When does information pass?
It has become much more common for companies to provide information about the company to pension trustees or the Pensions Regulator. These bodies have a wider role in corporate transactions as a result of the new powers given to them under the Pensions Act 2004. Information about a company or group as the sponsoring employer of a pension scheme can be given to trustees or the Pensions Regulator:
- as part of an application for clearance for a commercial transaction (eg new banking facilities, payment of a dividend, corporate takeover);
- as part of discussions with trustees on fixing the rates of ongoing funding (the scheme-specific funding requirements under the Pensions Act 2004); or
- as part of trustee monitoring of ‘strength of employer covenant’. The Pensions Regulator is encouraging trustees to act in the same way as other major unsecured creditors, such as banks.
Regulation 6 of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 also places a duty on employers and former employers in relation to an occupational pension scheme to:
- disclose on request information to the trustees or managers that is reasonably required for the performance of their duties or the duties of their professional advisors; and
- disclose to the trustees or managers the occurrence of any event relating to the employer that there is reasonable cause to believe will be of material significance in the exercise of any of their functions or their professional advisors’ functions.
Disclosure and Transparency Rules
Care needs to be taken to ensure that providing information on a confidential basis to trustees does not result in a breach of the disclosure requirements in the Financial Services Authority’s (FSA) Disclosure and Transparency Rules (DTRs) for listed companies (or indeed the Market Abuse Directive).
In summary, the DTRs require companies to announce ‘inside information’ as soon as possible. And if inside information is disclosed to one person DTR 2.5.6R requires it to be announced simultaneously, in the case of an intentional disclosure, and as soon as possible in the case of a non-intentional disclosure, unless a delay is permitted (see below).
A listed company will therefore need to consider whether:
- entering negotiations with pension trustees (eg about funding); or
- releasing information to the trustees, would give rise to an announcement obligation.
Do negotiations with the trustee trigger an announcement obligation?
The first issue to consider is whether the fact of negotiating or otherwise communicating with the trustee board, if made public, would have a significant effect on the price of the listed company’s shares.
Generally, it will be unlikely that public knowledge that a listed company is providing information to its pension trustees, in isolation to the transaction or matter to which the information relates, would lead to a substantial movement in share price. Therefore a disclosure obligation is unlikely to exist. Even if this were not the case, the delaying provision in DTR 2.5.1R may well apply (see below).
Does disclosure of information to the trustees trigger an announcement obligation?
The listed company may be communicating pricesensitive information to the pension trustees. Does this trigger a public disclosure obligation in relation to that information?
DTR 2.5.1R contains an exception that allows a company to delay disclosure to avoid prejudicing its legitimate interests (see box below).
DTR 2.5.1R Delaying disclosure
An issuer may, under its own responsibility, delay the public disclosure of inside information, such as not to prejudice its legitimate interests provided that: such omission would not be likely to
- mislead the public;
- any person receiving the information owes the issuer a duty of confidentiality, regardless of whether such duty is based on law, regulations, articles of association or contract; and
- the issuer is able to ensure the confidentiality of that information.
Pension trustees usually owe an implied duty of confidentiality in relation to information provided to them in confidence by the employer. But it is obviously preferable to obtain an express written confidentiality agreement with the trustee board before disclosing any confidential information.
If a listed company requires the trustees to enter into a confidentiality agreement, any negotiations with (or provision of information to) the trustees are likely to fall within the exception in DTR 2.5.1R, provided the failure to make an announcement would not be likely to mislead the public and the company is able to ensure that confidentiality is maintained.
The DTRs themselves make it clear that inside information can in some circumstances be provided to third parties (DTR 2.5.7G; see box below).
- When an issuer is permitted to delay public disclosure of inside information in accordance with DTR 2.5.1R, it may selectively disclose that information to persons owing it a duty of confidentiality.
- Such selective disclosure may be made to another person if it is in the normal course of the exercise of his employment, profession or duties. However, selective disclosure cannot be made to any person simply because they owe the issuer a duty of confidentiality. For example, an issuer contemplating a major transaction which requires shareholder support or which could significantly impact its lending arrangements or credit-rating may selectively disclose details of the proposed transaction to major shareholders, its lenders and/ or credit-rating agency as long as the recipients are bound by a duty of confidentiality. An issuer may, depending on the circumstances, be justified in disclosing inside information to certain categories of recipient in addition to those employees of the issuer who require the information to perform their functions. The categories of recipient include, but are not limited to, the following:
- the issuer’s advisers and advisers of any other persons involved in the matter in question;
- persons with whom the issuer is negotiating, or intends to negotiate, any commercial financial or investment transaction (including prospective underwriters or placees of the financial instruments of the issuer);
- employee representatives or trade unions acting on their behalf;
- any government department, the Bank of England, the Competition Commission or any other statutory or regulatory body or authority;
- major shareholders of the issuer; f the issuer’s lenders; and
- credit-rating agencies.
The FSA has confirmed to us that it considers that the provision of information (on a confidential basis) to the trustees of an occupational pension scheme of the listed company (or a member of its group) (and the trustees’ own advisors) falls within the selective disclosure provision in DTR 2.5.7G.
The exemption in DTR 2.5.7G(2)(c) applies to disclosures to ‘employee representatives or trade unions acting on their behalf’. The FSA has confirmed that there is no difference for this purpose between the positions of trustees (and their advisors) and ‘employee representatives or trade unions’.
2.5.7G(2)(d) clearly applies to the Pensions Regulator as a statutory regulatory body.
The DTRs do make the point (DTR 2.5.8G) that:
‘Selective disclosure to any or all of the persons referred to in DTR 2.5.7G may not be justified in every circumstance where [the company] delays disclosure in accordance with DTR 2.5.1R.’
The Pensions Regulator
There is no need for a confidentiality agreement with the Pensions Regulator. It owes a statutory duty of confidentiality in relation to any restricted information that it obtains. Restricted information is information that ‘relates to the business or affairs of any person’ (section 82 of the Pensions Act 2004). This obligation extends to anyone who receives that information (directly or indirectly) from the Regulator.
Breaching this obligation is a criminal offence. There are, however, a number of statutory exemptions to this statutory confidentiality obligation (eg disclosure to various other authorities or in connection with legal proceedings for breach of trust etc).
Restricted information can be disclosed with the consent of the person to whom it relates (ie the company in relation to information about the company). So it may be prudent to make it clear when giving information to the Pensions Regulator whether the company is consenting to its disclosure to anyone else (eg the pension trustees).
List of recipients
Listed companies are required to keep lists of persons working for them with access to inside information and ensure that persons acting on their behalf or on their account draw up their own insider lists (DTR 2.8.1R).
Strictly speaking, it may be that listed companies are not obliged, under DTR 2.8.1R, to ensure that pension trustees (or their advisors) maintain an insider list nor to include pension trustees (and their advisors) on the listed company’s own insider list. This is because DTR 2.8.1R refers to persons acting on behalf of or on account of the company, whereas trustees are acting on their own behalf.
Nevertheless, the FSA has commented to us that it is arguably within the spirit of the obligation under DTR 2.8.1R to include pension trustees. Therefore it would be safest for a listed company to include the individual trustees (and their advisors) on an insider list. In practice this would help the listed company should there ever be an investigation of a leak of inside information.