The London Stock Exchange recently changed the AIM Rules for Companies, with consequential changes to the AIM Note for Investing Companies, following a consultation which closed in November 2015. The revised AIM Rules and Investing Company Note came into effect on 1 January 2016 pursuant to AIM Notice 43.
AIM, which was originally known as the Alternative Investment Market, opened in June 1995 and is operated and regulated by the London Stock Exchange (‘Exchange’). The eligibility criteria for admission to AIM are relatively relaxed compared to admission to the Main Market, but any company seeking admission must comply with the AIM Rules. Although AIM Companies are not bound by the Listing Rules, they do need to comply with DTR5 of the Disclosure Rules and Transparency Rules.
Changes to the AIM Rules
The changes to the AIM Rules apply to investing companies and to AIM companies that undertake a fundamental change of business, as follows:
1. AIM Rule 8: Rule 8 (investing companies) has been amended to increase the amount in cash that an applicant seeking admission as an investing company must raise via an equity fundraising on, or immediately before, admission from £3 million to £6 million.
According to the Exchange, the fundraising requirement, introduced in 2005, 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 company’s directors and the company’s valuation on admission. Given the passage of time, the Exchange considered it appropriate to increase the fundraising threshold;
2. AIM Rule 15: Rule 15 (fundamental changes of business) has been amended in relation to an AIM company which becomes a cash shell following a fundamental disposal. The previous Rule 15 provided that an AIM company which became a cash shell following a fundamental disposal was deemed to be an investing company. This meant that the AIM company had to obtain shareholder approval for the disposal and its proposed investing policy, following which it would then have 12 months to either implement the investing policy or make an acquisition or acquisitions which constitute a reverse takeover under AIM Rule 14. If the AIM company did neither within the prescribed period, trading in its shares were suspended.
According to the Exchange, the purpose of this rule is to enable AIM companies, where appropriate, to continue to access the benefits of the market following a fundamental disposal. However, the previous Rule 15 resulted in some companies remaining on the market with limited cash balances which were insufficient to enable meaningful investments or facilitate the functioning of a fair and orderly market in that company’s securities.
Rule 15 has therefore been amended to provide that an AIM company that becomes a cash shell following a fundamental disposal will no longer automatically be treated as an investing company but will instead be regarded as an AIM Rule 15 cash shell. Within six months of becoming an AIM Rule 15 cash shell, the AIM company must make an acquisition or acquisitions which constitute a reverse takeover under Rule 14. For the purposes of this rule only, becoming an investing company pursuant to Rule 8 (including the associated raising of funds as specified in Rule 8) will be treated as a reverse takeover and the provisions of Rule 14 will apply, including the requirement to publish an admission document. If an AIM Rule 15 cash shell does not complete a reverse takeover within six months as required, the Exchange will suspend trading in that company’s securities.
Where an AIM Rule 15 cash shell does not intend or wish to undertake a reverse takeover in accordance with Rule 15, the Exchange expects it to obtain shareholder approval to cancel its admission to AIM in accordance with Rule 41 and to consider how best to return any remaining funds to shareholders.
A new definition of “AIM Rule 15 cash shell” has been added to the Glossary terms accordingly.
Changes to the AIM Note for Investing Companies
As a result of the above changes to the AIM Rules, consequential changes have been made to paragraph 5.2 of the AIM Note for Investing Companies, including adding a confirmation that cash funds resulting from a fundamental disposal under Rule 15 will usually be considered independent for the purposes of satisfying the equity fundraising requirements under Rule 8.