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A B C D E F G H I J K L M N O P R S T V W Y

AIM High

A regular update on AIM news and developments. AIM High is designed to provide useful information and advice to anyone who has an involvement with or an interest in AIM, including officers of AIM-listed companies, companies who may be considering listing on AIM, NOMADs and brokers and individuals looking for non-executive directorships.

Latest Issue

In the latest issue of AIM High we look at the current state of the IPO market and how ambitious companies considering an IPO can take a range of actions now to prepare themselves. We also look at the benefits of board diversity, the recent FPC Corporate Reporting Annual Review and our regular look at AIM market statistics. Finally, our tax expert Mark Whiteside, outlines the key tax changes for businesses that were announced in the Autumn Statement, which you can read here.

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The opportunities and obstacles of crowdfunding for AIM companies

Friday 13th May 2016

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AIM High - Issue 13

Crowdfunding is starting to play a part in fund raising by AIM companies. Mill Residential, Scancell and Ascent Resources have each involved crowdfunding platforms in their fund raising processes.

Crowdfunding allows investors’ to bid for shares at a specific price which enables the crowdfunding platform to either approach companies with the offer of funding from those investors, or to participate in a wider offer. 
 
Opportunities
 
The alternative finance market enjoyed a near triple-digit growth last year. The value of its loans, investments and donations hit £3.2bn, meaning crowdfunding can be considered as a legitimate source of funds for AIM companies to raise money, especially in small fund raises using existing shareholder authorities.
 
The ability to interest a large number of small investors through equity-based crowdfunding should additionally improve the liquidity of their shares. This could help companies (in part) overcome the issue of a mainly traded stock. We outlined in Issue 10 why AIM companies ignore retail investors at their peril.
 
Obstacles
 
There are downsides to AIM companies using crowdfunding. For example, there is the potential increase in the cost of printing and distributing a large number of sets of reports and accounts and AGM notices (as for any company with a large retail investor base).This burden can be alleviated by getting the new shareholders to consent to website communications when subscribing (after first ensuring the company’s articles of association permit this). There is also the question of certainty – will a crowdfunding platform always be able to deliver levels of investment?
 
There are also regulatory considerations if equity crowdfunding is to be considered.
 
  • The usual rules on financial promotions apply to equity-based crowdfunding: any invitation or inducement to engage in investment activity communicated in the course of business must either be made by an authorised person or the contents of the communication must be “approved”. Financial promotions must be clear, fair and not misleading and the risks of investing must be fairly presented along with the benefits.
     
  • Equity-based crowdfunding platforms have to be authorised by the Financial Conduct Authority (FCA) as making arrangements for another person to buy or sell shares is a regulated activity. The UK Crowdfunding Association has published a code of conduct of which anyone offering a crowdfunding platform should adhere.
Additionally, crowdfunding platforms need to overcome obstacles to attract investors.
 
  • Crowdfunding is considered a high-risk investment activity by the FCA.
     
  • There is no secondary market.
     
  • Investors will not have access to the Financial Services Compensation Scheme. 
Although demand is likely to be there from many AIM companies as long as money is offered at the right price, it remains to be seen if the crowdfunding platforms can find and maintain the supply of investors or, if in time, they will become dominated by institutional funds and subsumed into the wider and more regulated world of mainstream corporate finance. 
 
Need advice or wish to talk to us?
 
For further information about Crowdfunding please contact either David Bowcock or Andrew Millar:
 
Head of Corporate, Manchester
Tel: 0161 836 8948
 
 
 
Partner, Corporate
Tel: 0161 836 8965

 


Pensions Investment Research Consultants (PIRC): A look at their Shareholder Voting Guidelines 2016

Friday 13th May 2016

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AIM High - Issue 13

The Pensions Investment Research Consultants (PIRC) recently published the 23rd edition of its UK Shareholder Voting Guidelines. These guidelines are not binding on AIM companies or their shareholders, but may influence shareholders in how they approach resolutions proposed to annual general meetings. The most significant changes to the 2015 guidelines include the following:
 
  • PIRC will not support authorities for the disapplication of pre-emption rights up to an amount equal to 10% of the company’s issued ordinary share capital unless the board has made a clear, cogent and compelling case why the 10% level is appropriate for the company.
     
