A key obligation on a listed company and its directors is to comply with the continuous disclosure regime contained in the Financial Markets Conduct Act 2013 (FMCA) and the NZX Listing Rules.  Basically, any price sensitive information about the listed company must be immediately disclosed, unless certain (limited) exemptions apply.

Failure to comply with this obligation can be costly as Peter Harris, the former CBL Corporation Limited (CBL) managing director, discovered.

The High Court has recently ordered Mr Harris to pay a penalty of NZ$1,400,000 for continuous disclosure and misleading conduct breaches following proceedings brought by the Financial Markets Authority (FMA) under the FMCA.  The FMA alleged that:

• CBL failed to comply with its continuous disclosure obligations in relation to various material issues; and
• CBL engaged in misleading and deceptive conduct in relation to a market announcement made on 24 August 2017. 

The NZ$1,400,000 size of the penalty is unsurprising given that:

• CBL had a market capitalisation of NZ$747 million when trading of its shares was halted and then suspended in February 2018.  Overnight, NZ$747 million of value was lost.
• Mr Harris admitted to 7 contraventions of the FMCA, and jointly agreed to support the penalty that the Court has now approved. 

Justice Gault said:

The present case is the epitome of what the fair dealing provisions and continuous disclosure regime are designed to prevent.  Such breaches undermine market integrity and transparency.  They are unfair to investors, and jeopardise confidence in the integrity and transparency of New Zealand’s financial markets.

• Mr Harris was integral to the overall direction and management of CBL, and had a detailed knowledge and understanding of the matters that were the subject of the contraventions.
• Four independent directors of CBL had each already agreed to pay penalties of NZ$1,000,000 or NZ$1,100,000 in relation to continuous disclosure breaches.

This case reinforces that compliance with the FMCA’s and NZX Listing Rules’ continuous disclosure obligations is critical for a listed company and its directors.

Food for thought …

With trading conditions being more difficult in 2024, listed company directors may be faced with a scenario where there is adverse information that they would rather not disclose to the market because they consider it would not be in the best interests of the listed company.  While understandable, that alone is not a reason to withhold disclosure if the information may have a material effect on the price of quoted securities.  If faced with that situation, we recommend seeking legal advice.