AIM companies: proper use of social media and the importance of liaising with your nominated adviser

This month the AIM team of the London Stock Exchange published guidance on AIM companies’ use of social media to communicate with investors and other stakeholders, and the AIM Disciplinary Committee, which is a committee independent of the London Stock Exchange, imposed a fine of £75,000 on an unnamed AIM company for failing to share information and consult with its nomad about business developments.

Use of social media

On 12 December 2016 the AIM team published guidance on the interaction of social media with companies’ disclosure obligations under the AIM Rules for Companies (the AIM Rules). Communicating via social media includes tweeting, releasing press announcements other than via a Regulatory Information Service (RIS) and posting information on the company’s website.

A company’s disclosure obligations under the AIM Rules include the obligations to announce:

• Any price-sensitive information (under Rule 11 of the AIM Rules) and any inside information (under article 17 of the Market Abuse Regulation).
• The company’s annual and half-yearly financial results.
• A substantial transaction – i.e. one that exceeds 10% in any of the class tests.
• A transaction with a related party that exceeds 5% in any of the class tests.
• A reverse takeover.
• A disposal resulting in a fundamental change of business – i.e. a disposal which, when aggregated with any other disposal(s) over the previous twelve months, exceeds 75% in any of the class tests.
• Certain changes in the holdings of significant shareholders.
• The resignation, dismissal or appointment of a director.
• Dealings by directors and other PDMRs in the company’s shares.

Importance of complying with disclosure obligations under the AIM Rules

AIM companies are reminded that:

• Publishing information via social media is not a substitute for making an announcement in accordance with the AIM Rules. Where the company is required by the AIM Rules to announce a piece of information, the company must ensure the information is announced via a RIS no later than it is published elsewhere (AIM Rule 10). Where information is released to the media on an embargoed basis, the company will be treated as having published it on the date of the release and not on the date when it is published by the media.
• If, before announcing it to the market, a company publishes information via social media that results in an unusual movement in the company’s share price, the AIM team may suspend trading in the company’s shares until a formal announcement is made.
• If comments made via social media by directors or other persons acting on behalf of an AIM company are inconsistent with announcements made via a RIS, the AIM team might require the company to make a clarificatory announcement.
• If an AIM company or someone acting on its behalf discloses inside information (price-sensitive information) improperly, whether via social media or otherwise, or deliberately leaks inside information in order to “condition” the market or otherwise move the company’s share price, this is likely to constitute market abuse.

Systems and controls

Companies that use social media should consider with their nomad how the dissemination of information should be supervised and monitored to ensure that the company complies with its disclosure obligations under the AIM Rules.

The systems, procedures and controls an AIM company puts in place (as required by AIM Rule 31) should take into account the use of social media and other forms of electronic communication used by the company in order to manage its disclosure obligations under the AIM Rules:

“Communication policies should be considered in a meaningful way, taking into account the needs of the particular company and in this context, some obvious things to consider, by way of example only, include:

• Does the AIM company have a clear policy on the use of social media as part of its existing communications policies?
• How effective is that policy in practice, for example, how does the AIM company ensure that the policy is read and understood by all relevant persons?
• How regularly is the policy reviewed, and how does the AIM company identify and ensure the policy is updated when necessary?
• If an AIM company engages third parties to disseminate regulatory information on its behalf including via social media, how has it satisfied itself that the third party will not compromise compliance with the AIM Rules?
• In the context of an AIM company’s obligations under AIM Rules 10 and 31, what are its protocols in talking to its nominated adviser in advance of the release of information via social media?”

Under the AIM Rules for Nominated Advisers, nomads are required themselves to monitor, or arrange for a third party to monitor, the trading activity in shares of each of their AIM company clients, especially when there is unpublished price sensitive information about any such company. As part of this, nomads should “consider the necessity for arranging relevant press monitoring”. These obligations are designed to ensure that the nomad will be alerted if confidential or price-sensitive information has leaked and/or that investors are trading on a false premise (i.e. a false market is developing in the company’s shares), and hence that the company may need to make a RIS announcement to clarify the position.

The guidance published by the AIM team says that in this context both AIM companies and their nomads should consider how to ensure that they are kept informed about social media posts by third parties - for example, in internet discussion forums.

