COVID-19 – Disclosure Guidance for Listed Companies

Whilst there have been relaxations of certain rules applying to AIM and Main Market listed companies (find out more here), regulators have stressed that those companies continue to be bound by the strict continuous disclosure obligations under the Market Abuse Regulation (MAR). These require listed companies to announce inside information as soon as possible, unless that information falls within the limited exemption permitting delayed disclosure.

If anything, the recent unexpected pressures on businesses brought about by the COVID-19 pandemic have made it more important than ever for listed companies to keep the market informed of their position. The FCA has advised that companies should be aware that their own operational response to coronavirus may itself meet the requirements for disclosure under MAR.

A recent joint statement issued by the London Stock Exchange, the FCA, the FRC and the PRA, reiterates the expectation that investors should still receive timely information on which to base their investment decisions as companies will still need to observe their disclosure obligations under MAR, recognising that the global pandemic and policy responses to it may in themselves alter the nature of information that is material to business prospects. Whilst the joint statement focuses on the content and delivery of annual reports, in our view it also provides some important points that companies should bear in mind when considering their ongoing disclosure obligations.

The FRC has identified five key areas that investors will expect to see covered in annual reports:

• How much cash does the company have?
• What cash and liquidity could the company obtain in the short-term?
• What can the company do to manage expenditure in the short-term?
• What other actions can the company take to ensure its viability?
• How is the company protecting its key assets and value drivers?

Investors have also highlighted the importance of forward looking information which explains how resilient the company’s business model is to the current events, and to scenarios which are now reasonably plausible: for example, how long the company is likely to be able to sustain its operations based upon these scenarios, and what mitigating actions they may be able to take to extend these timeframes.

Whilst this guidance is aimed at the content of annual reports, all of these areas should be monitored by companies on an ongoing basis. Any material issues, particularly those that may compromise a company’s viability or may result in circumstances contrary to a previously announced position, particularly around financial expectations, may require announcement. AIM-quoted companies should maintain a regular dialogue with their Nominated Advisers as AIM Regulation will expect directors to keep Nomads informed and to take their advice in these uncertain times.

It is also worth remembering the circumstances in which MAR permits delayed disclosure. The disclosure of inside information can be delayed if immediate disclosure is likely to prejudice the legitimate interests of the company, the delay is unlikely to mislead the public and the company is able to ensure confidentiality. All three requirements must be satisfied. Guidance on what constitutes a ‘legitimate interest’ is limited to things like ongoing transaction negotiations and rescue negotiations where a company’s financial viability is in grave and imminent danger. Delayed disclosure is considered likely to mislead the public if the particular information is materially different to something previously announced or is contrary to market expectations. Where there is a specific rumour in the market, clearly the ability to keep the matter confidential has been compromised.

A short delay in disclosure is acceptable if it is necessary to clarify the situation where a company is faced with an unexpected and significant event. We consider that this may in some circumstances permit a company to delay disclosure where, in spite of reasonable contingencies having been put in place, a company simply cannot clarify a particular situation because of logistical issues exacerbated by the COVID-19 pandemic and the resulting restrictions. However, a holding announcement should be used where there is a danger of a leak before the facts and their impact can be confirmed.

Beyond this, the FCA has recognised that coronavirus may create challenges in the convening and operation of disclosure committees. However, they continue to expect listed companies to make every effort to meet their disclosure obligations in a timely fashion. In the short term, they appreciate there may be slight delays as new processes are put in place. In our view, companies could be criticised if they did not put in place contingency measures to ensure continued compliance with MAR and, as a result, failed to keep the market informed. Given that most disclosure committees will meet telephonically anyway, this should not be difficult to achieve.

In summary, companies must still make every effort to satisfy their continuous disclosure obligations, and they must quickly put in place plans to enable disclosure committees to meet virtually if they don’t already do so. We recommend that disclosure committees speak regularly, and liaise with every area of their businesses, to ensure that they are aware of ongoing developments and anything material that may require announcement. External advice should be taken where relevant, and for AIM companies this means regular liaison with your Nominated Adviser. Where it simply isn’t possible to clarify a situation sufficiently to make an accurate announcement, there is scope for a short delay whilst the necessary facts are ascertained, but a holding announcement should be prepared. A longer delay will only be permitted where the circumstances fall within the exemption in MAR outlined above. Given the current nervousness of the markets, every company should consider providing regular announcements to explain how they are addressing the situation.

Finally, it is worth noting that whilst COVID-19 may be a legitimate cause of adverse effects on a company’s business, there will be circumstances where the pandemic has nothing to do with the issue being announced, and in those circumstances it should not be used as a convenient excuse. Misattributing a particular issue to the pandemic could be misleading and therefore could in certain circumstances lead to criticism and liability for companies and directors.