An AIM listed company (the “Company”) was recently publicly censured and fined heavily for failing to properly engage with its nominated adviser and for breaching the related party transaction rules.
The breaches relate to the payment of one off cash bonuses to the Company’s CEO and CFO which were characterised as post IPO bonuses in relation to their respective work on the successful IPO of the Company (the “Bonuses”). No reference to the Bonuses were made in the Company’s Admission Document published for the IPO.
In awarding the Bonuses, the Company breached both Rules 13 and 31 of the AIM Rules for Companies. As directors, the CEO and CFO are related parties of the Company under AIM Rule 13 and by virtue of the Bonuses exceeding the 5% threshold pursuant to the class tests for a related parties transaction, the Company was required to issue a notification without delay as soon as the terms of the Bonuses were agreed disclosing certain particulars about the transaction and a statement that the terms are fair and reasonable insofar as the shareholders are concerned, having consulted with the nominated adviser.
Contrary to AIM Rule 13 however, the nominated adviser was not properly consulted, such that they believed the Bonuses to be a proposal only. Neither was the notification to the market made when the terms were agreed. When the actual status of the Bonuses was clarified, the market was notified but 10 months had passed since the disclosure obligation had arisen and the nominated adviser was unable to support the required fair and reasonable statement.
The Company was also found to be in breach of AIM Rule 31 which requires an AIM company to seek advice from its nominated adviser regarding compliance with the AIM Rules, and must provide the nominated adviser with information required to carry out its role.
The Company was fined £580,000.
This case again emphasises the importance of AIM listed companies engaging openly and transparently with their nominated advisers to allow the nominated adviser to be in a position to give fully informed advice and guidance on the AIM Rules, and for the company to act on the advice of its nominated adviser. Failing to properly engage with a nominated adviser and to breach the AIM Rules can, as this case demonstrated, prove to be a costly mistake.