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Private censure and fine for breach of AIM Rules

Print publication

04/06/2014

An unnamed AIM company has been privately censured and fined £90,000 by the AIM Executive Panel. The company failed to notify the market, without delay, of transactions with known related parties, in breach of Rule 13 of the AIM Rules for Companies. It also breached Rule 31 by failing to take into account the advice of its nominated adviser (nomad) and failing to provide the nomad with complete information. Broadly, ‘related party’ under the AIM Rules means any current or recent director or substantial shareholder (or any associate of either). For these purposes ‘recent’ means the 12-month period preceding the transaction and substantial shareholder means anyone who controls the exercise of 10 per cent. or more of the votes able to be cast at a general meeting.

Rule 13 provides that where any transaction is proposed between the company and a related party and the relevant ‘percentage ratios’ equal 5 per cent. or more, the company must notify a RIS without delay as soon as the terms of the agreement are agreed, setting out information specified in Schedule 4 to the AIM Company Rules; the name of the related party and the nature and extent of its interest in the transaction; and that the directors believe, having consulted with its nomad, that the terms of the transaction are fair and reasonable from the perspective of the shareholders.

In practice, the most troublesome aspect of related party transactions is determining whether the counterparty is or is not a “related party”. There is a lengthy definition in the AIM Rules and professional advice should be sought where there is any doubt. As this disciplinary notice shows, the nomad must be kept properly informed as well. Indeed, to quote from the notice: “The Exchange would emphasise the importance of the role of the nomad to advise and guide AIM companies on their AIM Rules obligations. In particular, it is essential that an AIM company communicates in an open and honest manner with its nomad and takes into account the advice of the nomad on AIM Rules compliance”.

The fine could well have been higher. The Exchange took account of the company’s previous good record of compliance, its cooperation with the investigation and the lack of any discernible market impact arising from the breach.

WM comment
When considering any proposed transaction, it is imperative AIM companies involve their nomads who can help to determine whether it is a transaction with a related party. Companies should also remember that they should have regard to section 190 of the Companies Act 2006 which deals with substantial property transactions involving directors (and persons connected with directors).

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