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Commentary>Shareholder disclosure and listedJanet Morrison - Legal Writer |
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I am grateful to Brian Wynter, formerly the executive director of the Financial Services Commission, now of the Capital Regional Technical Assistance Centre in Barbados, for his comments via email on my last column "Money laundering and listed companies".
Wynter pointed out that the Securities Act contains provisions, though not utilised or well known in the securities industry, which make it possible for a listed company to ascertain the identity of the beneficial owners of its shares.
Section 58 provides that each person has an obligation to notify a listed company in writing within 14 days of becoming either 'interested in' one-tenth or more in number of the voting shares issued by the company, or one-tenth or more of the total voting rights attached to such shares (referred to in the act as the 'prescribed proportion').
Shareholders Obligation
A shareholder is also obliged to disclose to the company when he increases or decreases or becomes 'uninterested in' such prescribed proportion.
However, where a person fails to make the requisite disclosure, section 59 provides that if the company is of the opinion that the above information is being withheld, it may serve a notice requiring that person to:
" indicate in writing the capacity in which he holds the shares; and "if he does not hold the shares beneficially, to indicate so far as he knows the person who has an interest in the shares, their name and address and the nature of the interest.
Having gained information from the person to whom the notice was sent that another person has an interest, the company has the additional power to require by written notice that the latter indicates in what capacity the shares are held.
If the person does not hold the beneficial interest in the shares, he may also be required as far as he has knowledge, to disclose who has an interest in the shares and the nature of the interest.
This creates a sequence of notices, which may be used by the company to solicit the information required.
It is the clear intention of the Securities Act to place an obligation on a person, whether entered on the register of members or not, to disclose his interest in a listed company, and, to give the company the power to access that information where the person who is so interested fails to voluntarily disclose his interest.
'Interest in the shares of the company' in the context of these provisions may include any present or future options rights, assignment, contract or arrangement in relation to the shares or in relation to the exercise of their voting rights.
Acquiring Shares
The Securities Act further provides that within five days of a company becoming listed, a person with an interest in its shares must disclose his interest in what are the prescribed proportions.
It is also of interest to note that a company has the additional statutory power under the Securities Act to require a shareholder to disclose if he is a party to an agreement or arrangement under which the voting rights he holds is controlled by another party, and, to give particulars of the person in control.
A listed company is also further empowered to require that other person to give written particulars of any such agreement or arrangement.
For obvious reasons, stockbrokers and investment brokers are specifically exempted from compliance with these disclosure requirements.
The main objective of the provisions is to enhance transparency in the conduct of securities business. Accordingly, all information so gathered by the company is required to be entered in the register of members making it accessible by the company and other shareholders.
Breach of the obligation to disclose is punishable by a fine on conviction before a judge of the Supreme Court, but, there are no powers in the Securities Act by which a listed company may enforce disclosure by a shareholder or other person.
Therefore, under the Securities Act, there is no power in a listed company to enforce compliance and in addition to that it may be considerably difficult (and expensive) to gather enough evidence to mount a criminal prosecution if in the opinion of the board of directors it appears to be necessary.
Amending Articles
For those reasons, subject to the approval of the Jamaica Stock Exchange, listed companies may consider amending their articles of incorporation to give the company powers to require a shareholder to disclose the identity of persons who hold the beneficial interest of shares registered in a shareholder's name, and, if he fails to do so, to have the further power to suspend the voting powers attached to them; to withhold dividend payments payable on them and/or to treat a transfer of them as void until the information requested is provided.
Those powers may be more effective methods of ascertaining the identity of persons who seek to clandestinely control the shares in a listed company, not only to achieve the stated objectives of transparency and openness required in the conduct of securities business, but also in order for the company to access information about those who may seek to use the company for illicit purposes such as money laundering.
In the drive for disclosure, directors are not overlooked by the Securities Act. They are also required to disclose their interests in shares of the company; to disclose when they acquire an interest and cease to be interested in its shares and to disclose every transaction related to dealings in them.
The Companies Act also places disclosure obligations on directors of a company, whether private or public. to disclose their interest in shares and debentures, but exempts directors of listed companies from such disclosure where they are already obligated to make disclosure under the Securities Act.
However, these provisions in relation to directors also fall short of imposing restrictions in dealings in the shares and in depriving those who have an interest in them in enjoying their benefits.
janet.morrison@ dunncox.com