The FSA found that Universal breached the Listing Rules by failing to notify the market of the loss of a major contract, which was likely to lead to a substantial movement in the price of its listed securities. Mr Hynes was the Director best placed to take the appropriate steps to ensure that Universal notified the market without delay once the obligation was triggered on the 16 April 2002. Universal did not make the announcement until the 23 April 2002. The announcement also reported worse than expected trading figures. The company's share price fell 55% on the day of the announcement.
Andrew Procter, Director of Enforcement, said:
"The delay, and therefore this enforcement action, could have been avoided entirely by the taking of responsible preparatory measures by the company when it first emerged that the contract might not be renewed. Mr Hynes was aware of this development and was the director best placed to ensure that Universal complied with its obligations under the listing rules."The obligation on listed companies, and their directors, to inform the market without delay of any changes to their business is a fundamental protection for shareholders. Timely disclosure is vital to ensuring the smooth operation of efficient, orderly and clean markets. That this is the second director of a listed company that we have fined in as many months demonstrates how seriously we expect firms to take these responsibilities."
Universal is involved in the vehicle salvage business. In 1998 it won a contract with Direct Line which by March 2002 accounted for approximately 40% of the vehicles it handled. Direct Line first told Universal that it intended to terminate this contract at a meeting on 18 March 2002 attended by, amongst others, Mr Hynes. Universal tried in correspondence to persuade Direct Line not to terminate the contract, but Direct Line confirmed the termination in a letter received by Universal on 16 April 2002.
In the meantime Universal conducted an analysis as to the likely financial impact of the contract being terminated and explored options for costs savings with a view to presenting the findings to a Board Meeting on 18 April 2002. However, upon receiving confirmation of the termination of the contract, Universal took no steps to obtain advice from West LB, its corporate advisers, bring the Board Meeting forward or take any other preparatory measures.
At the Board Meeting on Thursday 18 April, it was agreed to seek advice from West LB as to whether to make an announcement to the market regarding the loss of the Direct Line contract and also poor trading figures in the final quarter of the then-current financial year. Mr Hynes was given responsibility for consulting with West LB. Mr Hynes contacted West LB later that day and met with them on the afternoon of Monday 22 April. At that meeting West LB advised Universal to make an announcement to the market. The announcement was released through the Regulatory Information Service at 3.24pm on Tuesday 23 April
In deciding the appropriate fine for Universal and Mr Hynes the FSA gave credit to both parties for their co-operation in the investigation and in resolving the matter expeditiously.
Background
- The full text of the Decision from the Regulatory Decisions Committee of the FSA and its censure is available here.
- Paragraph 9.1 of the Listing Rules states that:
- Under section 91(2) of the Financial Services and Markets Act 2000 if the FSA considers that a director of a company was knowingly concerned in the company's contravention of the Listing Rules, it may impose on him a penalty of such amount as it considers appropriate.
- 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 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; securing the appropriate degree of protection of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
a) by virtue of the effect of those developments on its assets and liabilities or financial position or on the general course of its business, lead to substantial movement in the price of its listed securities."A company must notify the Company Announcements Office without delay of any major developments in its sphere of activity which are not public knowledge which may:
