Statutory Liablilty Regime for Issuers

16th February 2011

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  • The liability regime for information published by public companies through RIS (section 90A Financial Services and Markets Act 2000) was significantly widened on 1 October 2010.
  •  The regime now applies to companies admitted to trading on any securities market in the UK (not just regulated markets as previously) and therefore now includes AIM or PLUS markets.
  • The regime now applies to all information (previously only certain financing information) published by, or the availability of which is announced by recognised means. This effectively means that it now includes information in all RIS announcements and also applies to other documents or information "announced by" such announcements.
  • Additionally, whereas the old regime only applied to buyers of securities, the new regime now also applies to sellers and holders of securities.

In Detail:

The liability regime for issuers of securities was significantly widened on 1 October 2010. The key changes to the regime are:

  • Widened to include AIM and PLUS Markets. Section 90A of the Financial Services and Markets Act 2000 now applies to issuers of securities admitted to trading on any securities market, where the market is situated or operated within the UK or where the UK is the issuer’s home state. Accordingly whereas section 90A previously applied only to regulated markets (i.e. the Official List), this means that the AIM or PLUS markets are now also included.
  • Any information contained in or "announced by" RIS announcements.The regime now applies to all information published by or announced by recognised means It previously only applied to periodic financial disclosures. This effectively means it applies to all RIS announcements (or other means used when RIS announcements are unavailable) and means that the regime now covers an extremely wide range of disclosures. For example, where an announcement refers to annual accounts or a document on display, the whole of the accounts and the display document will now fall under the regime Issuers will clearly need to take care around what information they publish or refer to in RIS announcements as well as how they verify and record the discussions around the preparation of announcements.
  • Dishonest Delay. Additionally, Section 90A now includes liability where a person has suffered loss due to the fact that they acquire, continue to hold or Page 2 of 3 dispose of securities as a result of a “dishonest delay” by the issuer in publishing information. Companies will need to ensure that relevant officers and employee are aware of the liabilities associated with delaying the disclosure of relevant information.
  • Extent of Liability. An issuer is liable to pay compensation to a person who suffers loss due to the fact that they acquire, continue to hold or dispose of securities in reliance on published information as a result either of: 
  • any untrue or misleading statement in that information; or 
  • an omission from that information of any matter required to be included in it.

Liability only arises if a person discharging managerial responsibilities within the issuer knew that a statement was misleading or wa reckless to this fact, or they knew an omission was a dishonest concealment of a material fact. The old regime only applied to buyers of securities; however the new regime now also applies to sellers and holders of securities. This means that an issuer could be liable if a claimant can show that they continued to hold or disposed of securities in reliance on a misstatement at a time, and in circumstances, when it was reasonable for him to do so.

  • Secondary Instruments. It should additionally be noted that the regime also clarifies issuers’ liability in relation to secondary instruments (i.e. derivative instruments). Issuers of the underlying securities can now be potentially liable to pay compensation to holders of such secondary instruments, in cases where, for example, it issues a fraudulent misstatement and the holder of the secondary instrument rely on that statements. However, this will only be the case if the issuer of the underlying securities has consented to the admission of the secondary instrument. If the issuer has not consented to the admission of the secondary instrument, then liability falls on the issuer of the relevant secondary securities. The regulations make clear that an issuer is taken to have consented to an issue if they have accepted responsibility (to any extent) for any document prepared for the purpose of admission of securities to trading.

Practical Steps to Take

  • Consider what information is being announced through RIS. Companies should now carefully consider what information they release
    through a RIS. For example, they should consider whether they need to release commercial or non-regulatory information in this way as it will
    now be captured by the regime. Where announcements are made through an RIS, companies should ensure that any reference to other
    documents is carefully worded to refer to specific elements, in order to ensure that the whole document is not included in the regime.
  • Verification procedures. Companies should check that they have in place procedures for checking announcements. Verification notes or board minutes can provide evidence of careful procedures that will assist in showing that an issuer was not aware of "reckless" as to untrue or misleading statements. All staff should also be made aware of the new regime, especially the potential liability for dishonest delay.

Nancy Kelsall, the author of this article, is a Corporate Partner at DWF. Nancy is an experienced corporate finance lawyer advising on a wide range of transactions which include M&A, flotations, fundraisings, joint ventures, partnerships and re-organisations. Nancy has significant public company experience. She has acted for companies in a range of sectors but also has particular experience within the real estate sector. 

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