The meaning of a "person discharging managerial responsibilities" in securities fraud litigation

However, he rejected G4S's application for strike out or summary judgment of the Claimants' allegations concerning four individuals who were directors of G4SCJS, a subsidiary of G4S (the "Subsidiary Directors"). Miles J accepted that the definition of PDMR in paragraph 8 of Schedule 10A FSMA was confined to de jure, de facto or (arguably) shadow directors (meaning section 90A and Schedule 10A FSMA did not apply to the Subsidiary Directors unless they fell within those categories). However, he considered the legislation created "elasticity" in the concept of a de facto directorship, meaning it was arguable that the Subsidiary Directors were de facto directors at the relevant time and therefore making it more appropriate to determine the issue at trial rather than in a factual vacuum.

Background

The Claimants (all of whom are institutional shareholders) issued three sets of proceedings, alleging that information published by G4S (the "Published Information") contained untrue and misleading statements or omitted material information. The Claimants submitted that five individuals within G4S or its subsidiaries were PDMRs who: (1) knew, or were reckless as to, the falsity of the Published Information; and (2) acted dishonestly in delaying the publication of relevant information or failing to publish it at all (the "Alleged Breaches"). One such individual was a de jure director of G4S. The other four individuals, the Subsidiary Directors, were de jure directors of a trading subsidiary in which the Claimants alleged that fraud and wrongful billing took place, and gave rise to the Alleged Breaches.

The Defendant issued an application for strike out or summary judgment on the grounds that the Subsidiary Directors were not de jure, de facto or even shadow directors of G4S.

The Claimants argued that the Defendant's application ought to be refused because, for the purposes of section 90A and Schedule 10A of FSMA, the term "PDMR" was not limited to directors in the "usual English company law sense" but included "senior executives responsible for managerial decisions affecting the future developments and business prospects of the issuer and/or those business units".⁴

Decision

Miles J agreed with the Defendant's contention that the statutory definition of PDMR set out in Schedule 10A is "clear and unambiguous".⁵ Expanding the scope of this definition to include senior executives would be contrary to legislative intent, given that paragraph 8(5)(c) of Schedule 10A makes clear that senior executives may be considered PDMRs where there are no directors (and therefore that senior executives do not otherwise fall within the definition of PDMR). A wider definition of PDMR would also "sidestep[…] the legislative history" of section 90A: when section 90A was enacted, there was a broader definition of PDMR in Part 6 of FSMA, which was not adopted.⁶

Miles J also rejected the Claimants' submission that ascribing the conventional legal meaning to the term "director" in this context "would facilitate abuse and allow issuers to arrange their corporate affairs to deliberately avoid civil issuer liability under section 90A". It would, he held, be "inherently far-fetched" that public companies would structure their organisations with the intention of avoiding liability under section 90A of FSMA.⁷

However, despite rejecting the Claimants' submissions on the definition of a PDMR, Miles J refused the Defendant's application for strike out and summary judgment, as he considered that the Claimants had a real prospect of persuading the Court at trial that the Subsidiary Directors were de facto directors of the Defendant. He emphasised that the question of whether an individual is a de facto director is "intensely fact-sensitive" and requires a "careful examination of the relevant company's governance structure".⁸ In reaching this conclusion, Miles J considered the decisions of Hildyard J in Secretary of State for BIS v Chohan⁹ and Falk J in Re Keeping Kids Company¹⁰, both of which concerned the existence of de facto directorships.

Analysis

Miles J's decision makes it clear that the definition of PDMR for the purposes of section 90A and Schedule 10A should be confined to the "natural reading"¹¹ of the "clear and unambiguous"¹² definition set out in Schedule 10A. Flexibility may, however, be found in the concept of de facto directorship: individuals who are found, on a detailed factual assessment, to have participated in decision making at a directorial level may be considered directors (and therefore PDMRs) for the purposes of section 90A and Schedule 10A. The extent of this flexibility will be clarified at the next stage of proceedings.

¹ [2022] EWHC 1081 (Ch).

² These sections make issuers of publicly traded securities liable for the publication of false, misleading or incomplete information, or for a dishonest delay in the publication of relevant information, to capital markets where a PDMR knows, or is reckless as to, the inaccuracy of the statement or dishonest concealment in question.

³ Various Investors v G4S Limited (formerly known as G4S plc) [2022] EWHC 1081, at paragraph 119.

⁴ Various Investors v G4S Limited, at paragraph 8.

⁵ Various Investors v G4S Limited, at paragraph 119.

⁶ Various Investors v G4S Limited, at paragraph 136.

⁷ Various Investors v G4S Limited, at paragraph 146.

⁸ Various Investors v G4S Limited, at paragraph 172.

⁹ [2013] EWHC 680 (Ch).

¹⁰ [2021] EWHC 175 (Ch).

¹¹ Various Investors v G4S Limited, at paragraph 140.

¹² Various Investors v G4S Limited, at paragraph 119.