New (and improved) AIM rules

Replacement of the working capital statement with specific financial disclosures 

The Revised AIM Rules remove the previous requirement for directors to include a working capital statement in an AIM admission document. In its place, the LSE requires an AIM company to focus on disclosure of (i) the capital resources available, (ii) the financial obligations and liabilities, (iii) the proposed use of any fundraising undertaken as part of an AIM admission and (iv) the directors' reasonable opinion of the AIM company's future fundraising needs for the next 12 months, including any risk factors that might impact on the opinion.

This is a significant change for AIM companies seeking an AIM admission by reducing the complexity and cost of that financial workstream. The LSE maintains that the focus on disclosure is meaningful to investors as it will provides them with qualitative data to enable them to make informed investment decisions.

Expanded accepted accounting standards

AIM companies incorporated in the United Kingdom may now use UK GAAP (FRS 102) instead of International Financial Reporting Standards ("IFRS"). Other local GAAPs may also be permitted where IFRS equivalency is demonstrated and the LSE accepts the proposed accounting framework and the availability and the quality of disclosures in the relevant accounts.

This change addresses concerns about the cost and complexity of converting financial information into IFRS and the actual value of this exercise to investors.

Incorporation by reference 

AIM companies will be permitted to incorporate information by reference into their AIM admission documents, subject to new guidance contained in the relevant guidance notes to the Revised AIM Rule (the "Revised Guidance Notes"). This change is intended to reduce the cost and length of AIM admission documents.

Lock-in arrangements — AIM Rule 7

The LSE has clarified what the LSE calls a misunderstanding of how AIM Rule 7 lock-in arrangements operate. The Revised Guidance Notes for Rule 7 state that lock-in arrangements are contractual in nature as between the AIM company and relevant parties and that the LSE has no remit to enforce these arrangements.

The Revised Guidance Notes on Rule 7 reflect the LSE's previous policy to permit sell-downs within the first 12 months post-admission in three limited circumstances: (i) transfers between spouses or into a pension plan; (ii) intra-group transfers; and (iii) financial hardship.

The LSE proposes to introduce a new mechanism, to be known as the "Capital Access Window", to enable an AIM company undertaking an equity fundraise to voluntarily request a temporary suspension of its securities.

The Capital Access Window is intended to assist AIM companies in managing the fundraising process, including approaching retail investors, while reducing market volatility during that process. Requests will be assessed on a case-by-case basis, and no fixed duration is proposed, though the LSE notes that it will be in the interests of both the AIM company and investors to restore trading as soon as practicable.

Whilst other jurisdictions such as New York, Hong Kong and Australia have introduced mandatory and/or voluntary trading halts, the proposed Capital Access Window does seem to be a genuinely innovative mechanism to facilitate fundraising and retail participation. It will be interesting to see how the market reacts to the LSE's proposal to try to competitively differentiate AIM to attract growth companies.

Revised approach to reverse takeovers — AIM Rule 14 

Under the previous AIM rules for companies, an acquisition that exceeded 100% on any of the class tests would automatically be classified as a reverse takeover, regardless of whether it fundamentally altered the AIM company's business.

The Revised AIM Rules provide that shareholder approval will not be required solely by virtue of the fact that a transaction exceeds 100% in any of the class tests. An acquisition will be a reverse takeover if there is a fundamental change in the AIM company's business, board or voting control. However, an AIM company is required to consider, with support from its nominated adviser, where an acquisition or a series of acquisitions in a 12 month period, which exceeds 100% in any of the class tests, represents such a fundamental change.

Although an acquisition will now not be classified as a reverse takeover solely by reason of exceeding 100% in any of the class tests, where there is no such fundamental change to the AIM company's business, board, or voting control, such transaction will instead be classified as substantial transactions under AIM Rule 12. While it is not mandatory under the Revised AIM Rules for an AIM company carrying out an acquisition which exceeds 100% in any of the class tests to seek shareholder approval at a general meeting, under the Revised Guidance Notes on Rule 12 the AIM company through its nominated adviser should consult with the LSE in the case of such a transaction where shareholder approval is not being proposed by the AIM company.

No automatic suspension on notification of a reverse takeover in contemplation

Where the nominated adviser is satisfied that appropriate alternative disclosures can be made, it may request that trading in the shares of an AIM company are not suspended upon announcing a reverse takeover in contemplation. This is intended to preserve market orderliness through disclosure rather than automatic suspension.

Delay in completion of a reverse takeover – no supplementary admission document required 

Where there is a gap between shareholder approval of a reverse takeover and completion of that acquisition (and, as a result, admission), the LSE has provided that a supplementary AIM admission document will not be required unless there is a significant new factor, material mistake or material inaccuracy. Key developments during the gap period must still be notified to the market. It is intended that supplementary admission documents are used proportionately.

Changes to class tests

The class tests are amended as follows:

• Gross Capital Test: This class test is not required in the case of a disposal by an AIM company. This class test may be pro-rated for investing companies undertaking an acquisition in line with their investing policy where the acquisition does not result in control or consolidation.
  
  
• Profits test: This class test will now only apply for the purpose of determining whether or not a proposed transaction is a related party transaction.