  • PIRC recommends voting against future share buyback authorities unless the board has made a clear, cogent and compelling case demonstrating how the authority benefits long-term shareholders and that the directors are not conflicted in recommending the authority.
     
  • PIRC believes that companies should do more to explain their position where a significant proportion of the shareholders fails to support resolutions put at a general meeting. Accordingly, the guidelines now include the UK Corporate Governance Code recommendation that companies should comment on significant opposition in the RNS announcement issued after a general meeting. Separately, PIRC has also stated that it will expect a considered response on issues arising from significant adverse votes to be provided to shareholders before the next AGM.
     
  • In relation to the provision of non-audit services by audit firms, PIRC recommends abstaining where non-audit fees are between 25% and 50% of audit fees and opposing if non-audit fees exceed 50% of audit fees for either the year under review or the previous three years.
    PIRC additionally oppose the re-election of an auditor with a tenure exceeding 10 years and abstaining on re-elections where tenure exceeds five years.
     
  • PIRC supports the Davies Review recommendation of 33% of board positions in FTSE 350 companies to be held by women in 2020. It expects companies to report on targets and attempts to address gender inequality if PIRC deems there to be evidence of gender disparity in the workforce and the gender balance on the board.
     
  • Whilst noting that remuneration committee members should not be executive directors of other UK listed companies, in 2016 PIRC will abstain on the election of such directors who sit on the remuneration committee.
     
  • PIRC considers the provision of remuneration consultancy by audit firms to be wholly unacceptable. 
Need advice or wish to talk to us?
 
For further information about these guidelines please contact either David Bowcock or Andrew Millar:
 
Head of Corporate, Manchester
Tel: 0161 836 8948
 
 
 
Partner, Corporate
Tel: 0161 836 8965

Equality and Human Rights Commission (EHRC) guidance on improving board diversity

Friday 13th May 2016

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AIM High - Issue 13

We reported in Issue 12 on the Davies Review first year summary in respect of women’s representation on FTSE 100 boards. 

Recent Equality and Human Rights Commission guidance, published on 23 March 2016, may assist companies, among others, on how to improve the diversity of their boards within the frameworks of the Equality Act 2010 and the UK Corporate Governance Code.
 
The recommendations include: 
 
  • Define the selection criteria in terms of measurable skills, experience, knowledge and personal qualities. Avoid potentially discriminatory requirements, where not justifiable, or using terms such as chemistry or fit which are subjective and undefined. 
     
  • Reach the widest possible candidate pool by using a range of recruitment methods and positive action. Avoid relying only on persona network and word-of-mouth.
     
  • Provide a clear brief, including diversity targets, to the company’s executive search firm. Ask them about their track record in delivering diverse candidates and how they use positive action to secure a diverse pool.
     
  • Assess candidates against the role specification in a consistent way throughout the process.
     
  • Establish a clear board accountability for diversity. The board should have strategic oversight of diversity across the company. Where it reasonably thinks that a protected group is under-represented or faces disadvantage it can set aspirational targets to improve diversity and inclusion in the company.
     
  • Widen diversity in the senior leadership talent pool to ensure future diversity in succession planning. Consider using positive action measures to encourage individuals from under-represented groups to apply for roles or to help them gain skills which will enable them to compete on merit on an equal footing with others. 
Need advice or wish to talk to us?
 
If you would like to discuss any matters about the EHRC guidance please contact either David Bowcock or Andrew Millar:
 
Head of Corporate, Manchester
Tel: 0161 836 8948
 
 
 
Partner, Corporate
Tel: 0161 836 8965

 


Damned Lies and Statistics …. and Brexit

Friday 13th May 2016

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AIM High - Issue 13

As previously commented on in our 'Damned Lies and Statistics Special 2015 Review', after a stellar 2014, 2015 saw a decline in the number of IPOs both on AIM and the Main Market more generally, something that may not change until after the upcoming EU referendum. 
 
However, 2015 did see a continuation of the trend on AIM for larger companies to dominate the market. Companies with a market value of £250m or more represented 51.8% of AIM’s value at the end of 2015 despite comprising just 7% of companies on the market. 
 
A weak and volatile market at the start of 2016 saw a slight fall in the value of these larger AIM companies, to an aggregate 47.9% of total market value. These market conditions have also seen a fall in the number of IPOs in London. The LSE has reported 9 AIM IPOs in Q1 of 2016 (the same number as in Q1 2015) but Main Market IPOs have fallen by half in the same period. 
 
The LSE figures show a stronger market in February but a weaker March; the early part of the year buoyed by some deals that were pulled in the volatile close to 2015, and private equity exits such as Metro Bank, Countryside Properties and Ascential. What the falling figures probably also reflect is the looming shadow of the EU referendum 
 
Deals completed earlier in 2016 had the advantage of going public well before the 23 June vote. General market volatility and the uncertainty surrounding the outcome of the Brexit decision makes it unlikely that IPO activity will increase in Q2. 
 
Need advice or wish to talk to us?
 
If you would like to discuss any AIM matters or Brexit related legal issues, please contact either David Bowcock or Andrew Millar:
 
Head of Corporate, Manchester
Tel: 0161 836 8948
 
 
 
Partner, Corporate
Tel: 0161 836 8965

 


AIM Survey

Tuesday 15th March 2016

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AIM High - Issue 12

Please help us to create a picture of current market opinion by undertaking our AIM company survey.

As a firm we advise a large number of AIM companies.

We always want to better understand the concerns and issues of companies on the market. If you are a director of an AIM company, we want your views by completing our survey to help identify how and why companies are using AIM, and what changes you might like to see.

Are the reasons that your company joined AIM the same as the reasons for which you now remain on the market? How and why are you using the market? What do you think of the regulatory landscape?

The London Stock Exchange (Exchange) and company advisers spend a lot of time talking to companies that might join AIM. The Exchange also seeks, and wants to know, the views of existing AIM companies, about how being on AIM works for them. In our survey we are asking the views of AIM companies for a report that we will share with the Exchange and publish later in the year.

Our survey should take no more than 10 minutes to complete.

Please click here to begin the survey.

Thanks for your time.


David Bowcock
Head of Corporate, Manchester
Tel: 0161 836 8948
Email: david.bowcock@brabners.com

 


Market Abuse Regulations

Tuesday 15th March 2016

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AIM High - Issue 12

In Issue 10 we referred to the Market Abuse Regulations (MAR) (which will come into force on 3 July 2016) and the impact that they will have in respect of the disclosure of price sensitive information. The MAR will also have other implications for AIM companies. 

AIM companies should note that the MAR will have direct effect so there is no need for UK legislation to implement the new rules, and no scope for them to be tailored to local markets. They should start preparing for the coming changes. 

Insider lists

Under the MAR, AIM companies will, for the first time, be required to keep, and update, insider lists containing the detailed information on each individual on that list set out in the template provided by the European Securities and Marketing Authority (ESMA) in its final report on technical standards under the MAR published on 28 September 2015. You can read the report here.

The details required by the MAR are much more extensive than those required on insider lists prepared under the Market Abuse Directive (which applied to Main Market companies). Whilst it is possible that AIM companies may be permitted to keep insider lists in less extensive form, any such change will not take place until 2017 at the earliest.

PDMR transactions

The MAR will also govern the form and content of disclosure of transactions by persons discharging management responsibilities (PDMR’s) and their assistants and again ESMA has provided a template in its final report. The MAR introduces a de minimis threshold of €5,000 within a calendar year below which transactions need not be notified. The Financial Conduct Authority has the option to increase the threshold to €20,000. 

