Managing the timing of disclosures under the listing rules

On Wednesday 20 April 2021, the NZ Markets Disciplinary Tribunal (Tribunal) released decisions publicly censuring NZME Limited (NZME) for separate disclosure related breaches of the NZX Listing Rules. We set out a summary of the decision which related to the disclosure of the Chairman's resignation prior to the annual shareholder meeting and some practical guidance going forward – as the hearing engaged on a number of practical issues.

Failing to release material information promptly and without delay

This decision provided useful insight into the interpretation that the NZX takes to needing to disclose "promptly and without delay".

The disclosure

Following the advanced voting and proxies closing on 9 June 2020 for NZME's annual shareholders meeting, it became apparent that then Chair, Mr Cullinane, was unlikely to be re-elected as a director. Events then occurred in the following timeline on 11 June 2020 (the day of the annual shareholder meeting that was scheduled for 3:00pm):

 In between Mr Cullinane resigning and the announcement being made, the board of NZME met to discuss the resignation, as well as seeking legal advice in relation to the disclosure.

The Listing Rules

Under Rule 3.1.1, once an issuer becomes aware of any material information, it must promptly and without delay release that information through NZX's Market Announcement Platform (known as MAP). Separately, under Rule 3.20.1, an issuer must promptly and without delay release information regarding a change in chairperson, directors or senior managers.
 
The NZX concluded that Mr Cullinane's resignation was material information because it related to the Chair and was sudden and unexpected. In either case, the NZX concluded that by not disclosing until 2:44pm (16 minutes before the scheduled shareholder meeting), NZME failed to release that information to the market "promptly and without delay". The Tribunal also considered, as an aggravating factor, that the disclosure lacked adequate context and did not contain sufficient information for investors to understand and assess its implications.

Our commentary: disclosure of resignations

This decision demonstrates that the NZX regards "promptly and without delay" to mean exactly that, even where it was said that there was no evidence that the delay had any impact on the market and investors.
 
The NZX's published Guidance Note dated 10 December 2020 relating to Continuous Disclosure recognises that how promptly an issuer is able to release an announcement will depend on the particular circumstances and the nature of the material information. NZX will consider (among others) how long it takes for the issuer to draft the necessary announcement, including to ensure that it is complete, accurate and not misleading.
 
In this case, while it appears that the announcement was prepared and commented on in a reasonable cadence, more than two hours elapsed between Mr Cullinane confirming that he had no comments on the announcement and it being released to the market – that delay appeared to be the critical one.
 
As well as applying to directors, Rule 3.20.1 requires issuers to disclose if a senior manager resigns (even if not material). "Senior managers" takes its meaning from the Financial Markets Conduct Act 2013 (FMCA), and means a person who is not a director but occupies a position that allows that person to exercise significant influence over the management or administration of the issuer. The analysis is fact specific for each issuer. Typically, a Chief Executive Officer and a Chief Financial Officer are considered senior managers, but other members of the senior management team may also be considered to come well within the definition of "senior managers".
 
The same analysis, as to whether a person is a senior manager, is relevant for determining whether that person's "relevant interests" in the issuer's shares must be disclosed to the market pursuant to Part 5 of the FMCA. While the analysis of who falls into this category is a matter of judgment, issuers should take a consistent approach and be clear from the outset as to whether it considers a manager to be a senior manager. If someone is treated as a senior manager for the purposes of disclosing relevant interests, then they should be treated the same for disclosing their appointment and resignations.
 
As the Tribunal's decision demonstrates, "promptly and without delay" is interpreted literally, so this analysis should occur prior to the question of whether their resignation requires a market disclosure and HR staff should be made aware of this from a standard process perspective in handling promotions, and appointment and resignations of directors and senior managers. The decision appears to support that appropriate time can be taken to draft and receive comments on the announcement, provided that is done promptly and that there is then no delay in announcing once the content of the announcement has been settled.

Proxy votes

While not a direct matter of determination for the Tribunal in this decision, the resignation of Mr Cullinane prior to the meeting showed the practical influence of advance updates on proxy votes. This is not an unusual fact pattern, and we are often asked by issuers whether they should disclose the likely outcome of shareholder resolutions prior to the meeting based on advanced voting and proxies (outside of a situation like the current, where the board received a notice of resignation that was material in itself).
 
The Listing Rules require issuers to release the outcome of each resolution put to a meeting promptly and without delay. In our view, the predicted outcome based on advanced voting and proxy appointments should not need to be disclosed prior to the meeting. Votes could change at any time until the resolution is put to the meeting, and the resolution is not passed (or otherwise) until put to shareholders at the meeting and is therefore not sufficiently certain to merit disclosure. Therefore, provided that the confidentiality of the advanced voting and proxy appointments is maintained, we consider that disclosing the predicted outcome prior to the meeting goes beyond the specific disclosure requirement in the Listing Rules and is not an expected practice.