Essential Corporate News – Week ending October 16, 2015

Publication October 16, 2015


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LSE: AIM Notice 42 – Proposed changes to AIM Rules and to AIM Note for Investing Companies

On October 15, 2015 the London Stock Exchange (LSE) published a consultation on proposed changes to the AIM Rules for Companies (the AIM Rules) which apply to investing companies and to AIM companies that undertake a fundamental change of business, together with consequential changes required to the AIM Note for Investing Companies.

Amendments to the AIM Rules are as follows:

  • Rule 8 – admission criteria for investing companies: Currently an applicant seeking admission as an investing company must raise £3 million in cash via an equity fundraising on, or immediately before, admission. The fundraising requirement was introduced in 2005 and was set at such a level to necessitate external, often institutional participation, ensuring an extra level of scrutiny over the investment policy, the experience of the applicant’s directors and the company’s valuation on admission. The LSE considers it appropriate, given the passage of time, to increase that fundraising threshold to £6 million.
  • Rule 15 - fundamental change of business: Currently an AIM company which becomes a cash shell following a fundamental disposal is deemed to be an investing company under Rule 15. Following such a disposal, some companies remain on market with limited cash balances which may not be sufficient to enable meaningful investments or facilitate the functioning of a fair and orderly market in the company’s securities. Accordingly, the LSE proposes that an AIM company that becomes a cash shell following a fundamental disposal will no longer automatically be classified as an investing company but will instead be regarded as an AIM Rule 15 cash shell. Within six months of becoming an AIM Rule 15 cash shell, the company must undertake an acquisition or acquisitions which constitute a reverse takeover under Rule 14. For the purposes of this rule only, becoming an investing company pursuant to Rule 8 will be treated as a reverse takeover and the provisions of Rule 14 will apply, including the requirement to publish an admission document. If an AIM Rule 15 cash shell has not completed a reverse takeover within six months, trading in the AIM company’s securities would be suspended. Where an AIM company did not wish to undertake a reverse takeover, the LSE expects it to get shareholder approval to cancel its admission to AIM in accordance with Rule 41, and consider how best to return any remaining funds to shareholders.

The AIM Note for Investing Companies is being updated to incorporate these amendments and, as such, provides that the LSE expects the condition of admission to raise a minimum of £6 million in cash via an equity fundraising on, or immediately before, admission, referred to in Rule 8 to usually be satisfied by an independent fundraising and not be funds raised from related parties, unless the related party is a substantial shareholder only and an authorised person. Cash funds resulting from a fundamental disposal under Rule 15 will usually be considered independent for these purposes.

The LSE has requested responses on this consultation to be sent by November 12, 2015.

(LSE, Consultation on proposed changes to AIM Rules for Companies, 15.10.15)

(LSE, AIM Note for Investing Companies (Extract) - Consultation mark up, 15.10.15)

FRC: Guidance on the going concern basis of accounting and reporting on solvency and liquidity risks for companies that do not apply the UK Corporate Governance Code

On October 15, 2015 the Financial Reporting Council (FRC) published for consultation draft guidance on the going concern basis of accounting and reporting on solvency and liquidity risks for companies that do not apply the UK Corporate Governance Code. The consultation contains developments that are a result of the 2012 Sharman Inquiry and incorporates recent changes to the corporate reporting framework, most notably the introduction of new UK and Ireland GAAP and the strategic report.

The draft guidance is intended to replaces the FRC’s Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009 and An Update for Directors of Companies that Adopt the Financial Reporting Standard for Smaller Entities (FRSSE): Going Concern and Financial Reporting.

The consultation requests comment on several key topics, including:

  • Scope: the draft guidance is best practice for all companies except those that are small and those that are required or choose voluntarily to apply the UK Corporate Governance Code.
  • Solvency and liquidity risks: the draft guidance encourages directors to think broadly about risks and uncertainties that could threaten the company’s development, performance, position and future prospects, including solvency and liquidity risk.

The FRC is requesting comments by January 15, 2016.

(FRC, Exposure Draft: Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks - Guidance for companies that do not apply the UK Corporate Governance Code, 15.10.15)

The Transparency Regulations 2015

On October 9, 2015 the Transparency Regulations 2015 (the Regulations) were published along with an explanatory memorandum. The Regulations will implement the final remaining provisions of Directive 2013/50/EU (the 2013 Directive) amending the 2004 Transparency Directive and make some minor changes to the draft Transparency Regulations that were published on August 3, 2015.

The significant changes made by the legislation are as follows:

  • Regulation 2 amends the transparency rules in Part 6 of the Financial Services and Markets Act 2000 (FSMA) in order to align them with the 2013 Directive’s harmonised definition of what constitutes an instrument to be counted towards the major voting notification thresholds.
  • Regulation 3 formalises the requirement for the Financial Conduct Authority (FCA) to ensure central storage of regulated information.
  • Regulation 4 creates a procedure allowing the FCA to suspend the voting rights of shareholders in the instance of a serious breach of the transparency rules relating to notification of acquisitions or disposals of major shareholdings. This procedure involves the FCA applying to the Court for a suspension. Regulation 4 also amends FSMA’s rules about the publication of sanctions and penalties to ensure compliance with the 2013 Directive.
  • Regulation 5 amends various definitions in Part 6 of FSMA, including of “issuer” and “home state”, to ensure consistency with the 2013 Directive.
  • Regulation 6 amends the shareholdings that can be ‘disregarded’ for the purposes of various control regimes under FSMA. This implements a new exemption in the 2013 Directive whereby voting rights established in relation to share buy-backs or stabilisation programmes do not have to be counted for the purpose of disclosure against major holdings thresholds.

Regulations 1, 3, 7 and parts of Regulations 2, 5 and 6 come into force on November 1, 2015, Regulation 4 and the remaining sections of Regulations 2 and 5 come into force on November 26, 2015, and Regulation 6 comes into force on May 31, 2016 for remaining purposes.

(Transparency Regulations 2015, 09.10.15)

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