It remains to be seen what changes the London Stock Exchange (Exchange) will propose in respect of AIM Rule 17 and Schedule 5. 

Close periods

The MAR will impose a mandatory close period of 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public, during which PDMRs are not permitted to deal, subject to very limited exceptions and with the issuer’s approval. 

As it is not compatible with EU law to have domestic rules that conflict or overlap or duplicate EU regulation the FCA will repeal its Model Code, and is proposing to replace it with (as yet unpublished) rules and guidance. The Exchange has not yet indicated what approach it is considering for AIM Rule 21 and the related Guidance Note, but it is hard to see how it can retain the current two month close period. 

Key action points

To prepare for the implementation of and compliance with the new market abuse regime, AIM companies should consider the following:

  • Policies and procedures: updating internal policies and procedures to reflect the new regime.
     
  • Insider lists: preparing insider lists that comply with the formats to be prescribed by the ESMA (and ensuring that their advisers do the same).
     
  • Share dealing code: amending their share dealing code to address, among other things, the new de minimis threshold, time period for announcement and permitted dealing windows.
     
  • Training: briefing directors, other PDMRs, insiders and other relevant employees on their obligations under the new regime. 

If you require further information or guidance in respect of the new regime, or for any AIM matter you have, please contact either: 


Andrew Millar

Partner, Corporate
Tel: 0161 836 8965
Email: andrew.millar@brabners.com

@brabners.com


Revised AIM Rules for Companies

Tuesday 15th March 2016

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AIM High - Issue 12

As we reported in Issue 10, the London Stock Exchange (LSE) had consulted on (and on 22 December 2015, confirmed) changes to the AIM Rules for Companies and consequential changes to the AIM Note for Investing Companies. The LSE has implemented the rule changes to AIM Rule 8 (investing companies), AIM Rule 15 (fundamental changes of business), the Guidance Notes on AIM Rule 15 and paragraph 5.2 of the AIM Note for Investing Companies as proposed for consultation in AIM Notice 42. 

The new version of the AIM Rules also includes certain minor changes arising from the CSD Regulation as notified in AIM Notice 41. 

The revised AIM Rules and AIM Note for Investing Companies took effect from 1 January 2016, and marked-up versions to show changes to the AIM Rules and the AIM Note for Investing Companies are also available. 

Rule 8
The LSE confirmed that almost all respondents to the consultation welcomed the proposed changes relating to the increase in fundraising requirement for investing company applicants to AIM from £3 million to £6 million. It did not agree to suggestions that a lower fundraising requirement should be introduced for special purpose acquisition vehicles, noting that AIM Rule 8 does not differentiate between such vehicles and other investing companies. 

Rule 15
In respect of the AIM Rule 15 changes, again the LSE reported that respondents welcomed the proposed changes. 

It noted that some respondents considered the six month time limit before suspension to be too short a period within which a company must make a reverse takeover. However, the LSE flagged that an AIM Rule 15 cash shell will have a total of 12 months to make a reverse takeover, taking into account the period of suspension prior to cancellation (see AIM Rule 41). 

If you would like more information about the AIM Rules please contact either:


Andrew Millar

Partner, Corporate
Tel: 0161 836 8965
Email: andrew.millar@brabners.com


 


Takeover Code developments

Tuesday 15th March 2016

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AIM High - Issue 12

The level of public M&A in 2015 ensured that company directors required familiarity with the Takeover Code, and 2016 has started in similar fashion with Sainsbury pursuing Home Retail Group. We summarise below a couple of recent developments in the Takeover Code.

Takeover Appeal Board: ruling on interpretation of Rule 2.6(d)

Once an offeror has announced a firm intention to make an offer, Rule 2.6(d) requires any other publicly identified potential offeror to either announce a firm intention to make an offer or to announce that it does not intend to make an offer, in each case, by 5.00pm on the 53rd day following the publication of the first offeror’s initial offer document.

