In a recent Inside AIM publication, AIM has issued guidance relating to the disclosures that companies must make in respect of equity financing products. The guidance suggests that companies may need to disclose more information, and apply a different mind-set, than they would when making disclosures about more usual financing arrangements.
The guidance considers the approach that companies should take in respect of disclosures about equity financing products that involve AIM securities in which either:
- the company in question has an interest; or
- the directors of the company in question have an interest.
AIM highlights three areas of particular concern:
- timing: the exact nature of the arrangement may affect the time at which the disclosure needs to be made;
- terminology: the language used to describe the arrangement must properly explain the full impact of the arrangement, and
- updates: once an initial disclosure has been made, it should be updated if needs be.
As a result of the guidance, AIM suggests that companies may need to review their systems and controls, such as share dealing codes, to ensure they can obtain all the information they need to publish disclosures which comply with the rules.
For more details on the guidance, read on. To see the guidance in full, click here.
Equity financing products
The guidance issued by AIM relates to disclosures arising from equity financing products that involve AIM securities and in which AIM companies or their directors may have an interest. Examples of such arrangements include:
- equity financing facilities, which provide companies with a line of funding in return for equity,
- equity swap facilities, and
- crowd funding type products targeted at non-institutional investors.
AIM points out that these arrangements can be more complex than more commonly used forms of financing. Companies and their nominated advisers will, therefore, need to carefully evaluate the structure and any non-standard terms of such facilities to ensure that, when disclosing details to the market under the AIM Rules, investors can properly understand the arrangement.
Disclosure of companies' interests
AIM advises that companies may, therefore, need to provide more detail in their disclosures than they would for more usual forms of financing. In all cases, AIM makes it clear that the disclosure must properly reflect the substance of the transaction. By way of example, AIM suggests that the circumstances of a draw-down may themselves give rise to a disclosure obligation rather than the act of draw-down itself.
Disclosure of directors' interests
In addition to equity financing arrangements available to AIM companies, products are available to directors which enable them to use their holdings in the company as a means of personal financing.
In order to comply with the AIM Rules, it is important for companies to carefully evaluate the consequences of these agreements, particularly in respect of directors’ dealings. AIM highlights three areas of particular concern: timing, terminology and updates.
The nature of any director’s dealings arrangements must be clearly and fully disclosed. AIM points out that this will usually be at the time that a transfer of an interest in shares becomes binding (whether that transfer occurs now or in the future).
AIM advises that particular care should be taken over the terminology used to describe the nature of the arrangement to ensure appropriate and sufficient disclosure. It notes, for example, that share sale and repurchase agreements are distinct from secured loans/share pledges in a number of key areas (in particular, in relation to the point at which an interest in shares is transferred). It also cites the transfer of voting rights as an important consideration that may require disclosure.
Once an initial disclosure has been made, companies should issue updates if needs be. For example, where there are changes to a director’s previously stated intentions or if a director does not meet a margin call that results in that director’s holding in the company changing.
Impact: systems and controls
AIM suggests that in order to fully comply with their obligations, companies may need to review their systems and controls. In particular, it is suggested that companies should ensure they can obtain the information they need from directors in order to be able to properly disclose details of any equity financing arrangement to which the director is a party and which concerns the company's shares.
Additionally, the guidance advises that consideration should be given to who is best placed to prepare market notifications where key executive directors, or a number of directors, are involved in the arrangements. AIM notes that the LSE would expect, as part of an AIM company’s Rule 31 processes, that appropriate independence is exercised.
Finally, AIM advises that companies should consult with their nominated adviser at the earliest opportunity about the proper disclosure of equity financing products, whilst nominated advisers should consult with AIM Regulation if they are in any doubt.
The guidance referred to above was published on Inside AIM, clickhere to see it in full.