Committee Reports > List of Committees > Joint > 1979 > Committee on the Secondary Legislation of the European Communities > Report No. 49 - Publication of Information by Companies whose Transferrable Securities are Admitted to Official Stock Exchange Listing

REPORT

Introduction

1. In its forty-eighth report (Prl. 5939) of 9th December, 1976 the former Joint Committee on EC secondary legislation dealt with proposals for two Council Directives dealing respectively with company prospectuses and conditions of admission to official stock exchange listing. The present Joint Committee has now examined a third proposal (4356/79 ) for a Council Directive which represents a follow-up to the two earlier proposals. It deals with information to be published on a regular basis by companies whose transferable securities are admitted to official stock exchange listing.

2. The latest proposal, like the two earlier ones, is based on Article 54 (3) (g) of the EEC Treaty which deals with the harmonisation of company law. All three proposals are aimed at interpenetration as between one EEC stock exchange and another by removing obstacles created by varying national rules and regulations. Their adoption would, in the Commission‘s view, constitute a significant step towards the creation of a European capital market. The proposals in addition seek to ensure that standards of investor protection are maintained at a high and more uniform standard throughout the Community.

3. The Directive dealing with admission to official stock exchange listing was formally adopted by the Council last March. Consideration of the proposed Directive on company prospectuses is nearing completion at Community level and the Committee is informed that it is likely to come before the Council soon. It is also informed that consideration of the new proposal relating to the supply of information will commence at Council Working Party level early in 1980.

Outline of Proposals

4. The Directive now being proposed by the Commission would oblige companies, whose transferable securities are officially listed on an EEC stock exchange, to publish a half-yearly report. The publication could be in the national newspapers or official gazette or be effected by making it available to the public at a place designated in press announcements or by some other means approved by the national authorities.

5. The report would contain figures showing, for the relevant six months and the preceding financial year, at least the net turnover, other operating income, operating charges, gross operating result and interim dividends (if any) paid or proposed. It would also include an explanatory statement showing at least the number employed, investments carried out and decided upon, state of order book, stock position in relating to finished products, degree of capacity utilisation and any new significant products or activities.

6. Member States would be free to impose more rigorous or additional obligations to those contained in the directive. They would be obliged to designate a national authority to ensure application of the Directive within their territories. The national authority would be empowered to adapt the requirements of the Directive to the sphere of activity of a company or to exempt a company from those requirements where the information was of minor importance or where disclosure would be contrary to the public interest or seriously detrimental to the company.

7. There would also be a Contact Committee to oversee the harmonised application of the Directive throughout the Community and to suggest changes in the rules where necessary.

Implications for Ireland

8. In Ireland companies whose shares are listed on the Stock Exchange are required by the rules of the latter to publish half-yearly reports but the requirement is not a statutory one.

9. The figures required by the Stock Exchange in half-yearly reports cover—

(a) Turnover.

(b) Profit (or loss) after all charges including taxation.

(c) Domestic and where material foreign taxation charged in arriving at (b).

(d) If material, extent to which (b) has been affected by special credits (including transfers from reserves) and/or debts.

(e) Rates of dividends paid and proposed and amount absorbed thereby.

(f) In respect of any year or other full accounting period, earnings per share expressed as pence per share.

(g) Comparative figures of (a) to (f) inclusive for the corresponding previous period.

10. As will be seen from paragraph 5 of this report the requirements of the proposed Directive are less onerous than those the Stock Exchange considers necessary to gauge the profitability of a company. The Directive would, however, allow Member States to impose or maintain more stringent obligations in addition to the minimum prescribed therein.

11. The information required in the proposed explanatory statement, as outlined in paragraph 5 of this report, would be a new obligation as far as Irish companies are concerned. At present the Stock Exchange requires merely any supplementary information which in the opinion of the Directors is necessary for a reasonable appreciation of the results of the year or of other material changes in the aggregates of the balance on profit and loss account and other reserves.

Views of the Joint Committee

12. It seems to the Joint Committee that if the objectives of the proposed Directive are to be attained, the half-yearly reports must be such as to enable investors to make meaningful comparisons between the profitability of companies in different Member States. Member States would be able to impose more stringent or additional obligations to those outlined in the Directive but it appears to the Committee that the minimum requirements should be comprehensive enough for investors to get a reasonable picture of the company’s position. The Committee finds it difficult to see how they can do so without some indication of the company’s tax obligations. In its view, the figures required by the Directive should include an estimate of the taxation charge for the period and the net profit attributable to shareholders together with the earnings per share and the tax credit to which shareholders are entitled.

13. On the other hand, the Committee considers that the draft Directive is far too rigid in specifying the details which must be included in the accompanying explanatory statements. It has been represented to the Committee that information about the number of persons employed could even be misleading in quite a number of situations of which an example is where the business is subject to seasonal fluctuations and that most of the rest of the information could in some circumstances be used by competitors or large customers to the detriment of the company. The latter point is, in the Committee’s view, of particular importance in Ireland where so many of the larger trading concerns are not subject to the Stock Exchange requirements. The Committee does not accept that the difficulty is adequately met by the provision in the draft Directive enabling the national authority to exempt a particular company from disclosing information seriously detrimental to it. It considers that Article 5.4 should be amended by deleting all words after the first sentence and replacing them by a provision enabling the national authority to accept an explanatory statement which gives, in the view of the Directors of the Company, enough information to enable a reasonable appreciation of the company’s position to be made. It is perhaps of even greater importance in cases where listed companies are subject to competition in the home or U.K. markets from companies registered in the U.K. not subject to like obligations.

14. The Committee’s view of Article 9 of the draft Directive dealing with the manner of publication of the half-yearly report is that it is sufficiently flexible to allow the existing arrangements in Ireland to be continued.

15. It has also been represented to the Committee that circumstances may arise when it would be impracticable e.g. change in financial year, or misleading e.g. seasonal fluctuations, for a company to publish a half-yearly report. The Committee believes that to meet such cases the national authority should be specifically empowered to grant an exemption from publication. Similarly, a national authority should be allowed in exceptional circumstances to relax the proposed rule that publication must be made within three months of the end of the relevant six months period.

16. The Committee assumes that, if the Directive is adopted, the Stock Exchange will be designated the national authority in this country. It has, however, been drawn to its attention that Article 11.1 of the Directive may need amendment to ensure that overall responsibility rests on the Member State and not on the national authority. It is informed that making the provisions of the Directive a statutory obligation will not create difficulties for the Stock Exchange.

Acknowledgements

17. The Joint Committee in considering the draft Directive enjoyed the benefit of considerable assistance from the Stock Exchange, Law Society, Confederation of Irish Industry, Investment Bank of Ireland Ltd., Mergers Ltd., and Institute of Chartered Secretaries and Administrators. It wishes to express its sincere thanks to these bodies.

(Signed) MICHAEL NOONAN,

Vice-Chairman of the

Joint Committee.

30th May, 1979.