Substantial transactions — increased class test threshold 

The class test threshold for determining whether a transaction constitutes a substantial transaction under Revised AIM Rule 12 has been increased from 10% to 25%, so as to align AIM with the Main Market.

This is a significant change for AIM companies engaged in acquisition activity, as it reduces the number of transactions that will require substantial transaction disclosures.

Non-standard director remuneration — AIM Rule 13 

Nominated advisors will no longer be required to provide a fair and reasonable opinion on non-standard director remuneration where they are satisfied that contractual terms provide reasonable commercial protections for the AIM company. However, where there is uncertainty, the matter should be resolved by putting the transaction to a shareholder vote.

Special voting shares 

Special voting shares (i.e. shares in dual class share structures) are now permitted on admission to AIM, enabling founders to retain control of their companies. This is based on the Main Market's experience with such structures and is intended to remove a key barrier to admission for founder-led businesses.

Corporate governance disclosure — AIM Rule 26 

Revised AIM Rule 26 does not now contain a requirement for AIM companies to adopt or comply-or-explain against a particular corporate governance code. Instead, a recognised code may be used by an AIM company as a framework for its governance approach.

The LSE say these changes seek to ensure that an AIM company has flexibility to adopt governance arrangements that are appropriate to its size, stage of development and circumstances.

Proxy advisor engagement 

In addition, Revised AIM Rule 26 gives AIM companies the opportunity to voluntarily disclose details of their engagement with proxy advisors, including disclosing factual inaccuracies in proxy advisors' statements and the responsiveness of proxy advisors to proxy advisor engagement.

In our opinion, discussions in the City around the influence of proxy advisors on AIM companies has markedly increased in recent history and, whilst the LSE notes it has no remit over proxy advisors (unlike, for example, the SEC in the United States), this new rule suggests that there was a strong demand for the LSE to take action. It will be interesting to observe whether the empowerment of issuers with disclosure and response rights will impact the effect of the proxy advisors and whether the market does indeed push for a mandatory framework.

Third-party commentary and right of reply 

The LSE has introduced a voluntary right of reply for AIM companies to respond to third-party commentary, speculation or criticism (including on bulletin boards and social media). The LSE emphasises that an AIM company should not feel obliged to respond to, or that a failure to exercise this right should not be taken as acceptance, agreement or endorsement by the AIM company of, such commentary, speculation or criticism.

Express applicant admission route 

The LSE has replaced the current AIM Designated Market Route with a new Express Market route. The key features of the proposed route are:

• expanded eligibility to include companies from a broader range of jurisdictions operating in regulated markets comparable to the principles adopted by the International Organisation of Securities Commissions;
  
  
• streamlined admission process where the current Schedule One Announcement period is three clear business days. In addition AIM Rule 7 lock-ins will not apply.
  
  
• Main Market applicants will have an accelerated admission process and will not be required to submit a draft Schedule One Announcement.

Dual market applicant admission route 

The LSE has included in the Revised AIM Rules a dual market applicant route for companies seeking an IPO simultaneous with the admission to an Express Market and to AIM. The new rules will allow companies to rely on documents prepared for their Express Market admission for the purposes of their AIM admission, subject to limited specific content requirements. However, a dual market applicant must raise at least £6 million (or equivalent) as part of an initial public offer.

Removal and replacement of AIM Rule 11 

The LSE has removed the previous AIM Rule 11 disclosure obligations on the basis that, given all LSE markets are subject to the UK's version of the Market Abuse Regulation ("UK MAR"), that rule was unnecessary duplicative.

A new AIM Rule 11 instead is included in the Revised AIM Rules which focuses on the role of the nominated adviser applying its specialist public market corporate finance experience in assisting AIM companies to understand the potential market impact of developments in their business and supporting compliance with UK MAR obligations. One could argue that this creates a clearer standard against which a nominated adviser may be judged when giving such an opinion as well as an evidential framework for possible action where there is insufficient engagement by a nominated adviser with an AIM company in connection with the publication of inside information.

The Revised AIM Rules which add explicit language to the introduction to the Revised AIM Rules setting out the nature of AIM's buyer-beware model, reflect that investors must consider the risk profile of specific investments and take responsibility for their investment decisions. Additionally, an AIM admission document will require a prominent bold disclosure on its first page stating (amongst other things) that "AIM is a buyer beware market".

In addition, the LSE has made the following additional changes. The more material of these changes are as follows:

• Disciplinary records: AIM companies are required to maintain records of any findings or disciplinary action by the LSE for a minimum of five years, to facilitate smoother transitions between nominated advisors.
  
  
• Replacement nominated advisor appointment period: The period to appoint a replacement nominated advisor is extended from one month to six weeks.
  
  
• Share buybacks — AIM Rule 17: The notification requirements for share buybacks has been clarified, including confirmation that compliance with the relevant UK Listing Rules disclosure requirements will satisfy the AIM Rule 17 notification expectation.
  
  
• Directorship disclosure:  The disclosure of directorships in Schedule Two, Part One to the Revised AIM Rules has clarified that directorships held within subsidiaries and/or group companies are excluded.
  
  
• Block admissions: The requirement for a six-monthly return for block admissions has been removed, aligning this with the approach of the Main Market.