London, 27.01.2016 | Having come into effect on 1 January 2016, changes to the AIM Rules will predominantly affect investing companies and cash shells.
The London Stock Exchange (“LSE”) confirmed on 22 December 2015, following a consultation conducted in October 2015 that changes to the AIM Rules for Companies would become effective on 1 January 2016.
As of 1 January 2016, Investing companies listed on AIM will be required to meet higher fundraising thresholds for admissions to listing (the LSE now considers it appropriate to raise the threshold given the original threshold was set in 2005) in addition to the shortening of the time period during which an AIM listed company must undertake a reverse takeover following a fundamental disposal. The changes to the AIM Rules seek to ensure that AIM companies continue to enjoy investment from professional, institutional investors whilst still being subject to appropriate levels of scrutiny as well as companies being able to only access the benefits of an AIM listing if they have sufficient cash balances to make meaningful investments.
The changes to the AIM Rules are as follows:
- AIM Rule 8 – Investing companies Following the changes, investing companies must now raise a minimum of £6 million in cash on admission to AIM, up from £3 million prior to the changes to the AIM Rules.
- AIM Rule 15 – Fundamental change of businessChanges have also been implemented in relation to the classification of AIM companies that have made fundamental disposals of their trading business or assets.Previously under the old rules, a company that disposed of substantially all of its trading business, assets or activities was treated as an “investing company” and had 12 months following such a disposal to (1) demonstrate that it was implementing an investment policy or (2) make an acquisition or acquisitions constituting a reverse takeover.Under the new rules, however, such companies will no longer be automatically classified as investing companies but will instead be classed as “AIM Rule 15 cash shells”. These companies will have a reduced period of six months undertake an acquisition(s) which constitute a reverse takeover (as prescribed by AIM Rule 14). Becoming an investing company will, for the purposes of AIM Rule 15, be treated as a reverse takeover and will be subject to the requirements of Rule 8, including the higher fundraising threshold as well as the requirement to publish an admission document in accordance with AIM Rule 14.The AIM Note for Investing Companies has been updated to reflect that the proceeds of the disposal of an AIM company’s business, assets or activities will count towards the minimum fundraising threshold for investing companies (i.e. £6 million) if the AIM company wishes to become an investing company.If an AIM Rule 15 cash shell has not completed its reverse takeover transaction within the prescribed six month period, the shares of that company will be suspended. Where a company has no intention to undertake the required acquisition it will be expected to seek to cancel its listing (by seeking shareholder approval to do so at the same time as it seeks consent for the fundamental disposal). The company should also consider whether funds should be concurrently returned to shareholders.AIM companies which became investing companies prior to 1 January 2016 will be subject to the old rules, which specify a twelve month deadline for undertaking a reverse takeover or evidencing the implementation of an investment policy.Nominated Advisers should note that the Guidance to the AIM Rules has been updated and now specifically requires AIM to be consulted as soon as possible when an AIM company has become an AIM Rule 15 cash shell or whether there is “any possibility” of such occurrence.
- AIM Rule 36 – SettlementPublished changes to AIM Rule 36 also removes the ability for the LSE to agree (in certain circumstances) to the deviation from the requirement for AIM securities to be eligible for electronic settlement.
Practical Impact
The changes to the AIM Rules show the clear intent by the LSE that they are seeking to limit the number of cash shells which remain on AIM for extended periods. The changes will no doubt render it more challenging for investing companies to obtain admission to AIM in the first place and it will also put pressure onto the boards of those cash shells and investing companies that want to remain on AIM following a disposal.
As mentioned above, the changes to the AIM Rules also suggest that the LSE is keen for investing companies to have institutional support through market professionals and investors rather than retail investment and volatility in investing companies.
by Kerman & Co.LLP (London)