Continuing Obligations Notes

Corporate Finance: SGS 7: Continuing Obligations

INDEX OF ABBREVIATIONS

- RIE – Recognised Investment Exchange

- IPO – Initial Public Offering

- PR – Prospectus Rules

- LR – Listing Rules

- DTR – Disclosure Guidance and Transparency Rules

- LP – Listing Principles

- PLP – Premium Listing Principles

- FSMA 2000 – Financial Services and Markets Act 2000

- RAO – Financial Services and Markets Act 2000 Regulated Activities Order 2001

- FPO – Financial Services and Markets Act 2000 Financial Promotions Order 2005

- MAR – Market Abuse Regulations

- CJA – Criminal Justice Act 2002

- FSA – Financial Services Act 2012

- UK CGC – UK Corporate Governance Code

- RCF – Revolving Credit Facility

- LSE – London Stock Exchange

- AIM – Alternative Investment Market

- FCA – Financial Conduct Authority

- MAC - Material Adverse Change

- EoD – Event of Default

OVERVIEW OF CONTINUING OBLIGATIONS

- Continuing Obligations – Obligations which a company must comply with at all times once its shares are listed – impose greater/additional costs burdens on listed companies + exposes listed companies to greater public scrutiny.

- Imposed in order to protect parties investing in/affected by listed companies + facilitate informed decisions about trading in a listed company’s shares by providing potential investors with information about the listed company in question.

- Continuing Obligation: Aims – Continuing obligations rules seek to ensure:

(a) timely/accurate disclosure of relevant information to shareholders;

(b) equal treatment of all shareholders of listed companies; and

(c) maintenance of orderly market in the listed company’s shares.

- Continuing Obligations: Methods – Continuing obligations rules seek to achieve aims by requiring:

(a) disclosure of information about listed companies to the market/shareholders;

(b) key transactions entered into by listed companies to be approved by shareholders; and

(c) specified information to be sent to shareholders in accordance with prescribed methods/time limits.

- Forms of Continuing obligations – 3 areas of continuing obligations:

(1) Disclosures – General inside information (MAR Art 17 + DTR 2) + specific inside information (LR 9 + MAR Art 19 + DTR 3-7).

(2) Shareholder Approval – Share issues + significant transactions (LR 10) + related party transactions (LR 11).

(3) Communications with Shareholders – Annual General Meetings + shareholder circulars (LR 13).

- Market Abuse Regulation 2014 (MAR) – Aimed to enhance market integrity + protection of investors – changed rules on disclosure/inside information – included disclosure rules relating to share dealings by persons discharging managerial responsibilities (PDMR’s) and persons closely associated to PDMR’s.

- Level 1 Measures – Directly effective provisions which are automatically applicable in all Member States.

- Level 2 Measures – Detailed/legally binding standards on how the MAR must be implanted in EU Member States.

- Level 3 Measures – Prepared by the European Securities and Markets Authority (ESMA) to provide guidance on how financial regulators in each Member State (e.g. FCA) should interpret/apply the MAR.

GENERAL OBLIGATION TO DISCLOSE INSIDE INFORMATION

- LR 7.2.1: Listing Principles/Premium Listing Principles – General principles which seek to ensure that companies listed on Official List pay due regard to role they play in maintaining market confidence + ensuring fair/orderly markets (LR 7.1.2G) + assist listed companies in identifying and complying with their obligations/responsibilities under LDPT Rules (LR 7.1.3G).

- Listing Principle 1: Compliance Systems – All listed companies must take reasonable steps to establish/maintain procedures/systems/controls to enable them to comply with their obligations under the LPDT Rules.

- Premium Listing Principle 6: Market Communication – All premium listed companies must communicate information to holders/potential holders of their listed equity shares in such a way as to avoid the creation/continuance of a false market in those listed equity shares.

- DTR 2.6.1G: Control of Access to Inside Information – Issuer should establish effective arrangements to deny access to inside information to persons other than those who require it for exercise of their functions within the issuer.

(1) Obligation on an Issuer to Disclose Inside Information

- MAR 2014 Arts 17-19 – Listed company’s disclosure obligations – apply to all companies with shares listed on Official List/traded on LSE Main Market AND companies with shares admitted to trading on AIM.

- MAR 2014 Recital 49: Purpose – Inside information disclosure obligations intended to avoid insider dealing and ensure that investors are not misled.

- MAR 2014 Art 17(1): General Obligation – Issuer must inform the public as soon as possible of ‘inside information’ which directly concerns the issuer + disclosure of inside information must NOT be combined with marketing of issuer’s activities.

- Disclosure must be made to the public in a manner which enables fast access to a timely/complete/accurate assessment of the information being made public.

- DTR 2.2.8G – Directors of issuer should carefully/continuously monitor whether changes in circumstances of the issuer require an announcement to be made under MAR 2014 Art 17(1).

- MAR Art 7(1)(a): ‘Inside Information’ – Information which is PRECISE and has NOT been made public + relates directly/indirectly to 1/more issuers or 1/more financial instruments, which, if made public, would have a SIGNIFICANT EFFECT on the price of those financial instruments.

- MAR 2014 Art 7(2): ‘Precise Information’ – Information is ‘precise’ if it indicates:

(a) a SET OF CIRCUMSTANCES which exists or may reasonably be expected to come into existence; or

(b) an EVENT which has occurred or which may reasonably be expected to occur

where the information is sufficiently specific to enable a conclusion to be drawn as to the possible effect of the circumstances/event on the price of the listed company’...

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