MR No.2016 – 21
15 July 2016
The Financial Markets Authority (FMA) has elected to discontinue the proceeding against Archer Capital (Pty) Limited (Archer) and Healthcare Industry Limited (HIL). The defendants, Archer and HIL, have accepted that the FMA was justified in investigating the conduct that is the subject of this claim.
The FMA has concerns about market practice in this area and considers that the claim was justified, but is no longer satisfied that it is in the public interest to progress the matter to trial. The parties have agreed to bear their own costs.
The law provides that a person has a relevant interest in securities held by another person when those parties have an agreement, arrangement, or understanding to act in concert in relation to a power or control (in relation to the security). Parties and their advisers must recognise that the law clearly requires disclosure when arrangements and understandings are reached, and not take an approach that relies on formal, written agreements to trigger disclosure obligations.
The FMA will continue to investigate and take action in cases where it considers market conduct to be unsatisfactory, including cases which show signs of an approach that the duty of disclosure is only triggered by a formal, written agreement rather than an informal “arrangement” or “understanding” as provided for by the law.
It is the FMA’s expectation that Substantial Shareholding (SSH) disclosure obligations are not stage-managed and delayed to suit the parties’ commercial needs. The FMA expects legal advisers to work with their clients to give practical effect to the legislation which requires disclosure when arrangements or understandings arise even if they have not been or are yet to be expressed in a formal agreement.
Market participants and their legal advisers should be aware that the FMA takes the view that an understanding or arrangement may arise when the core commercial principle has been agreed, or an understanding arrived at - even if that is not yet recorded in writing (e.g. exclusivity, or an understanding not to deal in shares held) - or there are other minor legal matters still to be addressed, such as the correct legal entity in a group to sign a document.
The duty to disclose cannot be avoided by constructing correspondence that asserts no understanding or arrangement exists if, in fact, such an understanding or arrangement has been concluded. Having clarified its position, in future the FMA may look to take proceedings where it believes the parties’ commercial conduct can only rationally be explained by the existence of an arrangement or understanding.
It is clear that disclosure of substantial shareholder interests can be required in circumstances short of a legally enforceable agreement being reached.
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