The High Court finding this week that continuous disclosure does not apply when a listed company is in voluntary administration is a reminder that only “material” information must be disclosed.
The Financial Markets Authority (FMA) applied to the High Court for an opinion on whether the continuous disclosure obligations under the NZX Listing Rules continue to apply to listed issuer CBL Corporation Limited after it entered voluntary administration.
The FMA quoted Australian case law confirming the practical benefit of construing continuous disclosure provisions broadly and the need in all circumstances for the timely disclosure of price or market sensitive information.
The Court respectfully agreed – but said that the cases cited did not directly address the present issue. This was that the objective of promoting fair, orderly and transparent markets proceeded on the premise that there was an active market.
A voluntary administration imposes a statutory bar on trading in the company’s shares, except with the consent of the administrator if satisfied it is in the best interests of the company’s creditors, or with a court order. As a natural consequence, a listed company will be suspended from the NZX Main Board while it is in administration, and the statutory bar on trading also extends to off-market trades, as well as on-market trades.
After considering various practical and policy arguments advanced by both parties, the Court found that continuous disclosure obligations did not apply. A crucial factor was that there was no active market in the shares, for the reasons outlined above, so there was no way that a reasonable person would expect any information to affect the share price – meaning there is no “material” information that must be released under continuous disclosure.
Chapman Tripp agrees with the Court’s assessment in this respect, given that material information is defined in the Listing Rules as:
“Information that a reasonable person would expect, if it were generally available to the market, to have a material effect on the price of Quoted Securities of the Issuer”.
Chapman Tripp comments
The decision is of limited relevance given that few companies will need to enter voluntary administration.
But there is a key takeaway of general application to listed issuers – when considering whether release is required to the market, the first question to ask is whether the information is in fact “material information” – not jumping to assessing whether any of the (limited) exclusions to disclosure apply.