On October 5, 2017 the London Stock Exchange (LSE) published AD 16, a Disciplinary Notice announcing a consent order agreed between the LSE and Management Resource Solutions plc (the Company) for a public censure and fine of £125,000 for breaches by the Company of the AIM Rules.
The disciplinary action relates to a proposed acquisition by the Company of a Dutch company which was notified on March 5, 2015. At the time of the notification, the Company disclosed that it had entered into a debt facility with a finance provider to fund the acquisition. By March 19, 2015, certain of the directors had received further information which gave rise to real concerns that the monies might not be forthcoming from the finance provider and they could not contact the provider to drawdown the funding. The finance director of the Company was not informed of this and while the nominated adviser was informed of a possible delay due to the release of existing security, the nominated adviser was not informed of the difficulties in the drawdown of the funding. However, the directors with the knowledge did discuss those concerns with some of the Company’s other advisers in Australia.
On March 27, 2015, the Company issued a notification that the final condition for completion of the acquisition would soon be met but the Company failed to caveat the information in its notification with details of the risk to completion created by the uncertainty in respect of the financing.
The LSE considers that it was misleading to issue such a definitive notification on March 27, 2015 at a time when the Company knew that the funding was uncertain and it also considers it unacceptable for the nominated adviser not to have been informed of this, or for the Company not to have sought its advice on the AIM Rule implications. When the finance director became aware of the issues he informed the nominated adviser and the Company’s AIM securities were suspended on April 8, 2015 pending clarification of the funding position. The funding was not provided and the acquisition did not proceed. When trading was restored on June 15, 2015, the Company’s share price fell over 26 per cent.
The Company was found to have breached the following AIM Rules:
- AIM Rule 10 by failing to include in its notifications the fact that it was aware of difficulties in obtaining funds from the entity that was financing the acquisition.
- AIM Rule 31 by failing to keep its nominated adviser informed of the difficulties it was having in obtaining the funds and failing to seek the nominated adviser’s advice on the AIM Rules.
- AIM Rule 22 as the board, as comprised at the time of the events, did not fully cooperate with the LSE during its investigation into those breaches.
The LSE notes in the Disciplinary Notice that, as far as Rule 10 is concerned, companies must ensure that notifications provide a clear understanding of the matters being disclosed and are properly caveated where necessary. The LSE will bring to account companies that fail to meet the standards of disclosure required on AIM where there is actionable evidence. The censure also demonstrates the importance of keeping the nominated adviser informed of developments and of the need to seek advice. Discussing matters with other advisers is not a substitute for an AIM company’s obligations to seek advice from its nominated adviser and to keep its nominated adviser informed. In addition the LSE reminds AIM companies that if they are under investigation by AIM Regulation, they are required to use due skill and care to ensure that information provided to the LSE is correct, complete and not misleading. Failure to do so is considered to be a serious matter as it has the potential to interfere with the LSE’s work in bringing action where appropriate.
(LSE, AIM Disciplinary Notice AD16, 05.10.17)