Inside AIM – company disclosures for equity financing and directors’ dealings

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Summary: This issue of Inside AIM puts Nomads, companies and directors on notice that these types of complex financial arrangements will come under increased scrutiny. As well as emphasising the need for full and proper disclosure of these agreements, it reiterates the need for good governance to be applied when a director is involved in one of these products.

20 second summary

The latest article in Inside AIM focuses on the disclosure requirements relating to equity financing products including those which directors’ may have an interest.  This includes equity financing facilities which provide AIM companies with a line of funding in return for equity;  equity swap facilities; and crowd funding type products targeted at non-institutional investors.

There has been an increase in the variety and complexity of these products and AIM has stated that the need for this issue of Inside AIM arises from a number instances where AIM has required a company to correct inaccurate disclosure of these products.

This issue of Inside AIM puts Nomads, companies and directors on notice that these types of complex financial arrangements will come under increased scrutiny.   As well as emphasising the need for full and proper disclosure of these agreements, it reiterates the need for good governance to be applied when a director is involved in one of these products.

The references to Rule 31, in particular, also puts significant onus on AIM companies to make sure that the company's procedures ‎are in place, their directors have appropriate service agreement provisions and apply the requisite standard of independence in practice and that any failures will be a breach of the company's obligations under the AIM Rules for Companies.

Complexity and non-standard terms

Issuers and their nominated advisers (“Nomads”) should carefully evaluate the structure of and any non-standard terms contained within such facilities when considering disclosure requirements, even if this involves providing more detail than usual.  This will help to ensure that investors have a proper understanding of these products.  For example, consideration should be given as to whether the circumstances of a draw down request in an equity financing facility and the notice itself would give rise to a disclosure obligation under AIM Rules 10 and 11 in addition to the draw down itself.  Matters to consider might include:

  • the expectation the notification is likely to set regarding the company’s funding requirements and it’s expected use of the facility;
  • the size of the draw down; and
  • the company’s financial position at the time of draw down.

Disclosure of Directors Share Dealings

There are also other products available which enable directors to use their own holding in the AIM company as a means of personal financing, for example, share sale and repurchase agreements.  Directors who enter into these types of arrangements will almost invariably be required to disclose details of these “dealings” under the AIM Rules.  As such, AIM Regulation would like to remind issuers that the nature of such dealing arrangements should be clearly and fully disclosed, usually at the time the transfer of interest becomes binding (whether that transfer occurs now or in the future) and that the correct terminology is used to describe the nature of the arrangement.

Further disclosures will also be required if for example, a director does not meet a margin call that results in that director’s holding in the AIM company changing including, for example, losing rights under the relevant agreement.

Systems and Controls for Disclosure

To assist issuers in complying with these obligations, AIM Regulation recommends that:

  • any agreements between the issuer and directors should enable the issuer to obtain all necessary information in order to comply with the director dealing notification requirements under the AIM Rules.  This is an important element of Rule 31;
  • those involved in the equity arrangements should not be involved in preparing notifications to the market; appropriate independence should be exercised; and
  • issuers should consult with their Nomad at the earliest opportunity concerning the proper disclosure of these arrangements and Nomads should consult with AIM Regulation if they are in any doubt.

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