The rationale for the Rule is to remove uncertainty in the later stages of the offer timetable as to whether a potential competing offeror would announce a firm offer, at a time when shareholders in the offeree were making their investment decisions. Shareholders in an offeree should not be deprived of the opportunity to receive an improved offer and should be able to reach a properly informed decision on an offer.

In connection with the recent offer for Xchanging plc the Takeover Appeal Board had to consider the application of Rule 2.6(d) in a case where there were more than two competing offerors.

In accepting the decision of the Panel Executive, the Appeal Board ruled that, where there are two or more offerors, the phrases “first offer” and “the first offeror’s initial offer document” in Rule 2.6(d) should be interpreted as referring back to the words “an offeror” in the first line of the Rule. In relation to competing offerors, the Rule is then construed as applying to the offeror whose offer document has established the offer timetable1, and not the offeror which first, historically, published an offer document. The Appeal Board confirmed that this construction accords with the Rule’s rationale of avoiding uncertainty in the later stages of the offer timetable.

Changes to the Takeover Code

As we reported in Issue 10, on 23 October 2015, the Code Committee published response statement 2015/3 confirming the introduction of three new presumptions to the definition of acting in concert to codify the Panel Executive’s practice of presuming persons to be acting in concert with each other in each of the following categories:

  • A person, the person’s close relatives, and the related trusts of any of them, all with each other.
     
  • The close relatives of a founder of a company to which the Code applies, their close relatives, and the related trustees of any of them, all with each other.
     
  • Shareholders of a private company who sell their shares in that company in consideration for the issue of new shares in a company to which the Code applies, or who, following the re-registration of that company as a public company in connection with an IPO or otherwise, become shareholders in a company to which the Code applies.

The Code changes took effect on 23 November 2015.

1 In a competitive situation, Note 2 on Rule 31.6 provides that, if a competing firm offer has been announced, both offerors will normally be bound by the timetable established by the publication of the competing offer document. In situations like the offer for Xchanging, if a third offeror makes an approach it is governed by the re-set timetable (re-set by publication of the first competing firm offer).

If you would like more information on the Takeover Code developments please contact either:


Andrew Millar

Partner, Corporate
Tel: 0161 836 8965
Email: andrew.millar@brabners.com


Women on boards: the Davies review five-year summary

Tuesday 15th March 2016

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AIM High - Issue 12

Five years ago in February 2011, Lord Davies set a target for women’s representation on FTSE 100 boards of 25%, to be achieved by 2015 through voluntary means. The Davies review five-year summary, which was published on 29 October 2015 (the Davies review), shows not only that the target has been reached but that the number of women on FTSE 250 boards has also increased substantially. 

Neither the original report, nor the Davies review, focus on AIM companies. However, the findings, goals and rationale remain equally relevant for companies on the junior market. AIM companies have historically been less diverse than their main market counterparts and can expect to come under increasing pressure to mirror the trend of greater gender diversity. 

2011 Report

Lord Davies’ original report “Women on Boards” took as its premise that corporate boards perform better when they include the best people who come from a range of perspectives and backgrounds. It provided practical recommendations to address the gender intolerance on boards, but rejected binding quotas for the number of women on listed company boards in favour of a voluntary, business-led approach. 

Key recommendations of the report included: 

  • FTSE 100 companies should aim for 25% of their directors to be women by 2015.
     
  • Quoted companies should disclose annually the number of women on the board, in senior management and in the organisation as a whole. 

Progress

The Davies review shows that the 25% target for FTSE 100 companies had been reached in October 2015, with FTSE 250 companies not too far behind. Other findings include: 

  • Only a small number of women directors hold multiple directorships, and therefore do not skew the figures.
     
  • Executive search firms are being supportive of the review, and have adopted a standard voluntary code to encourage gender diversity on corporate boards. 
     
  • Investors are not engaged enough in using their collective voice to full effect.
     
  • 22% of new female directors had no previous listed board experience, however women without a professional services background have not been considered to any great extent. 

