Check the small print

Accountants who lend their names to company prospectuses may in future be responsible for any inaccuracies. Roger Trapp reports

Accountants could face an extension to their duties and responsibilities when they lend their names to company prospectuses, according to specialists on professional liability.

Barlow Lyde & Gilbert, which provides a legal service to accountants and insurers in professional liability cases, says that the recent decision in the case of Parr v Diamond could extend the scope of a liability that has developed in common law and statute since the late 19th century.

In an article in its latest briefing bulletin, the firm points out that "it has long been the case that a reporting accountant who puts his name to a company prospectus may in certain circumstances find himself liable (along with the directors and others) for misrepresentations and inaccuracies in that document". The significance of the approach taken in "Parr" is that it suggests that the relevant circumstances might be widened.

Regulations forming part of the 1986 Financial Services Act recognise that the preparation of a prospectus relating to listed securities is so complex that no one member of the team of directors and advisers responsible for it will have the expertise to approve it in its entirety. Accordingly, contributors to such documents have been deemed to be responsible only for those parts to which they had a genuine input.

But in the case of "Parr" - stemming from the publication in April 1989 of a prospectus relating to the flotation of Diamond plc's shares on the Unlisted Securities Market - it is suggested that the accountant's duty may be determined by a statement made in the prospectus by the directors.

While the case will do little to make accountants sleep better, there is plenty of legal uncertainty surrounding the decision. Not only does it relate to unlisted rather than listed securities, it also refers to the period before last year's introduction of regulations that appear to give protection only to investors who buy shares as part of a placing, rather than later on, as happened in "Parr".

Moreover, this is only a first-instance decision, that may not be upheld on appeal. And, as Barlow Lyde & Gilbert point out, the judge, Mr Justice Lightman, conceded that the burden on the plaintiff of proving that those responsible for a prospectus intended it to be relied on for purposes beyond the placing may be "heavy, or indeed overwhelming"n

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