In 2017, London Stock Exchange (the Exchange) has issued one public censure and three private censures. In addition, the FCA fined an AIM company for failing to announce inside information in a timely manner.
Key learning points for AIM companies and nominated advisers are:
- The Exchange has again emphasised the need for AIM companies to keep their nomads informed as to what is going on and the primacy of advice from the nomad (particularly over other advisers).
- Companies must be careful not to let optimism that an event will happen over-ride the need to keep investors informed about the actual situation, which may be more uncertain or pessimistic.
- Companies must ensure that all relevant directors and employees recognise inside information and make arrangements to announce it to the stock market as soon as possible, except in the narrow circumstances when a delay is permitted.
- Both companies and nomads must deal with the Exchange in an open, honest and transparent manner.
- Nomads must maintain contemporaneous records of their actions, assessments and decisions.
- Nomads should have robust compliance and governance cultures and procedures to oversee individuals advising AIM companies.
- The Schedule One should not be submitted in final form until the nomad has completed all of its pre-admission processes and obligations.
In October, Exchange and Management Resource Solutions plc (EMRS) was censured and fined £125,000 for failing to disclose to the market and its nomad that the funding for a proposed reverse takeover might not be forthcoming. After publishing its admission document in connection with a reverse takeover, the company subsequently became aware of facts which indicated that the funding arrangements were unlikely to be honoured (the provider had disappeared). Despite this situation subsisting, the company went on to announce that the transaction was substantially agreed and almost ready to complete. When the CFO became aware of the situation and notified the nomad corrective action was taken (and the deal subsequently never completed).
The main criticisms of EMRS were that it misled the market through not providing accurate information in its announcements and that it failed to keep its nomad fully aware of what was going on. In the censure, the Exchange again stressed the importance of AIM companies keeping their nomad aware of what is going on in their businesses and the importance of consulting with their nomad over and above any other advisers (EMRS had consulted only its Australian lawyers, and its auditors and accountants).
In the private censure, an unnamed company was fined £110,000 for not providing full information in the announcement of a substantial transaction and not properly applying the related party transaction rules (and therefore not having obtained a fair and reasonable opinion on the transaction). In addition, the company did not properly inform its nomad of the facts.
In December 2017, Tejoori Limited, a self-managed closed-ended investment company quoted on AIM, was fined £70,000 for failing to disclose inside information promptly. One of Tejoori’s then existing investments was subject to a drag-along process resulting in Tejoori being forced to sell the interest for no immediate consideration and only a potential deferred (earn-out) payment. Tejoori misunderstood the process and did not believe that it had sold its investment at the time. The transaction came to light following announcements by the acquirer and investee company which were picked up on social media chat-sites, and there were sharp movements in Tejoori’s share price based on speculation as to the consideration which Tejoori may have received.
When the nomad was alerted to the rumours, it investigated further with Tejoori and its advisers and subsequently established the true facts around the transaction. As a result, Tejoori then issued an announcement and its share price fell.
The FAC found that Tejoori should have realised the effect of the transaction when the formal drag-along process was commenced and, in particular, the consequential effect on Tejoori’s carrying value of the investment. As a result, Tejoori’s failure to announce the transaction as soon as possible after that time constituted market abuse.
Nominated adviser censures
A nomad was fined £190,000 for failing to exercise due skill and care in providing guidance to an AIM company, compounded by a lack of sufficient records. In addition, the nomad was criticised for its initial liaison with the Exchange. The Exchange highlighted that an individual had been able to work in isolation without sufficient oversight, and emphasised the need for nomads to foster an environment where qualified executives are encouraged to discuss issues with each other.
In the second case, the nomad was fined £150,000 for failing to meet its admission responsibilities, including not having completed its due diligence and addressed material issues which arose out of the due diligence before submitting the Schedule One (the application was ultimately withdrawn). The Exchange considered that the approach taken by the nomad meant that the nomad did not have a sound understanding of the applicant company and its business. Again, the Exchange was also critical of the nomad’s initial interaction with the Exchange.