Further recommendations

The Davies review emphasises that further work and a renewed focus is required, particularly to boost the number of women appointed to chair boards and as senior independent directors, as well as to executive director roles and in the executive management layer immediately below the board. 

Other countries that have introduced quotas for women board appointments have set their goals higher than the 25% target in the UK. The introduction of an EU directive setting a voluntary target of 40% women non-executive directors by 2020, backed up by an obligation on companies that fall short of that target to appoint a woman candidate where a male candidate and a female candidate are equally qualified, is due to be prioritised in 2016. 

The Davies review therefore makes further recommendations, with the national call for action and the voluntary, business-led approach to carry on for a further five years to ensure substantive and sustainable improvement in women’s representation. 

AIM companies should continue to stay involved in the debate, consider how they can address any imbalance on their boards, and how they can benefit from recruiting the best people. 

If you would like more information about women on boards please contact either:


Andrew Millar

Partner, Corporate
Tel: 0161 836 8965
Email: andrew.millar@brabners.com

 


Corporate governance

Tuesday 15th March 2016

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AIM High - Issue 12

Two recent corporate governance reports have been published.

Financial Reporting Council report

The Financial Reporting Council (FRC) published a progress report during January 2016 entitled “Developments in Corporate Governance and Stewardship 2015”. Although the report, the full version of which is here, is focussed on FTSE 350 companies, its findings are no less relevant for AIM companies, highlighting, as it does, key corporate governance issues and concerns.  

Findings that the FRC made, include:

  • 90% of FTSE 350 companies are now complying with nearly all of the provisions of the UK Corporate Governance Code (UKCG Code);
     
  • There has been a slight reduction in strict compliance with the UKCG Code since 2014 as a result of new entrants to the market, but that the UKCG Code has also led to improvements in the quality and quantity of engagement between investors and companies;
     
  • The quality of explanations on non-compliance have improved and it is expected that more companies will comply fully with the UKCG Code once the EU Audit Regulation (ARD) Directive is implemented in June 2016;
     
  • There have been improvements in the standard of audit committee reports, with 72% of the FTSE 350 giving detailed descriptions of the work they do, when only 65% were giving such descriptions in 2014;
     
  • Audit retendering has improved with 46 of the FTSE 350 putting their external audit engagement out to tender this reporting season, which is up from 27 in the previous year.

It is thought unlikely that the UKCG Code will receive any substantial revision within the next three years save perhaps for minor revisions following implementation of the ARD. It has been suggested that it would be appropriate for the UKCG Code to be revised once every four years except in the event of exceptional market developments.   

Additionally, the FRC will continue to carry out its market-led review of how boards can most effectively establish company culture and practices that embed good corporate behaviour. It is expected to publish its findings in the summer about the roles of boards in shaping and embedding a desired culture.

QCA corporate governance behaviour review 2015

Whilst AIM companies are not required to adhere to the provisions of the UKCG Code (although many contract with their Nomads in respect of compliance), they are encouraged to develop strong governance procedures and advised to aspire to comply with key elements set out in the UKCG Code. 

The majority of AIM companies adhere to the Quoted Companies Alliance (QCA) Guidelines which take inspiration from the UKCG Code but are designed specifically for the needs of growth companies and their investors. 

The QCA published its third annual corporate governance behaviour review published in December 2015 has identified a number of themes: 

  • Companies are not yet effectively linking governance with the strategy in their annual report;
      
  • Companies should make it as easy as possible for investors and include information in their annual report, even if it is readily available from other public sources;
     
  • Companies should use their annual report as a means of attracting investor attention;
     
  • The report should have an interesting narrative and convey the life and energy of the company;
     
  • Investors want to see year on year progress, both in increasingly solid governance structures and a narrative that explains the company’s evolution and changing risk profile. 

If you would like more information about corporate governance matters please contact either:


Andrew Millar

Partner, Corporate
Tel: 0161 836 8965
Email: andrew.millar@brabners.com

 


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