AIM Consultation Notice 42

The London Stock Exchange is currently consulting on proposed changes to the AIM Rules for Companies to tighten the rules that apply to investing companies and to AIM companies that undertake a fundamental change of business.

Admission criteria for investing companies

Since 2005 Rule 8 provides that an applicant seeking admission as an investing company must raise a minimum of £3 million in cash via an equity fundraising on, or immediately before, admission. AIM originally believed that this level of fundraising would necessitate external, institutional participation, therefore ensuring an extra level of scrutiny over the company’s investment policy, the experience of the applicant’s directors and the company’s valuation on admission. It is proposed that the fundraising requirement is increased to £6 million.

Fundamental change of business

The current AIM Rules provide that a company which becomes a shell with no material trading business or assets following a fundamental disposal is deemed to be a Rule 15 investing company. Shareholders must approve the disposal and proposed investing policy and the Company then has twelve months to either implement the policy or make an acquisition(s) which constitute a ‘reverse takeover’- otherwise trading in its AIM securities are suspended. This enabled companies, where appropriate, to continue to access the benefits of the AIM market following a fundamental disposal. However, some companies have been left with insufficient cash resources to enable meaningful investments or allow the functioning of a fair and orderly market in the company’s securities.

It is now proposed that, upon becoming a cash shell following a fundamental disposal a company will no longer automatically be classified as an investing company but will instead be regarded as an Rule 15 ‘cash shell’. Within six months, the company must undertake an acquisition(s) which constitute a reverse takeover – otherwise trading will be suspended. For the purposes of his rule only, becoming an investing company pursuant to Rule 8 (including the associated raising of funds as specified above) will be treated as a reverse takeover and the provisions of Rule 14 will apply (including the requirement to publish a new admission document).

The proposed new rules are not intended to take effect retrospectively – and will not apply to companies that make a fundamental disposal prior to the new rules being adopted.

The consultation closes on 12 November 2015. To read the consultation and the proposed changes in full, please click here.

If you have comments on the proposed changes or wish to discuss further how these changes may affect your business objectives, please contact Daniel Bellau.

(This briefing provides a general summary only and is not intended to be comprehensive, nor be relied on as a substitute for specific legal advice.)