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Continuous disclosure recommendations

December 04, 2018


Partners James Caird, James Hawes, Don Holborow, Andrew Matthews, Michael Pollard, Cath Shirley-Brown

Financial services regulation

The Financial Markets Authority (FMA) has released a report on its investigation into Wynyard Group Limited (In Liquidation) (Wynyard). The report focusses on Wynyard’s compliance with continuous disclosure obligations while it was listed on NZX, before its collapse in October 2016. The report makes a number of recommendations which are of interest to all listed issuers, and particularly for directors of issuers in financial difficulties.


Wynyard was an NZX-listed company that specialised in developing security and intelligence analytics software. It was placed into voluntary administration (VA) by its board of directors in October 2016. The FMA, jointly with NZX Regulation, investigated Wynyard’s disclosures to the market in the period up to its administration.

FMA Report

The FMA concluded that the way Wynyard had communicated with the market during that period meant investors were surprised when the company was placed into VA. Wynyard had indicated in August 2016 that it expected to be cash positive by the end of 2016 and gave investors confidence that any financial difficulty would be short-lived, with a conditional standby facility in place to bridge any gap.

The FMA considered that Wynyard ought to have disclosed the deterioration in its cashflow forecast. The deterioration, coupled with delays and lack of progress with revenue-building activity, was material information of high significance to the market.

The FMA also concluded that Wynyard ought to have disclosed its apparent change of opinion about the standby facility, in particular its ability to meet the conditions attaching to that facility. Its two market announcements in August 2016 had informed investors that the facility was available to be drawn upon if necessary. By October, the board of directors had determined that it would need to draw at least $4 million by the end of the year in order to remain a going concern, and satisfy the conditions of the facility. As a result, Wynyard would need to secure significant revenue in a shorter timeframe. This was not disclosed to the market.

The FMA expressed the view that, because of the relative youth of Wynyard, and the high-risk, high-growth nature of its business, it was imperative that up-to-date material information was shared with the market as soon as it was available. The FMA concluded that the announcements issued by Wynyard were too positive, gave an overly optimistic outlook to investors, and did not clearly communicate the company's reliance on a small number of large off-shore contracts.

Furthermore, although Wynyard's board had continuous disclosure obligations as a standing agenda item for its meetings, there was a lack of evidence in minutes that the directors had turned their mind to market expectations and to the kind of information investors would consider material in making investment decisions. The FMA found limited evidence that the board had actively discussed Wynyard's continuous disclosure obligations.

Key messages

The FMA determined not to take any enforcement action against Wynyard. However, a number of recommendations can be taken from the report:

  • Boards of directors of early-stage issuers should "apply an enquiring mind" when receiving information from management, and ensure they seek independent advice
  • Minutes of Board meetings should record in adequate detail the consideration of and discussions around various matters, including continuous disclosure obligations
  • Disclosures should include relevant context so that investors can be properly informed about possible outcomes
  • Loss-making issuers need to make sure they adapt their disclosures to meet investor needs. If cash-flow is an issue, it will be necessary to inform the market about the options available to the company and to manage investors' expectations.

As a result of the investigation, the FMA and NZX recommended a change to issuers' continuous disclosure obligations. This is reflected in the new Listing Rules coming into force in January 2019. Previously, only information that directors or senior managers were actually aware of had to be disclosed. However, continuous disclosure obligations will now extend to information that a director or senior manager ought to have known. This significantly increases the onus on directors to ensure that they receive from management the information that they need to be aware of, and immediately disclose any material information to the market. 

Read the full FMA Report here.