Changes to the AIM rules

United Kingdom
The following summarises the changes that have been made to the AIM Rules effective from 28 May 2003:

Extension of streamlined AIM admission procedure to other quoted companies

At present companies whose shares are listed on the UKLA Official List which wish to move to AIM are exempt from the requirement to produce an AIM admission document.  Instead, they are required to make a pre-admission announcement complying with the Supplement to Schedule 1 of the AIM Rules (containing information about the company’s working capital, any lock-in arrangements, the business strategy, and any significant changes in the financial or trading position since the last accounts).  This streamlined admissions procedure has now been extended to companies whose shares are quoted on certain other international markets designated for this purpose by the LSE.  As well as the UKLA Official List, the ‘AIM Designated Markets’ include the main markets of the Australian Stock Exchange, the Deutsche Börse, NASDAQ, the NYSE and the Toronto Stock Exchange.  (A full list of the AIM designated markets and the criteria for designation can be found on the LSE’s website at http://www.londonstockexchange.com/aim/rules.asp.)

The streamlined admission procedure will be available to companies whose securities have been traded on an AIM Designated Market for at least 18 months (‘quoted applicants’).  This represents a change for companies listed on the UKLA Official List which previously did not have to show that they had been listed for any specific length of time.

As well as the information listed above, each quoted applicant will now have to include in its pre-admission announcement:

  • confirmation that it has complied with the “legal and regulatory requirements involved in having its securities traded upon [the relevant designated market]”;
  • a brief description of the arrangements for settling transactions in its securities;
  • a website address at which can be found:
  • copies of any documents or announcements issued to the market on which the applicant is currently listed during the previous two years;
  • the rights attached to the AIM securities (e.g. a copy of the company’s articles of association); and
  • its latest published annual report and accounts for a financial year ending not more than nine months prior to AIM admission and prepared in accordance with UK or US GAAP or International Accounting Standards.

In addition, the announcement must contain all information “equivalent to that required for an AIM admission document” to the extent that such information has not already been made public (e.g. through announcements made to the market on which the applicant is currently listed).  In practice this is likely to mean that pre-admission announcements by quoted applicants will become more detailed and will now have to include at least:

  • information relating to the issuer’s directors, including details of any bankruptcies or insolvent companies in which they have been involved;
  • the standard warning to investors about the risks of investing in AIM companies;
  • details of any parties with whom the issuer currently has, or has in the last 12 months had, a relationship involving payment worth £10,000 or more; and
  • any other factual information which the issuer reasonably considers necessary to enable investors to form a full understanding of the company’s financial position and prospects, its management and the rights attaching to the AIM securities.

Companies listed on a designated market other than the UKLA Official List will therefore benefit from not having to produce an AIM admission document, but the AIM admission procedure will not be as ‘streamlined’ as it previously was for companies listed on the UKLA Official List.  The latter will now find the procedure for stepping down to AIM more onerous than before.

Additional responsibilities of nominated advisers

A quoted applicant’s nominated adviser is also now required to confirm to the LSE, having made due and careful enquiry, that all the requirements described above for this streamlined procedure have been complied with.  This is likely to increase to a material extent the legal and verification burden in relation to this process.

Consideration test

Under Rule 11, AIM companies are required to notify the market of all ‘substantial transactions’, ie those which exceed 10% in any of the class tests set out in Schedule 3 of the AIM Rules.  The class tests are also relevant for Rules 12 (related party transactions), 13 (reverse takeovers) and 17 (annual accounts).  Under the amended Rules, when applying the ‘consideration test’ in Schedule 3 the LSE will be able to require issuers to take into account amounts other than cash which are received by the vendors, such as the repayment of inter-company or third party debt.  This change brings the AIM Rules into line with the UKLA Listing Rules.  

Restrictions on dealings by ‘applicable employees’

Rule 19 of the AIM Rules requires AIM companies to ensure that their directors and ‘applicable employees’ do not deal in any of the company’s listed securities during a close period, except in certain circumstances.  The LSE has amended the definition of ‘applicable employees’ to capture any employee who is likely to be in possession of unpublished price-sensitive information in relation to the AIM company because of his or her employment, irrespective of whether he or she holds any shares in the company.  The change effectively extends the prohibition on dealing in close periods to any employee of the group who is likely to be in possession of price-sensitive information because of his employment.  The definition of ‘applicable employees’ so far as relevant for Rule 7 (one year lock-in for related parties and applicable employees after admission in certain circumstances) is unaffected.

Definition of ‘related party’

Under Rule 12 an AIM company is required to announce to the market details of any transaction with a related party which exceeds 5% in any class test.  At present, the definition of ‘related party’ essentially encompasses (a) directors of the AIM company or any member of its group; (b) substantial shareholders (broadly persons with a 10% interest in the AIM company); (c) associates of such directors or substantial shareholders; and (d) persons who have been group company directors or substantial shareholders within the last 12 months.  The definition of ‘related party’ has now been amended so that where an AIM company director is also a director of a third party company and, together with another director of the third party company, controls 30% of that company, the company will be an ‘associate’ of that director, and therefore a ‘related party’.  This change means that the definition in the AIM rules of a director’s ‘associates’ is wider than in the UKLA Listing Rules.

Reverse takeovers

Rule 13 is also clarified to indicate that satisfaction of any one of the criteria in the Rule may constitute a reverse takeover.

For further information please contact either John Burton (Corporate Partner) by telephone on +44 (0)20 7367 2138 or by e-mail at john.burton@cms-cmck.com or Peter Bateman (Corporate Professional Support Lawyer) by telephone on +44 (0)20 7367 3145 or by e-mail at peter.bateman@cms-cmck.com.