Q.State the defences available to a director against liability for mis-statement in a prospectus.

Liability for a misleading prospectus is not automatic for every director whose name happens to appear in it - the Act recognises that a director may genuinely have had no part in the wrongdoing.

A director's name will often appear in a company's prospectus as a matter of course, but the Companies Act, 2013 does not treat every such director as automatically liable for a mis-statement contained in the document - the defences built into Sections 34 and 35 reflect the principle that liability should attach to fault, not merely to a name printed on a page.

Under Section 35(2), dealing with civil liability, a director (or other person otherwise liable) has a defence if they prove any of the following:

• that they withdrew their consent to becoming a director before the prospectus was actually issued, and that it was issued without their knowledge or consent;
• that the prospectus was issued without their knowledge or consent altogether, and that on becoming aware of its issue, they gave reasonable public notice that it had been issued without their authority;
• that they had reasonable ground to believe, and did believe, up to the time of the allotment of securities, that the statement complained of was true; and
• where the statement purported to be made on the authority of an expert, or to be a correct copy of an extract from an expert's report, that it was in fact a correct and fair copy or extract, and that the director had reasonable ground to believe, and did believe, that the expert was competent to make the statement. …

Students often state the defences vaguely as 'the director did not know about it' without naming the specific conditions - withdrawn consent before issue, lack of knowledge with reasonable public notice, or a genuine, rea …