An “investing company” is “any AIM company which has as its primary business or objective the investing of its funds in securities, business or assets of any description”, and therefore includes cash shells and special purpose acquisition companies, but it does not include a holding company for a trading business.
Suitability of investing companies
The Note requires that an investing company should be appropriate for admission to AIM and therefore that: the company should be straight forward and not complex in terms of its structure, securities and investing policy; there should be sufficient separation between the company and an investment to ensure that the investing company does not become a trading company; the board of directors and any investment manager are, in each case, appropriate and have sufficient experience for the investing company and its investing policy, and that the investing company should retain sufficient control over its business.
The details to be included in the admission document of an investing company have now been clarified and an investment manager and any of its key employees that are responsible for making investment decisions in relation to the investing company will be considered as a director of the investing company for the purposes of certain of the AIM Rules i.e. the rules relating: to lock-ins on admission; related party transactions; directors' dealings; and the announcement of appointments/resignations.
Rule 8 of the AIM Rules
Rule 8 of the AIM Rules provides that where the applicant is an investing company, a condition of its admission is that it raises a minimum of £3 million in cash via an equity fund raising on, or immediately before admission – i.e. on the same day as admission. An investing company must state and follow an investing policy. An investing company must seek the prior consent of its shareholders in a general meeting for any material change to investment policy, and where an investing company has not substantially implemented (meaning, usually, that at least 50% of its available funds have been invested) its investing policy within 18 months of admission it should seek the consent of shareholders for its investing policy at its next AGM and on an annual basis thereafter until such time as its investing policy is substantially implemented.
Investing policy and transitional provisions
A company’s investing policy must be sufficiently precise and detailed to allow the assessment of it, and, if applicable, the significance of any proposed changes to the policy. It must contain as a minimum: assets or company in which it can invest; the means or strategy by which the investing policy will be achieved; whether such investments will be active or passive and, if applicable, the length of time that investments are likely to be held for; how widely it will spread its investments and its maximum exposure limits, if applicable; its policy in relation to gearing and cross-holdings, if applicable; details of investing restrictions, if applicable; the nature of returns it will seek to deliver to shareholders and, if applicable, how long it can exist before making an investment and/or before having to return funds to shareholders.
A company may need to make its investing policy more specific as a result of the new rules. Any changes to the investing policy that the new rules require should be made as soon as practically possible and, in any event, within six months (i.e. by 1 December 2009). The investing policy should be stated in the investing company’s annual accounts and on its website. However, shareholder approval for the change is not required unless the changes are considered to change materially the overall objective and risk profile of the existing strategy. The materiality (or not) of any change is to be determined by considering the cumulative effect of the changes to the policy since shareholder approval of the policy was last given.
The nomad of an investing company should consider with the investing company whether periodic disclosures (such as regular net asset value statements or details of its main investments, for example) should be announced to update market participants having due regard to market practice and the activities in the investing company. The approach to making regular updates should be included in the admission document or relevant circular and any changes to this should be announced.
Substantial acquisitions and fundamental change
Rule 12 of the AIM Rules (requiring announcements of substantial transactions where any of the class tests exceeds 10 per cent) does not apply to an investment made by an investing company that is: in accordance with its investing policy, and only breaches the profit and turnover tests in the class tests (but not if it breaches any of the other class tests). This is because it would be considered to be a transaction of a “revenue nature in the ordinary course of business”.
Rule 15 of the AIM Rules provides that any disposal by an AIM company, which when aggregated with any other disposals over the previous twelve months, exceeds 75 per cent in any of the class tests is deemed to be a disposal resulting in a fundamental change of business and must be announced and be conditional on the consent of its shareholders being given in general meeting. However a disposal by an investing company which is within its investing policy will not be subject to the requirement to obtain shareholder consent.
If there is a fundamental change then the AIM company will then have to make an acquisition or acquisitions which constitute a reverse takeover or otherwise implement the investing policy approved at the general meeting to the satisfaction of the Exchange within twelve months of becoming an investing company, failing which the admission to trading on AIM of the shares in the AIM company will be cancelled.
Disclosing contracts for difference
A further change to the AIM Rules now means that interests in contracts for difference (and other derivatives of shares of AIM companies) now have to be included when considering whether one has a disclosable interest in an AIM company.