The High Court has ruled that a listed company is not required to comply with its continuous disclosure obligations under the NZX Listing Rules after it is put into voluntary administration.1
The case was brought by the FMA, which was concerned that the administrators of CBL Corporation, Neale Jackson and Brendon Gibson of KordaMentha, were not ensuring that the company was making continuous disclosure to the market after it was put into voluntary administration on 23 February 2018.
The FMA sought a ruling from the Court that a listed company's continuous disclosure obligations under the NZX Listing Rules and Financial Markets Conduct Act continue to apply after the company is put into voluntary administration. Mr Jackson and Gibson appeared as interested parties to argue that companies in administration are not required to comply.*
The High Court accepted the administrators' argument, ruling that there were both policy and practical reasons that supported their position.
The Financial Markets Conduct Act requires companies listed on the NZX to comply with the NZX's continuous disclosure obligations set out in its Listing Rules. The Listing Rules require companies to immediately release material information about the company to the market (unless an exception applies).
Voluntary administrations are governed by Part 15A of the Companies Act. The administrator takes control of the company (in place of the directors), and creditors (rather than shareholders) decide the company's future. To that end, the administrator is required to disclose information to creditors, but only at the times and in the ways specified in the Act.
The Court's decision
There is nothing in the Financial Markets Conduct Act, the Listing Rules or Part 15A of the Companies Act that explicitly addresses whether companies in administration are required to comply with the continuous disclosure obligations.
Justice Venning ruled, however, that when these statutes and rules are read together, Parliament intended that administrators would only be required to provide the disclosure to creditors required by Part 15A, and not the more extensive and immediate disclosure to the market contemplated by the Listing Rules. The Court observed that:
The purpose of the continuous disclosure rules is to protect the integrity of trading in the company's securities. However, Part 15A specifically prohibits that activity by preventing trading in company shares once an administration is in place.
The underlying premise of the continuous disclosure rules is to allow market participants to be fully informed. That falls away when the issuer is in administration and trading in its shares is frozen.
The focus of disclosure in an administration is on providing information to enable creditors to decide on the company's future at the watershed meeting. It would distract from the administrator's task if he or she had to divert time and resources to satisfy disclosure obligations under the Listing Rules.
There would be practical difficulties in requiring compliance. An administrator is not well-placed to determine whether information is material or not.
The administrators' position is consistent with a Guidance Note issued by the ASX in interpreting a materially identical Listing Rule in Australia, and it is desirable to have comity with Australia on this point.
Accordingly, the Court concluded that the continuous disclosure obligations do not continue to apply after a listed company is put into voluntary administration.
*Bell Gully acted for the administrators of CBL Corporation in this proceeding.
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