On 11 December 2017, the London Stock Exchange plc (Exchange) published AIM Notice 49 and its feedback statement and further consultation on rule changes in response to the discussion paper published on 11 July 2017.
The Exchange is consulting on the following rule changes proposed in its discussion paper:
- formalising an early notification process for nominated advisers
- providing guidance to nominated advisers on appropriateness considerations, and
- requiring AIM companies to comply or explain against a recognised corporate governance code.
The Exchange is not taking forward the changes for:
- prescriptive criteria for the float
- a minimum fund raise on admission, or
- automatic fines for certain breaches of the AIM Rules.
Proposed changes to AIM Rulebooks
The proposed changes to the AIM Rulebooks are set out below.
Formalising the early notification process
Nominated advisers are currently only required to have early stage discussions where a proposed admission has atypical features or raises potential issues. The proposed changes to AIM Rule 2 would require the nominated adviser to enter into confidential discussions with the Exchange in relation to all applications at an earlier stage in the process (and before submission of the Schedule One form) when it would provide certain key information about the company and its proposed admission to AIM. The exact timing of this initial communication would be at the nominated adviser’s discretion.
The discussion paper stated that the information would include information similar to that proposed in the discussion paper. The discussion paper referred to: details of the business, any introducer, proposed board structure, fundraising, significant shareholders, names of advisers, shares not in public hands; how the nominated adviser is satisfied that there will be adequate free float; and details of any issues that could cause the Exchange to question whether admission may be detrimental to AIM, and how the nominated adviser has concluded that this issue does not affect the applicant’s appropriateness for AIM.
The new consultation provides that the information will have to be submitted in the form of a new template form and states that the information will be similar to that proposed in the discussion paper.
Guidance on use of Rule 9 powers
The discussion paper reiterated that the assessment of appropriateness of an AIM company is firstly the obligation of the nominated adviser under the AIM Rules for Nominated Advisers. However, under AIM Rule 9, the Exchange retains ultimate discretion to refuse or impose conditions on an admission should issues identified during the admission process remain unaddressed. While this discretion is rarely used, the Exchange proposes:
- to include in the AIM Rules for Nominated Advisers, a non-exhaustive list of factors that may raise concerns as guidance for nominated advisers, and
- to make changes to AIM Rule 9 to emphasise the Exchange’s discretion to refuse admission.
The factors included in the guidance for nominated advisers are: concerns about the good character, skills, experience, or previous history of a director, key manager, senior executive, consultant or major shareholder; unclear rationale for admission; formal criticism of the applicant and/or any of its directors by legal, regulatory, or governmental bodies; denial of admission to trading on any other exchange or platform; a vague or ill-defined business model or business operations; concerns regarding a company’s corporate structure or business model being appropriate for a public market; and if the applicant holds a derivative or economic interest in a material part of its assets or business operations through a risky contractual arrangement with the owner of the assets or operations rather than by owning them itself or through a subsidiary.
Corporate governance requirements
Under the AIM Rules for Companies, an AIM company must consider corporate governance with its nominated adviser, which forms part of the nominated adviser’s wider considerations regarding the appropriateness of the company for admission to the AIM. The Exchange recognises that, in order to be effective, corporate governance measures should be tailored to a company’s individual requirements, and these measures should be developed through the engagement of stakeholders. The discussion paper sought views on whether the current requirements for board composition and corporate governance disclosure are effective.
As the majority of respondents supported this, the Exchange is proposing to amend Rule 26 to require all companies to disclose which recognised corporate governance code the board has decided to apply, how the company complies with the code and where it does not comply explain why not.
This change is expected to take effect from 30 June 2018 to allow companies adequate time to prepare.
The Exchange is not introducing mandatory board composition requirements but notes that it normally expects a board to include a chairperson, finance director and non-executive directors.
Proposed eligibility criteria
The discussion paper noted that there are currently no specific eligibility criteria regarding minimum size, trading history or percentage free float as the Exchange does not currently believe these specific criteria are appropriate for AIM companies, and instead uses a qualitative approach which is thought to strike a balance between supporting liquidity and supporting innovation and emerging growth companies. On an application for admission, the Exchange wants to understand the nominated adviser's consideration relating to free float, taking into account factors such as the range and spread of shareholders; the influence of any major shareholder, any measures in place at admission to enhance liquidity; and the existence of concentrated shareholdings and measures in place to address these.
The feedback supported the current qualitative approach to free float and therefore no changes are being made. The Exchange’s guidance on free float is set out in Inside AIM (01 June 2015) and the Exchange believes that this guidance together with early discussion strikes an appropriate balance.
Respondents were not in favour of introducing a minimum capital raising threshold and the Exchange has decided not to introduce this change.
Non-compliance with the AIM Rulebooks
The Exchange expects to issue a consultation on proposed changes to the AIM Disciplinary Procedures and Appeals Handbook in 2018. As noted above, the Exchange will not introduce automatic fines for non-compliance with rules.
Responses to the consultation are due by 29 January 2018.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.