UK: Changes To The AIM Rules For Companies

Last Updated: 5 February 2014
Article by Mark Howard and Jodie Dennis

Following a review of the AIM Rules for Companies and AIM Rules for Nominated Advisers by the London Stock Exchange plc (the "LSE"), the LSE has issued a consultation proposing various amendments to these rulebooks.

Though the proposed changes to the AIM Rules for Companies are largely administrative in nature or aimed at aiding clarity, there are a number of substantive amendments which we have sought to bring to your attention in this article.

For further information on the proposed changes to the AIM Rules for Nominated Advisers, please click here.

1. AIM Rule 26 (Company information disclosure)

The LSE proposes that a company admitted to AIM will be required to include on its website the following information (in addition to the information already required by AIM Rule 26):

1.1. details of its corporate governance code, how it complies with that code, or if no code has been adopted a statement to that effect;

1.2. confirmation of whether it is subject to the UK City Code on Takeovers and Mergers (the "Takeover Code"), or any other similar legislation or code in its country of incorporation or operation, or any other similar provisions it has voluntarily adopted;

1.3. its annual accounts published pursuant to Rule 19 for the last three years or since admission, whichever the lesser (as opposed to the current requirement to include its most recent annual report/accounts); and

1.4. the date upon which the details of its significant shareholders was last updated.

Corporate Governance

Inclusion of corporate governance code information on company websites is consistent with UK and European policy maker's calls over a number of years now for companies (and investors) to up their game on corporate governance and to improve shareholder dialogue with a view to increase investor confidence and aiding market recovery. Vince Cable MP, Secretary of State for Business, Innovation and Skills, recently remarked:

"A stronger economy depends on investors, employees and the wider public having trust and confidence in companies and those that are running them."

This amendment to AIM Rule 26 is to be welcomed, as high standards of corporate governance and two way communication with shareholders has been shown to improve a company's investability and its profitability.

Takeover Code

On 30 September 2013, the residency test set out in the Takeover Code was removed in respect of companies which have their registered offices in the UK, the Channel Islands or the Isle of Man and which have securities admitted to trading on a multilateral trading facility (such as AIM or the ISDX Growth Market) in the UK. From that date it became irrelevant, for the purposes of determining whether the Takeover Code applied to these companies, where their place of central management and control was located.

Removal of the residency test aimed to aid clarity and remove uncertainty for many public companies, their shareholders and prospective bidders, around whether the Takeover Code would or would not apply at a given point in time, especially for those public companies with significant overseas operations and presence, for whom the place of central management and control could prove to be somewhat fluid over time. In light of the removal of the residency test, confirming the applicable takeover regulation (or lack of it) via a company's website seems a sensible development.

For more information on removal of the residency test and how it may impact your company, please see our article ' Takeover Code – Removal of the Residency Test and Profit Forecasts/Estimates'.

2. Change to half-yearly reports - comparison to previous year

It is proposed that AIM Rule 18 (Half-yearly reports) be amended to require a company's half-yearly reports to contain comparative figures for the corresponding period in the preceding financial year. With regards to the balance sheet, this may contain comparative figures from the last balance sheet notified to a Regulatory Information Service for distribution to the public.

3. Amendment to AIM Rule 11 (General Disclosure of price sensitive information)

Under AIM Rule 11, a company is required to notify the public of changes to its financial condition, sphere of activity, performance of its business or expected performance which, if made public, would be likely to lead to a substantial movement in its AIM-listed shares. The LSE proposes to replace the reference to a "substantial" movement with a reference to a "significant" movement, and to clarify that the circumstances listed above (i.e. financial condition etc) are not definitive, but only a list of examples. The LSE has also confirmed that this amendment does not change the standard of disclosure required of AIM companies.

This amendment helpfully aligns the terminology in the AIM Rules with that used in the Financial Services and Markets Act 2000.

4. Inside AIM

Another helpful amendment proposed by the LSE is to update the Guidance Notes to the AIM Rules to include the technical guidance that has previously been included in editions of "Inside AIM", thus consolidating all of the LSE guidance for AIM companies in one place.

5. Other Proposed Amendments

The LSE has proposed a number of other amendments, the majority of these being administrative or simple clarifications, these are summarised briefly below:

5.1. Schedule 3 to the AIM Rules (Class tests for determining the size of a transaction) to be updated to clarify the treatment of losses in profits test calculations.

5.2. New AIM Rule 43 to be introduced, to clarify that the LSE has jurisdiction over AIM companies that have ceased to have a class of securities admitted to AIM, for the purpose of investigating and taking disciplinary action against any breaches of the AIM Rules which occurred at a time when that company was an applicant or had its securities admitted to AIM.

5.3. AIM Rule 3 to be amended by the introduction of a paragraph clarifying that an applicant should take reasonable care to ensure that the information contained in the AIM admission document is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect the import of the information.

5.4. Numerous other minor amendments, including, changing references from the "FSA" to the "FCA" following establishment of the Financial Conduct Authority in 2013, and updating the definition of "treasury shares" to refer to section 724(5) of the Companies Act 2006.

6. A welcome change

Generally, the proposed changes to the AIM Rules for Companies should be welcomed. The key substantive changes, mainly to the provision of information on a company's website, assist in providing clarity and transparency for investors, with the compliance costs for companies likely to be minimal. This can only be a good thing if it assists in improving market confidence. Responses to the LSE's proposals should be submitted by 3 March 2014, with the amendments to the AIM Rules expected to be implemented later this year.

For further information on the proposed amendments to the AIM Rules for Companies, please see AIM notice 38 and the Consultation Document.

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.

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Mark Howard
Jodie Dennis
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