Global | Publication | June 17, 2016
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On June 14, 2016 the London Stock Exchange (LSE) published AIM Notice 45, which provides feedback on AIM Notice 44 and confirms the resulting changes to the AIM Rules for Companies (the AIM Rules) as well as consequential changes to the AIM Rules for Nominated Advisers and the AIM Note for Investing Companies in relation to the Market Abuse Regulation (MAR).
The rule changes proposed in AIM Notice 44 will be implemented in full save for certain consequential changes to the definition of “applicable employee” and the guidance to Rule 21.
In discussing the feedback received, the LSE notes the following:
AIM Rule 11
AIM Rule 11 concerning general disclosure of price sensitive information is to be retained, so companies will be subject to this in addition to MAR. However, AIM Regulation does not consider that retaining AIM Rule 11 will be overly burdensome due to the fact that: (i) AIM Regulation intends to work closely with the Financial Conduct Authority (FCA) to reduce any duplication of regulation and will be sharing information on real time discussions regarding disclosure; and (ii) the current application of AIM Rule 11 by nominated advisers and companies will not change. However, AIM Regulation will keep the operation of Rule 11 under close review.
Guidance to AIM Rule 11(e)
Some respondents commented that the guidance note to AIM Rule 11(e) should be aligned with Article 17(4) of MAR which enables an issuer to delay disclosure to the public provided certain conditions are met and/or that AIM Regulation should provide guidance regarding circumstances when they may not align. However, given that the application and interpretation of MAR is not within the LSE’s remit, AIM Regulation states that it cannot comment on whether in all circumstances a delay under Article 17(4) of MAR will also align with an ability to delay under AIM Rule 11. However, AIM Regulation anticipates that, given their experience of AIM, the judgement of whether a notification may be delayed pursuant to the guidance to AIM Rule 11 should in most cases be a simple one for the company’s nominated adviser to confirm. Where this is not the case, the nominated adviser is able to seek guidance from AIM Regulation as to the application and interpretation of the AIM Rules.
As a result, where an AIM company is in possession of information which is both inside information and price sensitive information and if it is unable to delay that information under Article 17(4) of MAR, the AIM company will have an obligation to notify that information under MAR. However, if an AIM company has decided that it may delay that information in accordance with Article 17(4), in parallel it must consider whether any AIM Rule exemptions also allow the AIM company to delay that information. AIM Regulation reiterates the need for an AIM company to seek the guidance of its nominated adviser in making this determination in the context of the AIM Rules, which are principles-based and will be separate to an AIM company’s consideration of MAR. It will not be a defence to a breach of the AIM Rules that the AIM company had received legal advice instead of consulting its nominated adviser.
Definition of applicable employee
For the purposes of Rule 21 concerning an AIM company’s dealing policy, the definition of applicable employee is, other than a director, someone who is a ‘person discharging managerial responsibilities’ (PDMR) as defined in Article 3(25) of MAR.
AIM Rule 21 - Dealing policy
Given the different profile and resources of premium listed issuers when compared to AIM companies, AIM Regulation considers it is important that AIM companies be required to establish a dealing policy that complies with minimum provisions. This is particularly key for AIM companies which are, by their nature, smaller with major shareholders also often being directors of the company. AIM companies are already required to have sufficient procedures, resources and controls under AIM Rule 31 and in this regard will have in place existing controls on close period dealings. The new AIM Rule 21 is intended to provide high-level assistance to AIM companies to understand what should be included as a minimum.
The design of the policy should be considered in a meaningful way, taking into account the needs of the particular company and ways to ensure that the policy is understood and applied effectively in practice. In particular, the adoption of boilerplate templates which are not tailored to the company’s circumstances should be avoided.
AIM Regulation considers that AIM companies should have in place a dealing policy by 3 July 2016. They do not consider the provisions disproportionate as they reflect what is considered to be a sensible approach for AIM companies and the obligations under MAR come into effect on that date.
Preliminary results
AIM Regulation notes that the FCA has issued an update on its website in relation to closed periods and preliminary results. AIM Regulation welcomes the FCA’s supervisory approach on this matter which refers to issuers (including AIM companies) which choose to publish preliminary results, whilst it awaits clarification from the European Commission and the European Securities and Markets Authority. AIM Regulation will consider making changes to the AIM Rules once further clarification on this point becomes available.
Nomad Rules
AIM Regulation confirms that the nominated adviser’s responsibilities and obligations under the Nomad Rules are owed solely to the LSE and do not extend to advising and guiding an AIM company on its obligations beyond the AIM Rules, including MAR. This is also set out in AIM Rule 1 and the guidance to AIM Rule 11(b) makes it clear that MAR contains separate disclosure obligations for AIM companies, and in the UK, the FCA is the competent authority for those obligations.
Guidance to AIM Rule 41
AIM Regulation also clarifies, in the guidance to AIM Rule 41, that the circumstances in which the LSE might otherwise agree that shareholder consent in general meeting to cancel the trading of AIM securities is not required, include where an AIM company maintains or will be admitted to trading on an EU regulated market or an AIM Designated Market.
