Changes to the AIM Rules affecting investing companies

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

The London Stock Exchange published AIM Notice 43 on 22 December 2015, implementing a number of important changes affecting investing companies and cash shells:

• New investing companies must raise a minimum of £6m (up from £3m) on listing.
• Existing AIM companies will not become investing companies following a disposal of substantially all of their business and will have six months (down from 12 months) to complete a reverse takeover transaction.
• Becoming an investing company following a disposal of substantially all of an AIM company's business will be treated as a reverse takeover transaction (including requiring an admission document).
• Nomads must consult AIM if there is any question or possibility as to whether or not an AIM company is or has become an "AIM Rule 15 cash shell".

The new rules take effect from 1 January 2016, with the old Rule 15 regime continuing to apply to AIM companies which became investing companies under that rule prior to that date.

The new rules are expected to result in a reduction of the number of cash shells which are either brought to the market or which stay on the market following the disposal of an AIM company's business.

Minimum fundraise

On an IPO of a new investing company on AIM, AIM Rule 8 required a minimum equity fundraising of £3m. With effect from 1 January 2016, that amount has been increased to £6m.

Rule 15 Fundamental changes of business

Previously, if an AIM company disposed of substantially all of its trading business, activities or assets, it was treated as having become an investing company and had a period of 12 months to either make an acquisition or acquisitions constituting a reverse takeover or demonstrate that it was implementing its investing policy.

From 1 January 2016, AIM Rule 15 is being amended to the effect that:

• an AIM company disposing of substantially all of its trading business, activities or assets will become an "AIM Rule 15 cash shell";
• it will then have a reduced period of 6 months to complete a reverse takeover transaction; and
• it will not automatically become an investing company – if it wants to become an investing company, that will be treated as a reverse takeover transaction and the normal rules, including the requirement to publish an admission document, will apply.

Where the AIM company has not completed its reverse takeover transaction within the six-month period, its listing will be suspended (and will normally be cancelled if it remains suspended for a further six months under AIM Rule 41).

The AIM Note for Investing Companies has been updated to reflect that the proceeds of the disposal of an AIM company's business, activities or assets will normally count towards the £6m minimum fundraising requirement if the AIM company wishes to become an investing company. Where the AIM company has no intention of becoming an investing company or looking for a reverse takeover transaction, it should seek to cancel its listing (seeking shareholder consent to do so at the same time as it seeks consent to the disposal transaction). The AIM company should also consider, with its nominated adviser, whether funds should be concurrently returned to shareholders.

Nominated advisers should note that the updated Guidance Note to AIM Rule 15 specifically requires AIM to be consulted as soon as possible where there is any question as to when and/or whether or not an AIM company has become an AIM Rule 15 cash shell. In particular, AIM must be notified if there is "any possibility" that an AIM company has become an AIM Rule 15 cash shell.

Transitional rules

For AIM companies which became investing companies prior to 1 January 2016, the old regime will continue to apply and those companies must either complete a reverse takeover transaction or implement their investing policies within 12 months of becoming investing companies under the current AIM Rule 15.