Existing liability regime changes from 1 October 2010

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01 October 2010

Your company will already take precautions to ensure the accuracy and timely release of information published to the market. The new regime is likely to bring about an increased level of verification of information before it is released and serve as a reminder of the need for careful analysis as to when a timely release should be made.

Broadly speaking, under the regime an issuer of securities is potentially liable to pay compensation to investors:

•   who suffer loss after relying on an untrue or misleading statement in (or omission from) published information; and

•   where a director or other person with managerial responsibility knew (or was reckless as to whether) the statement was untrue or misleading or knew the omission was a dishonest concealment of a material fact. 

The standard needed for an investor to establish a claim is set at a high level. Whilst it is unlikely that the changes will open up a diligent company to a significantly increased risk of claims, directors should ensure they are aware of what the new regime entails and that the company takes appropriate steps to ensure compliance.

Key points

•   Companies on the AIM and PLUS-quoted markets will now be included.

•   All information announced via a RIS will now be included. This is much wider than the current regime which captures only financial reports and statements. The contents of a separate document made available in another manner but which is referred to in a RIS announcement will also be covered.

•   Buyers, sellers and investors who continue to hold securities will now all be potential claimants (previously only those buying securities in reliance on published information could make a claim).

•    A new offence of dishonestly delaying publication of information will be introduced. This will occur where persons who regularly trade on the relevant market would consider the delay to be dishonest and the person responsible for the disclosure is aware that it would be regarded as dishonest.

•    By bringing a much wider range of market announcements into the regime this information will benefit from the limits to a company’s liability set out in the regime. All other liability in respect of information published to the market is excluded, subject to a limited number of exceptions. This now clarifies the potential liability a company faces for its announcements to the market and ensures that the high standard set to bring a claim under the regime will apply to all announcements caught by the regime.

•    It is the company which is potentially liable to an investor – a director does not face direct liability under the regime but a company could make a separate claim against one or more directors for negligence or breach of duty if appropriate.

If you would like any further information please speak to your usual contact at Burges Salmon.

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