Essential Corporate News – Week ending August 17, 2018

Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

On August 13, 2018 London Stock Exchange (Exchange) announced that the AIM Disciplinary Committee has approved a Consent Order between the Exchange and MBL Group plc (Company) for a public censure and fine of £125,000 for breaches by the Company of the AIM Rules for Companies (AIM Rules), discounted to £75,000 for early settlement of the proceedings.

The AIM Rules that the Company breached are as follows:

• AIM Rule 11 by failing to notify, without delay, information it became aware of on September 14, 2017 about a significant deterioration in the financial performance of its subsidiaries, which was price sensitive and was also in contrast with information previously disclosed to the market. The information was not disclosed until September 28, 2017;
• AIM Rule 10 by omitting to include information in a notification of September 25, 2017 regarding the deterioration of the financial performance of the subsidiaries;
• AIM Rule 31 by failing to seek advice from its nominated adviser, when it was appropriate to do so, regarding the AIM Rules disclosure implications of relevant information; and
• AIM Rule 31 by failing to ensure that it had sufficient procedures, resources and controls to enable it to comply with the AIM Rules

The Exchange notes in the Disciplinary Notice that compliance with AIM disclosure obligations is essential for market integrity and confidence, and states that this censure demonstrates the importance of an AIM company ensuring that it properly considers disclosure implications of relevant information available to it. Further, when notifying information, an AIM company is required to take reasonable care to ensure that the information does not, by omission, create an incomplete understanding.

The Exchange states that it is recognised that the failure of the Company to disclose the relevant information was not intentional and that the board was operating in difficult circumstances where it had to address various challenges. However, notwithstanding such competing demands on the time and resources of its board, the Exchange points out that an AIM company must ensure that it has sufficient procedures, resources and controls to meet its AIM Rules obligations at all times.

The Exchange comments that this censure demonstrates the importance of keeping the nominated adviser informed of developments and the need to seek advice and guidance. In this case, the failure to inform the nominated adviser of the deterioration of the financial performance of the subsidiaries resulted in the nominated adviser not being in a position to be able to advise and guide the Company on its AIM Rules disclosure obligations.

(LSE: AIM Disciplinary Notice – AD 18 – 13.08.18)

On August 13, 2018 the London Stock Exchange (Exchange) announced that it has concluded two separate disciplinary actions as private censures against AIM companies for breaches of the AIM Rules for Companies (AIM Rules). The Exchange has published details of these disciplinary actions, on an anonymous basis, for the purpose of educating the market on the expected standards of conduct for AIM companies under the AIM Rules.

Private censure and fine of £75,000 against an AIM company

An AIM company has been privately censured and fined £75,000 (discounted to £50,000 for early settlement) for breaches of AIM Rules 10 and 31.

The AIM company gave an update regarding the progress of its business via social media. Some of the information disclosed in this update was information which should have been notified via a Regulatory Information Service, before it was first disclosed through social media. The AIM company did not have an adequate social media policy to monitor its social media output, including controls to check that information made public through social media was not released before it was notified in accordance with the AIM Rules.

The AIM company breached AIM Rule 10, by making public relevant information via social media before it was disclosed in a regulatory notification. By failing to have sufficient procedures, resources and controls in place to monitor its disclosures made through social media, the AIM company also breached AIM Rule 31.

The Exchange notes that AIM Regulation gave guidance to nominated advisers and AIM companies regarding the interaction of social media with an AIM company’s disclosure obligations under the AIM Rules in December 2016.

While the Exchange recognises that social media can be of significant value to AIM companies when communicating with their investors, it comments that this case highlights the importance of AIM companies ensuring they have sufficient procedures, resources and controls in place to manage these communications and to ensure that no information is disclosed that should have been first notified in a regulatory notification. AIM Rule 10 is a fundamental AIM Rule which promotes equal and timely disclosure of regulatory information to the market, and is important in maintaining the integrity of the market. The Exchange points out that disclosures of regulatory information before that information is notified in a regulatory notification should not be made, in whatever form, whether for example this is via a ‘tweet’, podcast or an interview with a journalist.

