On October 30, 2017 the City of London Law Society (CLLS) and Law Society Company Law Committees’ Joint Working Parties on Market Abuse, Share Plans and Takeovers Code updated their Q&As on the Market Abuse Regulation (MAR) in light of ESMA’s updated Q&As on MAR published in July 2017.
Q&A 7 in Part A, on managers’ transactions, asks whether, where a director of a company whose shares are traded on AIM (Company A), who is also a person discharging managerial responsibilities (PDMR) of, and holds less than 50 per cent of the shares in, Company B, Company B is a “person closely associated with the director” so that Company B must notify Company A under Article 19(1) of MAR of transactions in Company A’s shares conducted on its own account.
The Q&A refers to Q7.7 of ESMA’s Q&As and has been amended to set out the circumstances in which Company B will be a person closely associated to the director, a PDMR of Company A. These include where the managerial responsibilities of Company B are discharged by the director, or if the director took part in or influenced the decision of Company B to carry out the transaction in Company A’s financial instruments. To avoid making Company B a “person closely associated” in these circumstances, the Q&As state that the director should not vote on, participate in any discussion in relation to or otherwise influence Company B to carry out a transaction in Company A’s financial instruments. The Q&A says that it will be sufficient for the director to recuse himself from any board meeting discussing or relating to Company A unless, on the specific facts, the director otherwise exerted an influence on Company B’s decision.
However, since MAR does not define “control”, this should be given its ordinary meaning (ie a majority of the voting rights) so if the director owned 60 per cent of Company B, this would make Company B a person closely associated to the director even if the director did not take part in or influence any decision of Company B to carry out a transaction in the financial instruments of Company A.
(CLLS and Law Society, Updated Q&As on MAR, 01.11.17)