Historically, many AIM companies have routinely granted options, and AIM directors have often bought or sold shares, in the period beginning with the publication of their prelims but before the annual report has been sent to shareholders. However, AIM has recently issued a surprising announcement which means that no AIM company will now automatically be able to continue that practice, and some may not be able to continue it at all.
Previous practice allowing dealing in this period was on the basis that the publication of the prelims ended the two-month pre-results close period which prevented directors and employees who are likely to have access to confidential price-sensitive information from dealing.
However, the AIM Regulation team has decided the close period before an AIM company publishes its annual results only ends when full annual results are published. AIM is aware that annual results are sometimes not sent to shareholders until several days or even weeks after they have been published on the company's website, and that prelims often do not include key information. In INSIDE AIM 4, published last week, AIM says that it "has always" considered the pre-annual results close period to end when full annual audited accounts are published in accordance with AIM Rule 19: this means putting the results on the company's website and announcing that they are available, and sending a copy to each shareholder either electronically or in hard copy. However, AIM does say that the close period can end if a company's nomad is satisfied that the annual accounts have been uploaded to the company's website, and this fact and the key information in the accounts has been announced to the market.
Dealings before then will be permitted only if the company, via its nomad, obtains a derogation (waiver) from the AIM Regulation team. A derogation is likely to be granted only if the prelims contain all the information that investors are likely to consider material. From speaking to the AIM Regulation team, our expectation is that a derogation would need to be sought (if wanted) on a year by year basis, but once a derogation has been obtained for one year, all subsequent dealings will be covered by that derogation. However, we are aware from one client that one term of a derogation was that the prelims were amended to include details of directors' remuneration and shareholdings, which they would not normally do, so that the market was aware of any changes in the directors' holdings since the last annual results were published. AIM's view was that these would normally be material to AIM investors. The AIM Regulation team's interpretation of the definition of "close period" puts AIM companies and their directors and senior executives in a different position to Main Market companies, where the pre-annual results close period ends when prelims are published. The main reason for this discrepancy is that unlike the Listing Rules for Main Market companies, the AIM Rules do not require prelims to contain any particular information. AIM is therefore concerned to ensure that directors and senior executives of AIM companies do not deal at a time when the company may not have published all the information that investors may consider material.
There is also now the interesting question of when a pre-results close period begins. On the basis of the AIM interpretation, the starting point appears to be that the close period begins two months before the final results are issued, and not two months before the prelims are issued. Accordingly, if prelims are issued on say 1 April, but the annual report is sent out two and a half months later in mid-June, there would still be a gap between 1 April and mid-April in which, for example, options could in principle be granted. Finally, AIM companies should check the rules of their share plans. Some rules may provide for options to be granted in the 42 days following the announcement of preliminary results, rather than the publication of full annual results: unless the company is confident that its full results will be published only a week or so after announcing its prelims, the rules may need to be amended.
Companies at this stage would seem unclear until they discuss their proposed prelims with their nomad (and possibly with AIM) whether they will be able to allow dealings in the relevant period by those affected by the AIM rules, and so will not be able to know the position in advance. Nomads also face extra responsibilities here in that if a dealing occurs before a share price drop and further information emerges in the annual report, then they could face criticism or worse. To protect themselves, nomads are likely to seek extra comfort from companies before they support an application to AIM.
It is likely that this will not be the last word on this subject and that AIM will, as a result of enquiries, issue some further guidance. It has anyway said it will keep this area under review. We along with others are speaking to AIM to develop a working solution to these problems, and in the meantime would be very interested to hear clients' experience of this new interpretation.
To read the AIM announcement, please click here.