Disclosure duty of listed companies
With the way things are going, it looks like the ongoing corporate feud within the Lopez clan may, on top of the pending court case filed by Federico “Piki” Lopez, bring the Philippine Stock Exchange (PSE) and the Securities and Exchange Commission (SEC) into the picture.
The majority group of shareholders of the Lopezes’ holding company asked the PSE and SEC to investigate the delayed disclosure to the PSE by First Gen Corp. (a listed company) of the supposedly “poison pills” provisions in two contracts that the company had entered into with Prime Infrastructure Corp. in November last year and February this year.
The disclosures were reportedly made only after six months and two months, respectively, contrary to PSE disclosure rules.
The PSE would have a first crack at this issue since it is registered as a self-regulatory organization that is given by law a wide latitude in running its affairs and supervising its trading participants.
The SEC’s supervisory authority over the PSE would come into play only if the PSE fails to act or does something that the SEC believes is contrary to law or its regulations.
The disclosure rules are aimed at enabling “… a reasonable investor to determine whether to buy, sell or hold securities or in connection with the exercise of related voting rights.”
There are two kinds of disclosures: the structured or reports that are submitted at specific times of the year using standard forms and the unstructured or communications on important activities and operations of the corporation as they happen.
In the latter case, depending on the gravity of the event or activity involved, the disclosure would have to be made within minutes through email or the fastest means of communication possible.
In both cases, the disclosure should be accurate, timely and equally accessible to the shareholders and investors.
The idea is to minimize, if not avoid, those who have early knowledge or information about the subject of the disclosure to be able to act on or take advantage of it ahead of or to the financial prejudice of the others.
Failure to comply with the disclosure rules would give rise to hefty fines on the noncompliant party.
Offhand, without accepting their characterization as poison pills, the provisions subject of the complaint (which have already been extensively written about) may be considered as material information that must be promptly disclosed.
On their face, they come within the list of events that require timely disclosure, such as:
• Any decision taken to carry out extraordinary investments or the entering into financial or commercial transactions that might have a material impact on the issuer’s situation;
• Facts of any nature that materially affect or might materially affect the economic, financial or equity situation of those companies controlling or controlled by the issuer, including the sale of or the constitution of sureties/pledges on a substantial part of its assets.
Of late, compliance with disclosure rules has become challenging to some companies with the now de rigueur nodisclosure agreement (NDA) that contracting parties enter into prior to their discussion, or conclusion of any transactions.
The reasons for the NDA are, among others, to protect intellectual properties, safeguard data privacy or prevent company secrets or information from being seen by competitors.
It is legally untenable, however, to invoke the NDA or, for that matter, the data privacy law, if any of the parties is listed on the stock exchange to excuse compliance with the obligation to make a full and genuine disclosure of material information about their transaction.
The greater interests of the stockholders and investors, which are meant to be served by complete and prompt disclosure of material information, override any claim to privacy by the contracting parties.
The ball is now in the court of the PSE to decide if its disclosure rules are meant to be observed in breach, or fully complied with.
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