Disclosable Event

Disclosable event is regarded as a material corporate event that must be disclosed to stakeholders, as it would likely impact a company's financial condition and/or the value of its securities. Although the Securities and Exchange Commission (SEC) does not have a formal definition of "disclosable event," a conservative management usually errs on the side of caution to disclose events that it considers material enough to affect at least the perception among shareholders, creditors or other stakeholders of a change in the company's financial standing. In many cases, "disclosable" will be very clear; for example, an investigation by the Department of Justice into insider trading activity at a firm is an event that should be immediately communicated to the public.

The term "disclosable event" gained a bit of notoriety in April 2009 when then-Treasury Secretary Hank Paulson urged Bank of America CEO Ken Lewis to keep quiet about Merrill Lynch's mounting billion-dollar losses that Lewis knew about when his team inspected Merrill Lynch's books during the financial crisis. "We do not want a disclosable event," said Paulson, implying that if this information was out in the public realm and Bank of America did not go ahead with the acquisition of the failing brokerage firm, there would possibly be major systemic risk.

Without a standard definition of disclosable event, attorneys are given the task of writing up clauses in commercial contracts and agreements to specify what constitutes such events between two parties or among several parties. If the term is not defined in a contract and the parties end up in a dispute surrounding an event considered disclosable by one party and non-disclosable by another, time and money will be spent trying to resolve the dispute.

As alluded to above, it is good practice to define disclosable event in a contract. What the parties decide to be disclosable events could be anything; it depends on the nature of the business and the degree of risk that a particular party is willing to bear. An example is a credit agreement between KKR Real Estate Finance Holdings L.P. and Barclays Bank PLC, dated May 4, 2017. Section 6.18 of the agreement focuses on transactions dealing with parties that are subject to federal level sanctions, anti-money laundering laws and anti-corruption laws.