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The FSA found that Eurodis breached the Listing Rules by failing to notify the market of a change in the company's financial condition until 8 December 2003, despite being aware of a material deterioration in its working capital position since 12 November 2003.
On 18 August 2003 Eurodis issued a 'clean' working capital statement confirming that the company had sufficient working capital for at least the next 12 months. An interim trading statement issued by Eurodis on 24 October did not mention the company's deteriorating working capital position, merely saying that working capital remained a priority.
Eurodis engaged corporate recovery specialists on 29 October 2003 to review the company's financial situation, who reported on 12 November 2003 that Eurodis' financial position had deteriorated markedly. The Eurodis board did not view this as a material change in the company's financial condition.
Eurodis continued to work with the specialists to assess the company's financial condition and to determine whether it needed to undertake a new equity placing in the near future.
Eurodis received a further report from the specialists on 28 November 2003, after which its advisors, Dresdner Kleinwort Wasserstein (DrKW), urged Eurodis to consider whether there had been a material change in the financial position as announced on 24 October which would require updating the market. Eurodis, on 2 December 2003, informed its advisors that it considered that no such change had occurred and that no announcement was necessary.
Eurodis' advisors consulted the UKLA about the situation over the course of 4 and 5 December 2003. The UKLA advised, on 5 December 2003, that the company needed to make an announcement clarifying its financial position at the start of business on Monday 8 December 2003 or face having its shares suspended.
Eurodis released a trading update on 8 December 2003 announcing its intention to raise further finance, following which its share price fell by 36%.
The company has co-operated fully with the FSA's investigation. The FSA would have levied a substantial financial penalty but for Eurodis' lack of financial resources.
Background
- The full text of the Final Notice is available on the FSA website. This includes the background to the case, the relevant statutory provisions, and the regulatory requirements contravened.
- Eurodis' listing was suspended at its request on 14 July 2005 and on 15 July 2005 Administrative Receivers were appointed.
- Paragraph 9.2 of the Listing Rules at the relevant time (see note below 4) stated that:
"A company must notify the Company Announcements Office without delay of all relevant information which is not public knowledge concerning a change:
(a) in the company’s financial condition;
(b) in the performance of its business; or
(c) in the company’s expectation as to its performance;
which, if made public, would be likely to lead to substantial movement in the price of its listed securities."
- As of 1 July 2005 the continuing obligations previously contained under Chapter 9 of the Listing Rules are now found in Chapter 2 of the Disclosure Rules. The previous Rule 9.2 is now Rule 2.2 of the Disclosure Rules.
- The FSA took on new powers under the Financial Services and Markets Act 2000 on 1 December 2001. The disciplinary sanctions available to the FSA for breaches of the Listing Rules that take place on or after 1 December 2001 include a fine or a public statement.
- The FSA has recently published a new guide to its enforcement procedures which can be found at the following link - www.fsa.gov.uk/pages/doing/regulated/law/pdf/enf_procedure.pdf,
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
