Recent months have shown a marked increase in the number of companies coming to the London markets and the volume of funds raised for growth business through initial public offerings. This is welcome. At the same time, after a number of years where the rules have remained static, the London Stock Exchange has refreshed the AIM Rules for both companies and nominated advisors. The changes will come into effect over the summer. AIM companies should prioritise discussion with their nominated advisors as to the impact of the Rule changes.
Improvements in corporate governance for AIM companies
At present there are a number of parallel initiatives intended to improve the quality of disclosure by companies, including changes to narrative reporting, disclosures on how corporate responsibilities to employees, the environment, the community and society as a whole are discharged and country by country reporting of tax payments.
It is very welcome that London Stock Exchange has finally used the AIM Rules to encourage greater and more meaningful corporate governance disclosure by AIM companies. London Stock Exchange is not able to direct what goes into the annual report and accounts of an AIM company (that is addressed through company law), but has made an amendment to AIM rule 26 to oblige AIM companies to disclosure what corporate governance arrangements it has in place. AIM companies need to consider this carefully.
AIM companies may base their governance on the UK Corporate Governance Code (the Code), the QCA Corporate Governance Code for Small and Mid-Size Quoted (the QCA Code), another code or none at all: the important thing is to be open and transparent with shareholders and earn and deserve the respect of shareholders for the governance decisions that are made. The decision as to which code (if any) is applied will have implications not only on its corporate governance affairs but also the manner in which an audit is conducted.
The disclosure which has often been seen to apply the Code or the QCA Code "to the extent applicable to a growth company" will not discharge the AIM Rule 26 obligation. Furthermore, the QCA Code is non-prescriptive in its character, focussing on the attributes exhibited by a well governed company and an effective board. In order to follow the QCA Code, a company necessarily needs to include narrative as to how it delivers good governance. The twelve principles of the QCA Code can only be followed in circumstances where the company has come to clear conclusions and communicated those conclusions to its shareholders.
Directors' share dealings
There has for some time been some discomfort with the manner in which AIM Rule 21 (in relation to share dealings by directors) operated, particularly in the context of secondary fund raisings. Directors making investments into their companies at the point of a fund raising is something to be encouraged: it represents a powerful sign of confidence in the business and the fairness of the pricing of the offer.
The AIM Rules will now be clarified to create a safe harbour allowing directors to participate in a fundraising without it constituting a directors' dealing provided that they do so on identical terms to other investors and, most importantly, the close period arises only because of the fund raising and not for any other reason. Close periods are the periods prior to release of financial results or when there is unpublished price sensitive information. Applying this to real situations, a director will still not be able to participate in a fund raising where there is a linked confidential acquisition transaction taking place (to be funded by the fund raising). However, at non-close periods of the reporting season where there is no other transaction underway, the director might be able to participate in a placing. It will be interesting to see how, if at all, this changes the timing of fund raisings and the manner in which they are delivered.
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