Introduction

Recent decisions by the Financial Conduct Authority (the "FCA") and High Court have provided some guidance on the scope of what constitutes unlawful disclosure of "inside information" and the definition of persons discharging managerial responsibilities ("PDMRs"), respectively. The FCA has also considered whether insiders are required to assess whether information is "inside information" even if the issuer has not made such a determination and whether having a relationship agreement or non-disclosure agreement in place would be sufficient to permit issuers to disclose "inside information" to their major shareholders before such information is released to the market.

Separately, the High Court's ruling has provided insight on whether de facto directors and shadow directors fall within the scope of a PDMR.

We discuss these decisions in greater detail below.

Unlawful Disclosure of Inside Information

On 5 August 2022, the FCA issued a final notice imposing a financial penalty of Ł80,000 on Sir Christopher Gent ("CG"), the former non-executive Chair of ConvaTec Group Plc ("ConvaTec"), for unlawfully disclosing "inside information" in breach of Article 14(c) of the EU Market Abuse Regulation1 ("EU MAR"), which has been transposed into the UK Market Abuse Regulation ("UK MAR"). As part of its decision, the FCA has provided important guidance on what it believes constitutes unlawful disclosure of "inside information".

Background

In October 2018, the ConvaTec board of directors, including CG, became aware that ConvaTec may not meet its previously published financial guidance following significantly reduced customer demand, which led ConvaTec's board to consider whether to issue a revision of its financial guidance to its investors. In light of these developments, on 10 October 2018, the CEO of ConvaTec informed CG that he was exploring potential retirement, subject to reaching an agreement with ConvaTec on remuneration and exit arrangements.

Later the same day, CG disclosed to two of ConvaTec's major shareholders that, subject to the analysis by the board of the revised financial forecasts, ConvaTec was planning to publish an RNS announcement on 15 October 2018 stating that it expected to revise its financial guidance and that ConvaTec's CEO would likely, in that case, be retiring. CG told the shareholders informed to keep the information confidential and to not trade on the basis of such information. The proposed updates were subsequently disclosed to the market via two RNS announcements released on 15 October 2018, resulting in ConvaTec's share price falling by 33.1% by market close that same day.

Decision

The FCA found that CG's conduct amounted to unlawful disclosure of "inside information" under Article 10 of EU MAR and a breach of the prohibition on the unlawful disclosure of "inside information" under Article 14(c) of EU MAR.2 Under Articles 7(1) and 7(4) of EU MAR, information will be deemed "inside information" if:

    the information is of a precise nature;
  • the information has not been made public;
  • the information relates directly or indirectly to one or more issuers or to one or more financial instruments;
  • and if such information was made public, it would likely have a significant effect on the prices of such financial instruments.
  • Article 7(2) of EU MAR provides that information is of a precise nature if it concerns a set of circumstances which existed and/or an event which was reasonably expected to occur and it is specific enough for a conclusion to be drawn on the possible effects of such set of circumstances and/or event on the price of financial instruments.

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    Footnotes

    1 Regulation (EU) No 596/2014.

    2 The FCA's finding was made under EU MAR as, at the time of the events, EU MAR applied. Following the UK's exit from the European Union, the UK Market Abuse Regulation, which is substantially similar to EU MAR, now applies in the UK.

    The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr James C. Scoville
Debevoise & Plimpton
65 Gresham Street
London
EC2V 7NQ
UK

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