Who are “persons discharging managerial responsibility” (PDMR) within an issuer of securities under s.90A and Schedule 10A of Financial Services and Markets Act 2000 (FSMA)?

In the case of Allianz Global Investors GmbH and others v G4S Limited (formerly known as G4S PLC) [2022] EWHC 1081, the High Court considered the meaning of PDMR for the purposes of s.90A and Schedule 10A of the Financial Services and Markets Act 2000 ("FSMA"). It was determined that senior executives (responsible for managerial decisions affecting future developments and business prospects of a company) did not fall under the definition of PDMR where the issuer had directors.

Further, the Court clarified that the term “director” is broad; it includes de jure directors (properly and validly appointed directors of a company), de facto directors (persons who claim and purport to act as directors, although never actually or validly appointed as such) and possibly also shadow directors (persons who are not de jure directors, but in accordance with whose directions and instructions the directors of a company are accustomed to act (section 251(1) Companies Act 2006)).

1. Section 90A and Schedule 10A of FSMA

To establish the civil liability of issuers of publicly traded securities for the publication of false or misleading or incomplete information and for dishonest delay in the publication of information to the capital markets under s.90A and Schedule 10A FSMA, it must be proven that a PDMR within the issuer: (1) knew or was reckless about whether a statement was untrue or misleading; or (2) knew an omission to be a dishonest concealment of a material fact; or (3) acted dishonestly in delaying the publication of that information.

A PDMR is defined under Schedule 10A, paragraph 8(5) FSMA as: 

"(a) any director of the issuer (or person occupying the position of director, by whatever name called);

(b) in the case of an issuer whose affairs are managed by its members, any member of the issuer;

(c) in the case of an issuer that has no persons within paragraph (a) or (b), any senior executive of the issuer having responsibilities in relation to the information in question or its publication." 

2. Allianz Global Investors GmbH and others v G4S Limited (formerly known as GS4 PLC) [2022] EWHC

In brief, three related actions were brought by institutional shareholders (the “Claimants”) against G4S Limited, (previously G4S Plc, a publicly listed company (the “Defendant”)) in relation to G4S Care & Justice Services (UK) Ltd (a wholly owned subsidiary of the Defendant - the “Subsidiary”) which entered into a deferred prosecution agreement with the Serious Fraud Office in July 2020.

The Claimants contended that the allegations relating to the deferred prosecution agreement meant information published by the Defendant to the market contained untrue and misleading statements, or omitted required information, and that therefore the Claimants were entitled to compensation. Claims were also brought for compensation for dishonest delay in publishing information.

Importantly, the majority of operational functions of the Defendant’s group were being run by and through subsidiaries, whilst the Defendant had a board comprising two or three executive directors (and a majority of non-executive directors). The Claimants were shareholders in the Defendant, not the Subsidiary where the misconduct took place. Of the five PDMR’s identified, only one PDMR was formally appointed as director of the Defendant. The other four PDMR’s (identified in Court as P1 to P4) were formally appointed directors of the Subsidiary (but were not de jure directors of the Defendant).

Application:

The Defendant applied to strike out all or part of the claims and/or obtain summary judgement in relation to the Claimant’s argument that P1 to P4 were PDMRs of the Defendant within the meaning of s.90A FSMA. 

Decision:

The judge, Miles J, held that if an issuer has directors, the definition of PDMR’s for the purposes of section 90A claim is restricted to directors of the issuer - de jure, de facto or arguably shadow - at the relevant times.

As such, Miles J considered whether the P1-P4 could be held to be de facto directors of the Defendant at the relevant times. He said that this was an "intensely fact specific" inquiry and that until “disclosure or cross examination of witnesses… has happened a full picture of the corporate governance structure of the defendant will not be available … in order to decide whether the person has participated or been able to participate at the directorial level of decision making”.

Therefore, the Defendant’s application to strike out the Claimant’s claims or grant summary judgement were declined as the determination was suitable for trial. 

3. Article 3(1)(25) of UK Market Abuse Regulation (Regulation 596/2014) (“UK MAR”)

The Claimants argued that the Court should consider the wider definition of PDMR included in UK MAR, which includes obligations on PDMRs to notify certain transactions in share or debt instruments and related financial instruments of the issuer. Article 3(1)(25) defines a PDMR as being either:

• “a member of the administrative, management or supervisory body of the issuer; or 
• a senior executive who is not a member of [those bodies], who has regular access to inside information relating directly or indirectly to that entity and power to take managerial decisions affecting the future developments and business prospects of that entity.”

The Court noted that Schedule 10A was a different liability regime and it deliberately used a different definition from that used in UK MAR, so that consideration of the definition of PDMR in UK MAR was not relevant to the matter at hand.

4. Summary

The Court decided that, for the purposes of Section 90A and Schedule 10A of FSMA, “where an issuer has directors, the PDMRs are the directors (including persons occupying the position of director, by whatever name called)”.  If a person is not a de jure director, then the individual will need to be shown to be a de facto or arguably a shadow director (from comments made obiter by Miles J). Determination of de facto directors is a fact specific inquiry.

Therefore, when identifying and classifying persons as PDMR’s, especially, in situations where the holding company performs its operations through subsidiaries, management of public companies need to consider carefully, whether directors of subsidiaries participate or have been able to participate at a directorial level (in formulating the company's strategy and overseeing its business) in more roles than formally assigned to them in the corporate structure.