To commit the criminal offence pursuant to article 152a (1) FinMIA, the offender must make willfully untrue or incomplete statements in the prospectus or the announcement. The offender acts willfully if he carries out the act in the knowledge of what he is doing and in accordance with his will (see article 12 (2) CC).

The offence can also be committed through negligence (see article 152a (2) FinMIA). An offender commits an offence through negligence if he fails to consider or disregards the consequences of his conduct due to a culpable lack of care. A lack of care is culpable if the offender fails to exercise the care that is incumbent on him in the circumstances and commensurate with his personal capabilities (see article 12 (3) CC).

The criminal liability for negligence was criticized during the consultation of this legal bill (see report on the consultation results dated 15 September 2022, p. 3), but was nevertheless retained, as it was assumed that negligence would occur more frequently because the required information is precisely described in an offering prospectus.

7) Untrue or incomplete information

The criminal offence of article 152a FinMIA requires the offender to make “untrue” or “incomplete” statements in the prospectus or the announcement.

A statement is untrue if it is false or rather does not objectively correspond to the facts. This is also the case if the information is correct, but in the overall context creates a false impression. In any case, the untrue statement must relate to a fact that the target company’s shareholders deem relevant for their investment decision, i.e. making false but irrelevant statements is not penalized.

A prospectus or an announcement is incomplete if the information required by law is missing (see for the necessary information article 17 et seq. and article 5 et seq. TOO; see also Explanatory Report 2022, p. 6).

8) Sanctions and prosecution

If the prerequisites are fulfilled, a fine not exceeding CHF 500,000 shall be imposed on an offender who acts willfully (article 152a (1) FinMIA). A fine not exceeding CHF 150,000 shall be imposed on any offender who acts through negligence (article 152a (2) FinMIA). The penalties are the same as for a breach of duty by the target company (see article 153 FinMIA).

The Swiss Federal Department of Finance (“FDF“) is responsible for the prosecution of offences pursuant to article 152a FinMIA (see article 50 (1) FINMASA). The Takeover Board must immediately notify the competent criminal authorities, i.e. the FDF, if it becomes aware of potential violations of the new criminal provision (see article 138 (4) FinMIA in conjunction with article 50 (1) FINMASA) (Explanatory Report 2022, p. 6).

Prosecution of a violation of article 152a FinMIA is time-barred after seven years (see article 52 FINMASA).

9) Civil liability

The board of directors of the company at fault may also be exposed to civil liability claims based on article 754 of the Swiss Code of Obligations (“CO“) or article 41 CO in the event of a breach of the duty to produce a true and complete prospectus.

10) Conclusion

To conclude, the Swiss takeover law has introduced a new criminal offence that penalizes a breach of duty by the offeror. The newly introduced article 152a FinMIA states that anyone who willfully provides untrue or incomplete information in the offering prospectus or the announcement of a public takeover offer can be penalized with a fine of up to CHF 500,000. If the offender acted through negligence, a reduced fine of up to CHF 150,000 can be imposed. As shown in this article, the prerequisites for criminal liability pursuant to article 152a FinMIA are high and it remains to be seen whether the new criminal provision will actually be applied in practice.

Pascal Hodel (pascal.hodel@nkf.ch)