Recommendations for liability on ad hoc announcements: changing procedures?

The Davies Review has published its review of fraudulent misstatements made in ad hoc disclosures to the market as well as regular periodic ones. It makes a number of recommendations on redressing the imbalance between those disclosures made according to the Companies Act and those through the Transparency and Disclosure Rules.

The problem has arisen following European directives, including transparency rules, that have pushed Britain to develop a common understandingof the basis on which companies can be sued for misstatements.

The Davies Review commenced in October last year, consulted in March this year, and its recommendations include:

• extend the statutory regime to cover ad hoc disclosures, on the basis that at least some of these will appear anyway in periodic disclosures, and it is confusing to have different liability regime.
• extend the statutory regime to apply to disclosures by issuers on exchange-regulated markets, including AIM and Plus Market, and to all ‘multilateral trading facilities’ and other trading platforms for securities, on the grounds that while investors in these markets should accept the risk of different levels of disclosure than on the main market, they should still be protected from dishonest disclosure;
• extend the statutory regime to include liability for dishonest delay in making RIS statements, on the basis that where the purpose of the delay is fraudulent, this should be subject to claims for damages

Helpfully, the Review did NOT propose to impose statutory liability on directors or other advisers – including investor relations professionals! - or third parties in respect of misstatements in RIS announcements, on the basis that this is not necessary for deterrent purposes.

However, companies will now perhaps wish to review how their procedures in reviewing for liability work. Whilst annual and half year reports are already subjected to deeper review, to avoid misstatements, now that all disclosures are potentially to be subject to this regime, will companies want to make them subject to that deeper review, and what impact will that have on timings and the need to disseminate inside information without delay?

Time will tell.