The health crisis caused by COVID-19 and the restrictions and containment measures implemented to contain it have an impact on French securities and corporate laws. Below is a brief overview of this impact on profit warnings, risk factors, shareholders' meetings and the ban on net short positions.
The impact of COVID-19 on the economy may lead an issuer to have to issue profit warnings, if the issuer concludes that its financial situation is deteriorating or if it can no longer maintain previously issued guidance, as the case may be. The AMF, the French regulator, has set guidelines along the rules set by MAR and the ESMA guidelines.
The AMF has indicated that issuers must issue a press release when their anticipated results or performance indicators differ from market forecasts, even if the issuer has not communicated targets or previsions or if there is no market consensus.
The fact the the issuer is unable to provide numbers on the level of results or the performance indicators, or cannot reset its guidance, does not release it from its obligation to publish. This is likely to be the case with respect to COVID-19 since its consequences and duration remain uncertain.
In addition, deferring the publication of profit warnings may not be possible since it may mislead the market (article 17.4 of MAR). According to ESMA, the situations in which a delay of inside information disclosure is likely to mislead the public include the following circumstances:
a) the inside information whose disclosure the issuer intends to delay is materially different from the previous public announcement of the issuer on the matter to which the inside information refers to; or
b) the inside information whose disclosure the issuer intends to delay regards the fact that the issuer's financial objectives are not likely to be met, where such objectives were previously publicly announced; or
c) the inside information whose disclosure the issuer intends to delay is in contrast with the market's expectations, where such expectations are based on signals that the issuer has previously sent to the market, such as interviews, roadshows or any other type of communication organized by the issuer or with its approval.
Those circumstances (in particular b) and c)) may encompass situations where the issuer has provided guidance (or is driving the consensus).
Impacted issuers may need to add a specific disclosure on the impact of COVID-19 on their businesses in their 'Risk Factors' and in their 'Recent Developments' sections in their Universal Registration Document (URD). The drafting of such risk factors should be specific, adapted to the activity of each issuer highlighting the areas of the business, which may be impacted by the COVID-19 and corroborated by the URD pursuant to the Prospectus Regulation and ESMA Guidelines. A generic risk factor on the COVID-19 will not fulfill the conditions set forth by the Prospectus Regulation. In certain sectors (for example, transportation or tourism) and geographies, some annual reports may already have a risk factor on epidemics such as the SRAS which should be strengthened with the impact of COVID-19. Some URD recently published include specific risk factors on the impact of COVID-19.
Following meeting restrictions, the AMF has published a press release recommending the use of existing mechanisms to vote remotely in lieu of attending meetings in person. Several companies have announced that they would hold meetings behind closed doors, without allowing any shareholder access. The marketplace is preparing a proposal to amend the law to allow for meetings to be held without shareholders' physical attendance. A law enabling the government to change the law by way of an ordinance has been drafted and should be voted on soon. The draft ordinance which will set all the provisions governing such shareholders' meetings is under discussions. . This would only be in effect for the duration of the health crisis, and would be retroactive to March 14, i.e., the date when meetings more than 100 people were banned, so as to validate shareholders' meetings which will have been held prior to the enactment of the ordinance.
Ban on net short positions
Due to the spread of COVID-19, ESMA issued on March 16 a decision temporarily requiring the holders of net short positions in shares traded on a European Union regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital.
In France, the AMF has issued the following decisions on March 17:
- Decision of the AMF President to prohibit short sales March 17 for a list of of shares which price had fallen by 10% or more on March 16, in accordance with article 23 of EU Regulation 236/2012
- Decision of the AMF President to prohibit short sale positions for an initial 20-day period, ie between March 18 and April 6, in accordance with Article 20 of EU Regulation 236/2012 and Article L.421-16, II of the French Monetary and Financial Code
- Decision of the AMF College to prorogate the AMF President's decision by 10 days, bringing it to 30 days in the aggregate. The ban is applicable from 18 March 2020 at 00:00 hours until 16 April 2020 at midnight.
Therefore, all taking of net short positions within the meaning of Article 3 of EU Regulation 236/2012 and all increases of net short position in the share capital of issuers whose shares are admitted to trading on a French trading venue and for whom the Autorité des marchés financiers is the relevant competent authority, have been banned
The ban does not concern market making activities carried out by persons who are exempted under Article 17 of EU Regulation 236/2012. The creation or increase of net short positions through indexed financial instruments or baskets of shares are excluded from the ban when the shares subject to the decision represent less than 50% of the composition of the index or basket.
The ban is on "net short positions", as defined in Article 3 the EU Regulation.
A short position is defined in EU Regulation 236/2012 as (a) a short sale of a share issued by a company or of a debt instrument issued by a sovereign issuer; or (b) entering into a transaction which creates or relates to a financial instrument other than an instrument referred to in point (a) where the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person entering into that transaction in the event of a decrease in the price or value of the share or debt instrument.
A net short position is defined in the EU Regulation as the position remaining after deducting any long position that a natural or legal person holds in relation to the issued.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.