“You never know what someone is dealing with behind closed doors. You only know what you see or what you think you see,” or in the case of listed companies, what you as a shareholder are told.

Public listed companies are subjected to a great deal of regulatory reporting requirements. Such companies also have an obligation to their shareholders to keep them abreast of company information. For companies listed on the Junior Market of the Jamaica Stock Exchange (JSE) one such requirement is the timely disclosure of material information. This obligation essentially ensures that material information discussed by or which comes to the knowledge of the directors of a Junior Market company do not stay behind closed doors.

As soon as the directors of a Junior Market company become aware of material information, the company is required to immediately disclose this information by way of a public announcement. While this obligation seems pretty straightforward, many directors and shareholders struggle to determine what constitutes material information, when exactly it should be disclosed, and what happens if the information is not disclosed or is late in being disclosed.

What is Material Information?

The JSE Junior Market Rules defines material information as any information which (a) relates to the business and affairs of the company that results in or would reasonably be expected to result in a significant change in the market price or the trading shares; (b) is reasonably required to enable the shareholders and potential investors to appraise the financial or trading position of the company; and (c) is reasonably required to avoid the establishment of a distorted or false market.

Ultimately the JSE Junior Market Rules give leverage to the directors of these listed companies to decide what information amounts to material. Some examples of material information include repurchases, stock splits, transfer of significant holdings, reorganisation, amalgamations, changes in corporate structure, changes in management, and entering into or loss of significant contracts.

How Soon is Immediate?

Once the directors classify information as material, they are required to immediately disclose this information to the public. The JSE Junior Market Rules do not give a timeline or any guidance as to what amounts to immediate, but one can read in “reasonably” in front of the word immediate to gauge when to make the necessary public announcement of material information, especially when the disclosure of the material information may need to be delayed.

The JSE Junior Market Rules states that if the disclosure of material information is being delayed it must be shown to the JSE that an immediate disclosure would have been unduly detrimental to the interests of the company. A common example is the premature disclosure of when a company intends to purchase a significant asset. This may affect the transaction itself and prejudice the ability to close the transaction.

What is to be Disclosed and How?

Once the directors have identified the material information and crossed the hurdle as to when same should be disclosed, great care should be taken in how this disclosure is made. The disclosure is to be published in a newspaper in daily circulation in Jamaica. By practice, this disclosure is also generally made on the website of the JSE and in most instances on the website and social media pages of the disclosing company. The disclosure/public announcement should contain adequate details of the matter being disclosed so that any person reading understands what is being disclosed, its importance, and the impact it will have on the company. The JSE Junior Market Rules state that, “The guiding principle should be to communicate clearly and accurately the nature of the material information in any announcement without including unnecessary details.”

What Happens if There is No Timely Disclosure?

Prior to being admitted to the Junior Market of the JSE, Junior Market companies execute (i) an Admission Agreement which states that at all times the company is to comply with Rule 505 and (ii) a Declaration of Admission in which the Junior Market company covenants that it has established adequate procedures, systems, and controls for the purposes of compliance with Rule 505. Rule 505 sets out the ongoing requirements of Junior Market companies, which include the requirement for a mentor, how further issues are to be handled, financial reporting requirements, and the obligation to make timely disclosures. Where a Junior Market company fails to comply with Rule 505, the JSE, at its discretion, may delist or suspend trading of the listed shares. For any Junior Market company, this is not a situation in which it wishes to find itself, as delisting can have myriad implications for the company, including the obligation to repay income tax that was remitted by virtue of the provisions of the Income Tax Act.

Where there is uncertainty about whether a disclosure should be made, the Junior Market company may write to the JSE for guidance.

Given the potential impact non-disclosure or untimely disclosure may have on a Junior Market company, it is important for directors to remember that material information relating to the company is to be shared with its shareholders in a timely and accurate manner.

Shaniel May Brown is an associate at Myers, Fletcher & Gordon and is a member of the firm’s Commercial Department. Shaniel may be contacted via shaniel.maybrown@mfg.com.jm or www.myersfletcher.com . This article is for general information purposes only and does not constitute legal advice.