Our team: Nigel Gordon
Nigel Gordon, Partner, Fladgate LLP (firstname.lastname@example.org)
In May this year we reminded AIM companies that on 30 March 2018 a revised version of the AIM Rules for Companies (AIM Rules) became effective. The new version of the AIM Rules extends the ambit of the information that each AIM company must include on its website pursuant to rule 26 of the AIM Rules.
The new version of the AIM Rules now includes a requirement that an AIM company’s website must, amongst other things, include (free of charge):
“details of a recognised corporate governance code that the board of directors of the AIM company has decided to apply, how the AIM company complies with that code, and where it departs from its chosen corporate governance code an explanation of the reasons for doing so. This information should be reviewed annually and the website should include the date on which this information was last reviewed”.
In other words, similar to the requirements for companies on the premium segment of the Official List, there will now be a “comply or explain” corporate governance regime for AIM companies.
All new applicants to join AIM must comply with this rule from 30 March 2018, but existing AIM companies have until 28 September 2018 to do so.
It is now just over two months before the new “comply or explain” corporate governance regime for existing AIM companies becomes effective, and so companies which have not yet taken steps to comply with the new regime should do so as a matter of urgency.
The admission documents of many existing AIM companies contain statements such as, “The Directors recognise the importance of sound corporate governance and intend that the Group will comply with the provisions of the corporate governance code published by the Quoted Companies Alliance, insofar as they are appropriate given the Group’s size, nature and stage of development” or similar wording.
It is therefore possible that an AIM company will not have considered in detail how its corporate governance practices measure up against the corporate governance codes that are in the market. It will therefore need to consider its corporate governance practices as soon as possible. AIM companies should not underestimate the time taken and level of input from directors that might be needed to consider their corporate governance practices and make the necessary disclosures on their website. It would therefore be sensible to start this review as soon as possible.
In order to start the review process, AIM companies will need to decide which corporate governance code to benchmark against. All AIM companies should consult with their nominated adviser before finally choosing which code to benchmark against.
On 16 July 2018 the Financial Reporting Council (FRC) published a revised version of the UK Corporate Governance Code (UKCG Code), together with Guidance on Board Effectiveness (Board Guidance). The Board Guidance explains that it is not mandatory and is not prescriptive because it is recognised that, ultimately, it is for individual boards to decide on the governance arrangements most appropriate to their company’s circumstances. The Board Guidance contains suggestions for good practice to support directors and their advisers in applying the UKCG Code.
The UKCG Code is longer and imposes more detailed requirements than the QCA Corporate Governance Code (QCA Code) (published by the Quoted Companies Alliance in April 2018), especially if one takes into account the Board Guidance.
Neither the AIM Rules nor the guidance to the AIM Rules specify which codes would be considered to be a recognised corporate governance code. It is therefore difficult to say with certainty which codes will be deemed to be recognised, but it is reasonable to assume that these will include the UKCG Code and the QCA Code.
Some AIM companies may take the view that it is worth accepting the more onerous and precise requirements of the UKCG Code, although good corporate governance should never be a “box-ticking” exercise. However, on balance, we would expect that most AIM companies are likely to conclude (having consulted their advisers) that it is more appropriate to benchmark their corporate governance by reference to the QCA Code, and not to the UKCG Code.
Where AIM companies are quoted on an overseas stock exchange as well as being admitted to trading on AIM, it may well be that there is a corporate governance code with which the AIM company complies and that code may well be considered to be a recognised corporate governance code. Relevant dual-listed companies should therefore discuss this with their nominated adviser.
Existing AIM companies have until 28 September 2018 to comply with the new requirements, so there is not yet any precedent for how the London Stock Exchange (Exchange) will deal with non-compliance with the new requirements. However, we anticipate that the Exchange will view non-compliance as a serious matter.
Rule 42 of the AIM Rules states that:
“If the Exchange considers that an AIM company has contravened these rules, it may take one or more of the following measures in relation to such AIM company:
When the Exchange takes sanctions against an AIM company for breach of the AIM Rules these are often publicised in a Stock Exchange AIM Disciplinary Notice, of which there have been 17 so far. Therefore, even if the sanctions that the Exchange imposes are at the more lenient end of the possible scale, the fact that the Exchange has imposed sanctions may well have an adverse effect on the reputation of the relevant AIM company and its directors.