The London Stock Exchange (the Exchange) has fined and publicly censured an AIM-listed company for failing to take its nominated adviser’s (nomad) advice and then failing to keep the nomad advised as to what it was doing.
The company was proposing entering into a transaction which would have amounted to a reverse takeover (the announcement of which would have led to a suspension of the company’s shares) and an associated fundraising. The company planned to enter into an exclusivity arrangement under which a $500,000 exclusivity fee was payable in certain circumstances.
The nomad advised the company that entering into the exclusivity arrangements was, in itself, a material transaction for the company giving rise to an immediate announcement obligation (which, because of the inter-relationship with the reverse takeover, would have led to the company’s shares being suspended from trading on AIM). The company sought the advice of its lawyers who argued that entering into the exclusivity arrangements was not, in itself, an announceable event, and then proceeded to enter into the arrangements without telling its nomad it had done so. The nomad was still kept in the dark even when the company asked the nomad to liaise with the Exchange to discuss whether or not, upon notification, a suspension was required. When the nomad eventually discovered the arrangements had been entered into, an announcement was subsequently made and the shares suspended from trading.
In deciding to fine the company £700,000 (reduced to £490,000 for early settlement), the company was criticised for both failing to comply with its disclosure obligations under AIM Rule 11 and failing to provide its nomad with all the relevant information. The Exchange has again emphasised that the AIM Rules should not be interpreted in a narrow way and the importance of the advice and guidance from a nomad to an AIM-listed company. In particular, it states that the fact that an AIM-listed company has received separate advice (this time from its lawyers) does not override the nomad’s advice nor justify or mitigate a breach of the AIM Rules. The company was also criticised for the fact that it failed to provide the nomad with the full facts at a time when, as well as consulting with its nomad, the company knew that the nomad was consulting with the Exchange on the matter, leading to both the nomad and Exchange operating without having the full facts.
This latest disciplinary action again emphasises the primary role of nomads in advising their AIM-listed companies on the application of the AIM Rules and that companies cannot rely on other advisers to overrule the nomad’s advice.
The AIM Notice can be found here.