Directors of listed companies should seek legal advice before drawing up
operating and financial review statements or face the risk of being held liable
for comments about the future health of their business, CIMA warned this week,
writes Damian Wild.
With quoted UK companies required to produce the new statements for financial
years commencing on or after 1 April, the first wave of OFRs are likely to
appear next summer.
CIMA is among the organisations that have warned the government that the
forward-looking statements required by the OFR could put directors at additional
legal risk of claims from disgruntled investors.
But according to legal advice obtained by the institute from ‘magic circle’
law firm Allen & Overy, directors can minimise risk of a claim by taking
professional advice and ensuring forward-looking statements are ‘appropriately
couched and qualified’.
If directors also make it clear that any forward-looking statements reflect
knowledge available at the time of writing, Allen & Overy said ‘directors
should feel more comfortable in fulfilling the government’s objective of
meaningful and informative disclosure in the OFR’.
CIMA chief executive Charles Tilley (pictured) said companies who improved
the quality of management information provided to the market would make
themselves more attractive investments and see their market capitalisations
rise. ‘Even if it is minimal it will probably override the cost,’ he said.
But he added that directors would have to balance the need to provide useful
information for investors with ‘a minimal risk of criminal and civil liability’
attached to comments on their company’s future prospects.
‘You could get a document so full of get-out clauses that it could become
meaningless,’ Tilley warned.
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