The London Stock Exchange (LSE) is consulting on proposed changes to the AIM Rules for Companies (AIM Notice 42). The changes concern the admission criteria for investing companies, and the treatment of companies which undertake a fundamental change of business. Consequential changes to the AIM Note for Investing Companies are also proposed. The consultation closes on 12 November 2015.
Admission criteria for investing companies
Under rule 8 of the AIM Rules for Companies, an applicant seeking admission as an investing company must currently raise £3 million in cash via an equity fundraising on, or immediately before, admission. This 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. It is now proposed that the threshold be raised to £6 million.
Fundamental change of business
Currently, under rule 15 of the AIM Rules for Companies, where a company becomes a cash shell following a fundamental disposal, it is deemed to be an investing company. Such a company must:
- obtain shareholder approval for the disposal and its proposed investing policy and,
- within 12 months, either implement that investing policy or make an acquisition or acquisitions which constitute a reverse takeover.
If the company does neither of these things within that period, trading in its securities is suspended.
However, the LSE has found that some companies are staying on market with limited cash balances that may not be sufficient to enable meaningful investment(s) or facilitate the functioning of a fair and orderly market in the company’s securities.
The LSE is therefore proposing that instead of being classified as investing companies such comapnies are classified as an AIM Rule 15 cash shell. Such a company would then have six months to undertake an acquisition or acquisitions which constitute a reverse takeover under the AIM rules. For these purposes, becoming an investing company under rule 8 (including the associated raising of funds as specified in that rule and referred to above) would be treated as a reverse takeover. If the cash shell does not complete a reverse takeover within this time limit, trading in its securities would be suspended.
If the company does not wish to undertake a reverse takeover, the LSE notes that it would expect it to get shareholder approval to cancel its admission to AIM, and consider how best to return any remaining funds to shareholders.
It is proposed that, if the changes come into effect, where an AIM company made a fundamental disposal before the date of the rule changes and had been deemed, under current rule 15, to be an investing company, the requirements of current rule 15 would continue to apply. Accordingly, if such a company did not undertake a reverse takeover or otherwise implement its investing policy within twelve months, trading in its securities would be suspended.