AIM Rules for Companies: public censure and fine for breaches of Rules 11 and 31

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The London Stock Exchange has published a disciplinary notice in relation to the public censure and fine of Bushveld Minerals Limited for breaches of Rules 11 and 31 of the AIM Rules for Companies.

On 7 December 2018, the London Stock Exchange (LSE) announced that Bushveld Minerals Limited had been publicly censured and fined £700,000 (discounted to £490,000 for early settlement) for breaching AIM Rules 11 (General disclosure of price sensitive information) and 31 (AIM company and directors’ responsibility for compliance). The LSE stated that it was publishing details of the public censure to educate the market on the expected standards of conduct for AIM companies under the AIM Rules.

Bushveld Minerals Limited (the Company) was admitted to AIM on 26 March 2012 and was, at the time of the relevant events, a mineral development company with interests in a portfolio of vanadium and titanium-bearing iron ore and tin assets and a coal project in Southern Africa.

In the early part of 2016, the Company was considering a transaction which, if completed, would constitute a reverse takeover under AIM Rule 14. The exclusivity agreement for the transaction required the Company to deposit $500,000 with its lawyers, subject to an undertaking to release the funds to the proposed seller upon fulfilment of certain conditions (the Exclusivity Fee). The Exclusivity Fee was a material sum in the context of the Company’s financial position and, before the undertaking was given, the Company’s nominated advisor (nomad) explicitly advised the Company that the binding obligation to pay the Exclusivity Fee would trigger a ‘without delay disclosure obligation’ under AIM Rule 11 because of its materiality. In addition, such notification would involve disclosing the reverse takeover and, pursuant to the guidance to AIM Rule 14, the Company’s securities would be suspended.

The Company wanted to avoid (or at least delay) suspension of its shares until it was confident that the transaction would proceed. It considered that a suspension would be prejudicial to the Company’s plans to complete a fundraising to provide funds for the transaction, to fund the development of its existing assets and, it hoped, reduce the materiality of the Exclusivity Fee. It sought advice from its lawyers on its AIM Rules disclosure obligations and the advice received conflicted with that of the nomad. In their view, a ‘without delay disclosure’ was not necessary.

At the same time as arguing against the nomad’s advice, the Company asked it to liaise with the LSE to discuss whether, upon notification, a suspension of its shares was required. In the meantime, the undertaking was given on 7 April 2016 without the nomad’s knowledge. The matter only came to light when the Company discussed with the nomad a development regarding the status of the Company’s fundraising activities. Following this, details of the exclusivity agreement, the undertaking and the Exclusivity Fee were disclosed on 22 April 2016 and the Company’s securities were suspended in accordance with AIM Rule 14.

Breaches of the AIM Rules

The LSE determined that the Company had breached:

  • AIM Rule 11 by failing to comply with its notice obligations to notify without delay when the undertaking was given, despite being advised by its nomad of the AIM Rules implications. While an AIM company may delay disclosure of information during negotiations which are kept confidential, in these circumstances, giving the undertaking created a binding obligation in relation to the Exclusivity Fee which was a new development requiring disclosure without delay; and
  • AIM Rule 31 by failing to provide its nomad with information concerning the provision of the undertaking, in circumstances where it knew or ought to have known that the nomad required this to carry out its responsibilities owed to the LSE. As a result, the Company also knew or ought to have known that the LSE would not be in possession of facts and information which were relevant to its discussions with the nomad.

Expected standards for AIM companies

During the judgment the LSE emphasised the importance of the nomad’s role in advising and guiding AIM companies on their Rule 11 disclosure obligations, and highlighted that obtaining separate legal advice on the interpretation of the AIM Rules does not override the nomad’s advice, or justify or mitigate a breach of the AIM Rules. As the LSE has previously stated publicly, the application and interpretation of AIM Rule 11 should not be approached in a narrow way and the advice and guidance of a nomad is particularly important when considering disclosure obligations, for example arising under AIM Rule 11.

WM comment

The AIM regulatory model provides an AIM company with the benefit of continued support and guidance from a nominated adviser who is authorised by the LSE as the designated AIM specialist. The nomad has the depth of knowledge and experience in dealing with and applying the AIM Rules through its own day to day experience with AIM companies and also through its liaison with the LSE. The advice and guidance of a nomad is designed to support an AIM company’s compliance with its AIM Rules obligations and is particularly important when an AIM company is considering its disclosure obligations.