It also points out that AIM companies should also have regard to the Market Abuse Regulation, as any early or selective disclosure may give rise to issues beyond the AIM Rules, including market abuse.

Private censure and fine of £75,000 against an AIM company

An AIM company has been privately censured and fined £75,000 (discounted to £50,000 for early settlement) for breaches of AIM Rules 11 and 31.

The breaches relate to the AIM company’s approach to providing information to its outgoing nominated adviser in circumstances where the relationship between the AIM company and its nominated adviser had become difficult.

In breach of AIM Rule 31, the AIM company did not keep its existing nominated adviser informed as to its progress in appointing a successor nominated adviser, notwithstanding frequent requests for updates during the notice period. The nominated adviser required this information so that it could advise the AIM company on its AIM Rules disclosure obligations. As a consequence, the AIM company delayed notifying the market when (i) the impending departure of its existing nominated adviser and its failure to appoint a replacement nominated adviser had become price sensitive, and (ii) it could no longer withhold this information under the guidance to AIM Rule 11.

Even where there is a deterioration in the relationship between an AIM company and its nominated adviser, the Exchange points out that it remains incumbent on the AIM company to meet reasonable requests for information from its nominated adviser and to seek its advice regarding compliance with the AIM Rules whenever appropriate and to take that advice into account. These three requirements are no less important during the period in which a nominated adviser is serving notice.

(LSE: AIM Disciplinary Notice – AD 19 – 13.08.18)

On August 15, 2018 the High Pay Centre/CIPD annual assessment of FTSE 100 CEO pay packages was published. The assessment found that CEO median pay rose by 11 per cent between 2016 and 2017, now standing at £3.93 million per year, an increase on £3.53 million in 2016. Using the mean measure, the CEO pay across all FTSE companies has increased by 23 per cent over the same period, from £4.58 million to £5.66 million.

Further analysis shows, among other things, that:

• The highest paid CEO in the financial year ending 2017 is Jeff Fairburn of Persimmon plc who has received £47.1 million, 22 times his 2016 pay. Simon Peckham of Melrose Industries plc received £42.8 million, 43 times his 2016 pay.
• The mean pay ratio between FTSE 100 CEOs and the mean pay package of their employees is 145:1, which is higher than 128:1 in 2016.
• While women make up 7 per cent of FTSE 100 CEOs, they earn just 3.5 per cent of total pay.

The report makes several recommendations to achieve fairer and more ethical approaches to pay and reward. These include the following:

• Rather than waiting for the pay ratio reporting requirement to come into force in 2019, companies should introduce it immediately, supported by a clear narrative.
• Companies should provide clearer information about wider pay distribution within their organisations.
• Policy-makers and companies should review whether existing remuneration reports can be reduced in length and complexity to ensure they can be easily scrutinised.
• Remuneration committees and shareholders should place stronger emphasis on ensuring CEO reward is aligned with pay practices throughout the organisation.
• Remuneration committees should ensure that CEO performance is assessed by non-financial as well as financial measures, including investment in workforce training and development and indicators of employee satisfaction and well-being.
• HR professionals have a vital and critical role to play in influencing remuneration committees and must ensure that senior leaders receive and act on the insights from pay data, appreciating the various ways that reward can incentivise and affect behaviours and performance across the workforce.

(High Pay Centre: CIPD executive pay report 2018 – 15.08.2018)

(High Pay Centre: CIPD executive pay 2018: Press release – 15.08.2018)

On June 15, 2018 NEX Exchange launched a consultation in relation to proposed changes to the NEX Exchange Growth Market Rules for Issuers for fast track applicants.

Following the end of the consultation period, NEX Exchange has published feedback on its proposed amendments and its Corporate Adviser Handbook and Due Diligence Practice Note have been amended in line with the changes. The revised rules are effective from August 1, 2018 and are as proposed in the June 2018 consultation.

(NEX Exchange Growth Market Practice Note on Due Diligence – 06.08.18)

(NEX Exchange Corporate Adviser Handbook (with mark-up) – 01.08.18)

(NEX Exchange Growth Market – Rules for Issuers – 01.08.18)

(Market Consultation Feedback - Amendments to the NEX Exchange Fast Track Rules – 31.07.18)