Verify, but do not delay

AIM companies will be accustomed to their advisers telling them to verify company regulatory announcements and other information put out on the Regulatory Information Service. On the one hand, according to the advisers, the company's directors must ensure announcements are accurate and not misleading by verifying them, while, on the other hand, the directors must ensure they do not delay release. This is no easy balancing act, but there are numerous reasons why it is necessary. On Friday 1 October, the statutory obligation to compensate investors, already applicable in part to Main Market issuers, was extended and also applied to AIM, PLUS-quoted and certain other issuers. This extension acts as a reminder to take the advice seriously, while also providing some limited comfort to directors faced with the company announcements balancing act.

From 1 October, the revised rules (found in s. 90A and schedule 10A to the Financial Services and Markets Act 2000) will apply to all announcements made by issuers through the Regulatory Information Service (RIS), as well as other information referred to in an announcement but available elsewhere (such as accounts and bid documentation).

Liability for an issuer to compensate can arise if an investor suffers loss from a decision to buy, sell or hold onto securities that was made:

• in reliance on an announcement that a director at the issuer knew contained, or was reckless as to it containing, an untrue or misleading statement; or
• in reliance on an announcement from which a director at the issuer dishonestly concealed any material fact required to be included in the announcement; or
• as a result of a director of the issuer dishonestly delaying publishing information.

The statutory regime was originally introduced out of concern that certain European Directives could have the effect of altering the (largely sensible) approach that the courts had developed to not imposing liability at common law in negligence to the world at large for company statements. Under the existing common law (the Caparo v. Dickman line of cases), liability depends on assuming liability to a particular person for a particular purpose (e.g. in the context of a particular known transaction). The new regime aims to strike a balance between incentivising issuers and their directors to disclose timely and accurate information to the market while ensuring the standard of liability does not promote speculative litigation. It gives comfort in that it limits the issuer's liability to cases where there is some degree of knowledge, recklessness or dishonesty by a director and also affords a safe harbour to persons other than the issuer, such as directors and advisers. The statutory obligation to compensate does not apply to them. However, the new regime does not prevent liability from arising in a number of the other ways which already exist, such as for criminal offences and civil penalties (such as those which can be imposed by the FSA under the market abuse regime), liability to compensate in cases of market abuse and liability in contract and in negligence, as set out in Caparo. 

Of course, often a judgement needs to be made about what needs to be disclosed and when. If there is doubt about whether information needs to be disclosed it is best to take advice, but to do so quickly. Although the new regime clarifies the law on compensating investors, because there are various ways in which liability can attach, the safest approach remains the same: verify, but do not delay.

To find out more information, please speak with your usual contact at Mishcon or get in touch with Ross Bryson.