On December 7, 2018 the London Stock Exchange (Exchange) announced a public censure and fine of £700,000 for breaches by Bushveld Minerals Limited (Company) of the AIM Rules for Companies, discounted to £490,000 for early settlement of the proceedings.
Summary of events
The Company was admitted to AIM in March 2012. In or around March 2016 the Company was considering entering into exclusivity arrangements in relation to a potential transaction to acquire an interest in a vanadium mine and plant. The transaction, if completed, would constitute a reverse takeover pursuant to AIM Rule 14. Pursuant to the terms of an exclusivity agreement entered into on March 24, 2016 relating to the transaction, the Company was required to place US$500,000 (Exclusivity Fee) on deposit with its lawyers, subject to a solicitor’s undertaking to release the Exclusivity Fee to the proposed vendor upon fulfilment of certain conditions.
The Exclusivity Fee was, at the time, a material sum in the context of the Company’s financial position. The Company’s nominated adviser advised the Company that, when the undertaking was given, the Company had committed itself to a binding obligation regarding the Exclusivity Fee which gave rise, on account of its materiality, to a without delay disclosure obligation pursuant to AIM Rule 11. Further, such notification would involve disclosing the reverse in contemplation and, pursuant to the guidance to AIM Rule 14, the Company’s securities would be suspended on notification.
The Company disagreed with the nominated adviser and sought separate advice from its lawyers on its AIM Rules disclosure obligations. The advice conflicted with that of the nominated adviser. The Company’s preference was to avoid or delay suspension of its shares until a point in time when it was more likely, in its view, that the reverse in contemplation would proceed. This was because the Company considered that a suspension would be prejudicial to its plans to complete a fundraising to provide funds for the transaction, to fund the development of its existing assets and, it hoped, reduce the materiality of the Exclusivity Fee.
When the undertaking was given on April 7, 2016, this gave rise to a without delay notification obligation but the Company did not inform its nominated adviser that the undertaking had been given. This was notwithstanding that during the period when its nominated adviser was providing AIM Rules advice and/or liaising with the Exchange, the Company knew or ought to have known that the nominated adviser was operating under the assumption that the undertaking had not yet been given (and therefore that the development which gave rise to a notification obligation had not yet arisen).
Breaches of AIM Rules
The AIM Rules that the Company breached are as follows:
AIM Rule 11, by failing to comply with its disclosure obligations to notify information without delay when the undertaking was given. The Company’s failure was against the background of being advised by its nominated adviser of the AIM Rules implications. The giving of the undertaking created binding obligations in respect of the Exclusivity Fee which was a new development requiring disclosure without delay.
AIM Rule 31, by failing to provide its nominated adviser with information in relation to the provision of the undertaking, in circumstances where the Company knew or ought to have known that this was information the nominated adviser had reasonably requested and required in order to carry out its responsibilities owed to the Exchange.
In the Disciplinary Notice, the Exchange comments that, in its discussion with an AIM company, a nominated adviser should be able to have confidence that the AIM company will be providing it with all relevant information. An AIM company’s failure to be fully transparent is detrimental to an AIM company’s ability to comply with its AIM Rules obligations, as the nominated adviser cannot provide advice and guidance on the rules with a full understanding of the facts. In this case, the Company knew or ought to have known that, given the nominated adviser’s advice on disclosure, it was relevant to tell the nominated adviser that the undertaking had been given.
Further, where there is a question about the interpretation or application of a rule to the specific circumstances, a nominated adviser can seek guidance from the Exchange. However, the Company was aware that, having asked the nominated adviser to liaise with the Exchange, it had not provided it with the full facts thereby potentially affecting the Exchange’s ability to make fully informed regulatory decisions.
The Company did not wait for the fundraising to be completed before the undertaking was given although it was aware or ought to have been aware, from the advice of the nominated adviser, that a notification obligation had arisen. Accordingly, the breaches by the Company of the AIM Rules are serious and have resulted in this public censure and fine.
The Exchange notes that it has set out guidance in respect of AIM Rule 11 and 31, in public notices and Inside AIM. Accordingly, AIM companies should be in no doubt as to what is required for compliance with these obligations and where there is a breach of these fundamental rules, the Exchange reserves the right to pursue disciplinary action and seek to impose significant fines.
(AIM: AIM Disciplinary Notice 20 – Public censure and fine for Bushveld Minerals Limited, 7.12.18)