Practical tips for AIM companies

• If the company is involved in a situation or matter that is or may become price-sensitive, or that otherwise may have to be announced under the AIM Rules (such as a substantial or related party transaction), until the company has announced all the relevant details to the stock market via a RIS directors and other insiders must be careful to ensure that they do not disclose any details of the situation or matter via Twitter, Facebook or any other social media. This applies whether the social media account is a company account or a personal account.
• However, once an RIS announcement has been made, directors and other insiders, and indeed other interested parties, can of course tweet a link to the RIS announcement.
• Even where information about an AIM company is transmitted by a director or other insider via social media, rather than through a more “formal” channel, it is important that the information is accurate and consistent with statements made by the company in RIS announcements and presentations to investors, and that it is otherwise consistent with the company’s communications strategy.
• Obvious types of statements to avoid making via social media include:

• “The results from our drilling programme in [country] are looking promising – watch this space”
• “Just signed an exciting new contract for a bolt-on acquisition that will transform the business”
• “We’re expecting a positive reaction to our full-year figures when they come out next week”
• “We’ve identified our new CEO and are just agreeing final terms with her”
• "I expect us to exceed our [profit] [turnover] [debt reduction] target for next year”

• Directors and other company representatives should remember that internet communications are generally available globally. It is particularly important to avoid statements that could breach UK or overseas laws restricting communications which could be construed as encouraging investors to buy shares in the company.
• Where necessary, the company’s communications policy should be updated to deal with social media.
• All directors and relevant employees should be reminded of the company’s communications policy at appropriate intervals.
• Companies should discuss with their nomad when and how planned social media communications will be reviewed in advance by the nomad.
• A company should also discuss with its nomad which third party social media sources will be monitored for comments about the company, and how such monitoring will be carried out.

Fine and private censure of an unnamed AIM company for failing to share information and consult with its nomad about business developments

In late December the AIM Disciplinary Committee privately censured and fined an unnamed AIM company £75,000 for breaching AIM Rule 31.

AIM Rule 31 requires an AIM company to:

• have in place sufficient procedures, resources and controls to enable it to comply with the AIM Rules;
• seek advice from its nomad regarding its compliance with the AIM Rules whenever appropriate and take that advice into account;
• provide its nomad with any information it reasonably requests or requires in order for that nomad to carry out its responsibilities under the AIM Rules and the AIM Rules for Nominated Advisers, including any proposed changes to the board of directors and provision of draft notifications in advance;
• ensure that each of its directors accepts full responsibility, collectively and individually, for its compliance with the AIM Rules; and
• ensure that each director discloses to the AIM company without delay all information which the AIM company needs in order to comply with Rule 17 insofar as that information is known to the director or could with reasonable diligence be ascertained by the director.

The Committee determined that the AIM company breached AIM Rule 31 by failing to provide its nomad with information reasonably required to carry out the nomad’s responsibilities owed to the Exchange and by failing to seek its nomad’s advice regarding compliance with the AIM Rules when it was appropriate to do so.

The Committee held that the company should have informed its nomad and sought advice regarding a series of business developments: the company should not have decided for itself whether or not the business developments were announceable based solely on the company’s own assessment of its obligations under the AIM Rules, without reference to its nomad.

The Committee also found that:

• The company’s obligation to inform its nomad and seek advice regarding business developments covered a wider range of developments than would be required to be announced under AIM Rule 11.
• It was not sufficient for the company simply to send agendas and minutes of board meetings to its nomad, without any context or conversation, and assume that such actions discharged the company’s responsibilities under AIM Rule 31. Developments within the business need to be shared openly and fully with a company’s nomad, and advice sought from the nomad.
• Contractual obligations between an AIM company and its nomad – e.g. in the nomad’s engagement letter - do not override a company’s responsibilities under the AIM Rules.

The AIM team commented:

“The [Committee’s] findings underline the importance of an AIM company’s AIM Rule 31 obligations to liaise with its nomad. In particular AIM Rule 31 should not be narrowly interpreted. AIM Rule 31 should be interpreted purposively, requiring an AIM company to provide full, timely and regular information to its nomad, given that the fundamental purpose of AIM Rule 31 is to ensure that the nomad is kept fully aware of developments and can fulfil its regulatory role and responsibilities to the Exchange, to advise and guide an AIM company for which it acts.”