Shareholder's Remedies and Minority Protection Flashcards
(78 cards)
When was the misuse of confidential information affecting the price of company shares by an “insider” or certain persons, in order to make a profit or avoid a loss made an offence?
Made a criminal offence by statute in 1980. Prior to that time, was neither a criminal offence nor, generally, a civil wrong. Question whether “use or disclosure to another” of confidential information could not be claimed as a wrong to the company.
Conduct giving rise to what is called “insider dealing” can give rise to both:
(i) criminal liability (insider dealing under the CJA 93), and
(ii) civil sanctions (as “market abuse”, under FSMA 2000)
Cf Percival v Wright [1902] Ch 421.
Directors purchase member’s shares, knowing there is a third party prepared to pay a higher price. Held no fiduciary duty owed to shareholder.
But a director who deals in shares and discloses inside information for his benefit, may be in breach of fiduciary duty, or duty of confidentiality to his/her company.
When is insider dealing relevant?
Insider dealing is very relevant in relation to take-overs, where price sensitivity can be crucial
What is insider dealing?
What is “Insider Dealing”
- S 52 CJA 93.
- S 54 CJA 93 and Sch 2.
- S 55 CJA 93.
- S 56 CJA 93 - definitions.
- S 57 CJA 93.
Basically, relates to using information not generally available to acquire, or dispose of, “price-affected securities”, “on a regulated market”.
Also includes encouraging third parties to do so, or disclosing “inside information” to a third party (other than as part of your job).
What is inside information?
S 58 CJA 93.
What is an “Insider”?
S 57(2) CJA 93.
General “Defences”
S 53 CJA 93 - 3 types:
(i) “dealing defences”. (ii) “encouraging defences”. (iii) “disclosure defences”.
“Professional Intermediary” - s 59 CJA 93.
“Special Defences”
“Market Makers” - s 53(4) CJA 93 and Sch 1 CJA 93.
Penalties
Criminal Liability
- Indictment: ≥ 7 years in jail, and/or unlimited fine (S 61(1)(b) CJA 93).
- Summary Convictions: ≥ 6 months in jail, and/or fine up to “the statutory maximum” (S 61(1)(a) CJA 93).
NB no civil consequences under this Act.
What is “Market Abuse”?
This offence was introduced into United Kingdom law by the Financial Services and Markets Act 2000 (“FSMA 2000”) (as amended by the Market Abuse Regulations 2005).
It is a civil wrong – hence, the “punishment” or remedy for a breach is a civil sanction.
Also, there is a different standard of proof: balance of probabilities, rather than beyond reasonable doubt.
It is being used more frequently in relation to insider dealing
S 118 FSMA 2000: (“market abuse”)
“(1) For the purposes of this Act, market abuse is behaviour (whether by one person alone or by two or more persons jointly or in concert) which–
(a) occurs in relation to-
(i) qualifying investments admitted to trading on a prescribed market,
(ii) qualifying investments in respect of which a request for admission to trading on such a market has been made, or
(iii) in the case of subsection (2) or (3) behaviour, investments which are related investments in relation to such qualifying investments, and
(b) falls within any one or more of the types of behaviour set out in subsections (2)”, (3), (5), (6) and (7).
What is “behaviour” concerned with?
This “behaviour” concerns the following seven instances (s 118 (2)-(8) FSMA 2000):
(i) “insider” dealing re “a qualifying investment” (s 118(2) FSMA 2000)
(ii) insider’s disclosure of “information” outside “the proper course of the exercise of his employment, profession or duties”. (s 118(3) FSMA 2000).
(iii) conduct “effecting transactions”: (a) giving, “or likely to give, a false or misleading impression” re “the supply of”, “demand for”, or … “price of”, “a qualifying investment” or” investments”, or (b) creating “an abnormal or artificial price” for a “qualifying investment”, or “qualifying investments”. (s 118(5) FSMA 2000) (See also s 118(5A) CA 2006)
(iv) transactions effected by “deception” (s 118(6) FSMA 2000).
(v) disseminating “information” giving, “or likely to give, a false or misleading impression” re a “qualifying investment”. (s 118(7) FSMA 2000). (See also s 118A(4) FSMA 2000 re journalists).
NB pursuant to a “sunset clause” in s 118(9), FSMA 2000, ss 118(4), (8) FSMA 2006 and definition of “regular user” in s 130A(3) FSMA 2000 will no longer “have effect”, as from 31st December, 2014.
What is a qualifying investment?
an “investment which has been prescribed by the Treasury in the Prescribed Markets and Qualifying Investments Order” (ie, the Financial Services and Markets Act (Prescribed Markets and Qualifying Investments) Order 2001 (SI 2001/996)): see Arts 4 and 5 of the Financial Services and Markets Act (Prescribed Markets and Qualifying Investments) Order 2001 (SI 2001/996)).
What is a prescribed market?
see Art 4 of the Financial Services and Markets Act (Prescribed Markets and Qualifying Investments) Order 2001 (SI 2001/996)):
The Treasury has power, by Order, to state: (a) “prescribed markets”, and (b) “qualifying investments”: see ss 130A(1), (2) of FSMA 2000 (formerly s 118(3) of FSMA 2000).
What is an investment?
“includes any asset, right or interest”: s 22 (4) of FSMA 2000, and s 397(13) of FSMA 2000.
Where does the conduct have to have occurred?
The conduct has to have occurred:
(i) “in the United Kingdom”, or
(ii) regarding “qualifying investments … trading”, or for which an application to trade, “on a prescribed market”, “in the United Kingdom”, or
(iii) regarding “related investments” re “such qualifying investments”: see s
(S 118A(1) of FSMA 2000.)
(ie, a territorial qualification or condition).
Definitions
s 130A(3) of FSMA 2000.
“Insiders”
see s 118B of FSMA 2000
“Inside Information”
see s 118C of FSMA 2000
Codes of Conduct”/”Treasury Guidance”
Code of market conduct (MAR) – s 119 FSMA 2000 (as amended)
- gives a “guidance” re conduct constituting “market abuse”.
The Code is available on the Financial Conduct Authority’s website: see
http:// http://fshandbook.info/FS/html/FCA/MAR
“Treasury Guidance”
ss 130 and 130A FSMA 2000.
What is Conduct Not Constituting “Market Abuse”?
Conduct is not “market abuse” where:
(a) “a rule” “it conforms with” states such conduct is not “market abuse”,
(b) it involves either a buy-back programme or stabilisation of financial instruments complying with “Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and Council”, or
(c) “it is done by a person … on behalf of a public authority” re “monetary policies”, “exchange rates”, “public debt” “management”, or “foreign exchange reserves”.
S 118A (5) of FSMA.
Protected Disclosures
S 131A FSMA 2000
“Penalties” (Civil Law Sanction)
These are civil sanctions.
Ss 123 and 129 FSMA 2000
- S 123 FSMA 2000 - FSA may impose “penalty of such amount as it considers appropriate”, ie, not a fine.
- S129 FSMA 2000 - Court application by FSA. Court where “appropriate” can impose a penalty of such amount as it thinks appropriate to be paid to FSA.