DIRECTORS AND
CHIEF EXECUTIVES
Discloseable interests
As
under the previous regime the disclosure requirements for
directors and chief executives ('directors') of a listed
company are broader than for substantial shareholders
requiring disclosure of interests in any shares (not just
voting shares) or debentures of the listed company of which
they are a director and any associated company. Also as
previously, there is no disclosure threshold so that all
interests must be disclosed however small.
The
principal changes introduced by the SFO are to extend
directors' disclosure obligations in respect of interests in
equity derivatives, short positions and changes in the
nature of interests in shares and debentures.
Definition of Associated Company
An
associated company is defined to include holding companies
and subsidiaries of the listed company, fellow subsidiaries
of the listed company's holding companies and any company in
which the listed company has an interest of more than 20% of
the nominal value of the issued shares of any class.
A company will be a subsidiary of another if the
other company controls the composition of its board of
directors, controls half the voting power at general
meetings, holds more than half of its issued share capital
(excluding any part carrying no right to participate beyond
a specified amount on a distribution of profits or capital)
or is a subsidiary of a company which is the other company's
subsidiary. This definition thus makes each company in a
chain of companies a subsidiary of the ultimate holding
company.
When is Notification Required?
Disclosure on Commencement of the SFO - Initial
Notification
On commencement of the SFO, a director
has a duty of disclosure in respect of any interest in the
shares or debentures of a listed company or its associated
companies which has not previously been disclosed. The
principal interests falling into this category will be:
(i) short positions in shares;
(ii)
interests in unissued shares such as options granted to him
by the listed company; and
(iii) interests in shares
as a result of holding or writing cash settled derivatives.
Additionally, some concert party arrangements and
the interest of a 'founder' of a discretionary trust (see
under Substantial Shareholders - Deemed Interests above)
will result in new disclosure obligations.
It should
be noted that a substantial shareholder holding between 5%
and 10% of the shares of a listed company must disclose this
interest on commencement of the SFO even if he had
previously disclosed that interest in his capacity as
director.
Interests discloseable on commencement of
the SFO must be notified on or before 14 April 2003
Further Notifications
Thereafter directors
must disclose any of the 'relevant events' listed in
Schedule 4. As for substantial shareholders, the
notification period is reduced to 3 business days.
An Initial Notification will also be required when a
person has a relevant interest at the time he becomes a
director of a listed company, a company of which he is a
director becomes listed, or a company becomes an associated
company of a listed company of which he is a director. In
these limited circumstances the period for notification is
10 business days.
Interests in Shares under Equity
Derivatives
As for substantial shareholders, the SFO
extends the disclosure obligations of directors to interests
in equity derivatives which are not physically settled (ie.
interests in unissued shares such as options and interests
under cash settled derivatives). For directors this includes
interests in the shares of the listed company and its
associated companies.
The circumstances in which a
person will be taken to have a long position in the
underlying shares of equity derivatives and the method of
calculating the number of shares in which he is interested
are the same as for substantial shareholders.
Short
Positions
Directors must disclose
all short
positions under equity derivatives. A person will be taken
to have a short position in the same situations as for
substantial shareholders (see above) and the method of
calculating the number of shares in which he is interested
is the same. Similarly, the SFO does not permit the netting
off of long and short positions and requires each to be
disclosed separately.
Calculation of percentage
figure of directors' interests
Although the
obligation of directors to disclose interests in shares is
not determined by crossing a percentage level, directors are
still required to state the percentage figure of their
interests.
Changes in the Nature of Interests
Directors are further required to disclose any
change in the nature of an interest which has previously
been disclosed. The situations in which there will be such a
change are wide and include a change in a person's title to
shares or debentures, any of his legal or equitable interest
in shares or debentures and any interest in the underlying
shares of equity derivatives on the exercise (by or against
him) under such derivatives.
The exercise of rights
under options and other derivatives and the giving of shares
as security (other than to a qualified lender -see
'Substantial Shareholders - Exempt Security Interests' for
the definition of qualified lender) will, among other
things, require notification of a change in nature of a
director's interest.
There are only 3 circumstances
in which there is taken to be no change in the nature of a
person's interest:
(i) on the delivery of shares or
debentures to him, if he has previously notified his
acquisition of an equitable interest;
(ii) where
there is a change in the terms on which underlying shares
are held due to a change in the number of underlying shares;
and
(iii) where a qualified lender (see above) comes
to have a security interest in the shares or debentures.
Hence, in contrast to the position for substantial
shareholders, there will be a notifiable change in the
nature of a director's interest in shares on his exercise of
rights to subscribe for and on delivery of shares under a
rights issue.
