Listing your shares on a public market
brings with it many benefits. However, one of the
areas that we always stress to clients considering a
listing is the enhanced level of obligation
and responsibility that will be placed
on them. Whilst there are significant duties
and obligations that apply to directors across the board,
from a small private company to a large public one, having
your shares more widely available and traded on a public
market does ‘up the ante’. The PLUS
market and the AIM market both carry a certain level
of increased obligations, but being listed on the main
market of the London Stock Exchange (LSE)
carries an even higher level of obligation.
The example of David Ross highlights
this point, with the requirement in this instance relating
to disclosure of information. A company that
is listed on the main market must comply with certain
extra rules, known as the Listing Rules, the Prospectus
Rules and the Disclosure and Transparency Rules. Disclosure
and Transparency Rule 3.2.1 states that
directors (or other persons discharging managerial responsibility)
must notify the company in writing of any transaction
conducted on their own account in the company’s
shares. This notification must be given within
four business days of the transaction occurring, and
the information given must include the directors’ name,
their reason for making the notification, the nature
of the transaction and its date. The company then
has an obligation to notify the market as soon as possible,
and in any event no later than the end of the following
business day. The Financial Services Authority
(in its guise as the UK Listing Authority) (FSA)
even provide a form for the relevant notification on
its website.
In this instance, although Mr Ross
complied with this obligation with respect to earlier
dealings in his shares in 2002 and 2003, he failed to
give the appropriate notification for more recent dealings
in his shares (pursuant to which he used his shares in
various companies, including the Carphone Warehouse,
Big Yellow Group and National Express Group, as security
for personal loans). Although these loans date back as
far as 2006, Mr Ross only gave the appropriate notification
on Sunday.
What are the consequences of a breach
of these rules? The FSA’s powers include
censuring both the director and the company, fining them,
and in some instances suspending the company’s
shares from trading. In terms of this specific
example, Mr Ross has resigned from his post at the Carphone
Warehouse and there are question marks over his continuing
involvement on the board of the organising committee
of London 2012. For the companies involved,
there has been the inevitable drop in share price due
to market jitters, especially bearing in mind the size
of Mr Ross’ shareholdings in these companies (20%,
with three quarters of this stake being used as collateral).
The moral of the story? Remember
that the huge advantages that come with being a listed
company are matched by a very significant number of duties
and responsibilities. Ensure that you know what
these are.
© Davenport
Lyons 2008 All rights reserved.
This document reflects the law and practice as at December
2008. It is general in nature, and does not purport in
any way to be comprehensive or a substitute for specialist
legal advice in individual circumstances.