The revised AIM Rules will come into force on July 3, 2016 to coincide with MAR.
(LSE, Aim Notice 45: Feedback on Aim Notice 44 and Confirmation of Changes to Aim Rules, 14.06.16)
On June 17, 2016 the Financial Reporting Council (FRC) published the new UK Corporate Governance Code (the Code).
A revised Code was initially proposed by the FRC in September 2015 and our summary of the proposed changes to the September 2014 version of the Code can be found here.
A final draft was then published in April 2016, and our summary of the additional changes can be found here.
The Code is in the same form as the final draft published in April. The revised Code takes effect for financial years beginning on or after June 17, 2016.
On June 17, 2016 the Financial Reporting Council (FRC) published its new Guidance on Audit Committees (the Guidance).
Revised Guidance was initially proposed by the FRC in September 2015 and our summary of the proposed changes to the September 2012 Guidance can be found here.
A final draft was then published in April 2016, and our summary of the additional changes can be found here.
The Guidance is in the same form as the final draft published in April. The Guidance replaces that published by the FRC in September 2012.
On June 16, 2016 the Financial Conduct Authority (FCA) published the Disclosure Rules and Transparency Rules Sourcebook (Statutory Audit Amending Directive) Instrument 2016 (the Instrument), which amends the Disclosure Rules and Transparency Rules (DTRs) in relation to audit committees, to reflect the requirements of the Statutory Audit Amending Directive.
The Instrument is in largely the same form as set out in the FCA’s Quarterly Consultation No. 10 (CP15/28) published in September 2015, and includes the following:
The Instrument comes into force on June 17, 2016 and the amended DTR requirements will apply to issuers in respect of financial years beginning on or after this date.
On June 15, 2016 the Takeover Appeal Board published its decision to dismiss several appeals made to it by Richard Desmond, owner of 2.72 per cent of Ladbrokes plc (Ladbrokes), against Hearings Committee rulings made in December 2015, and February and April 2016. The rulings concerned issues connected with the merger between Ladbrokes and Gala Coral Group Limited (Gala Coral) and arrangements entered into by Ladbrokes with Playtech plc (Playtech). The decision of the Takeover Appeal Board includes the various rulings of the Hearings Committee in annexures to the decision.
In March 2013, Ladbrokes had entered into two commercial contracts with Playtech, one being a marketing services agreement and the other being a software licence agreement. In July 2015, the day before the merger of Ladbrokes and Gala Coral was announced, and the day before Playtech acquired shares in a non-pre-emptive placing of Ladbrokes’ shares, Ladbrokes and Playtech entered into two amendment agreements in respect of the 2013 agreements. When Ladbrokes published its circular in connection with the merger in October 2015, summaries of the original 2013 agreements and the amendment agreements were included in the circular under the heading “Material Contracts” and the amendment agreements were subsequently published in full on Ladbrokes’ website as a gesture of goodwill following a request from Mr Desmond. Resolutions approving the merger and other arrangements were passed by Ladbrokes’ shareholders in November 2015.
Mr Desmond subsequently complained that, inter alia, the shareholder circular convening the November 2015 shareholder meeting contained material omissions and inaccuracies which rendered it misleading so that Ladbrokes’ shareholders had voted on a false premise.
The various appeals made by Mr Desmond were dismissed by the Takeover Appeal Board as follows:
Whether amendment agreements had been entered into in the ordinary course of business
It was accepted that the amendment agreements were material and were within the two-year time limit referred to in Rule 25.7(a) of the Takeover Code, so had to be included in summary in the Ladbrokes’ circular and published on a website in accordance with Rule 26.3(d). Mr Desmond had argued that the original 2013 agreements were also material and should have been disclosed to make sense of the amendment agreements.
In considering the expression “ordinary course of business”, the Takeover Appeal Board states that they are ordinary words of the English language which must be interpreted in the light of the meaning which business people would give them in the particular context in which they are used. Here the context was the disclosure of information about contracts which fell outside the normal activity of the company. The Takeover Appeal Board points out that even if the original agreements were entered into in the ordinary course of business, it does not necessarily mean that any amending agreement has the same character. Here one of the amending agreements involved the payment of an aggregate of £75 million unrelated to future performance or success and conditional only on implementation of the merger. Given the size of Ladbrokes’ business, its assets and its profitability, this amending agreement was plainly outside the normal activity of the company and so outside the ordinary course of its business. As a result, Ladbrokes was right to disclose it in the circular and publish the amending agreement on its website.
Was the amending agreement made in connection with the merger?
The Takeover Appeal Board points out that the words “in connection with the offer” in Rule 26.3(d) are ordinary words of the English language and must be given a common sense interpretation. The decision includes, in Appendix 2, an account of the current version of the wording in Rule 26.3. Rule 26.3 was amended in January 2010 to limit the documents available for inspection to, inter alia, any material contracts if they are entered into in connection with the offer and are summarised or referred to in the offer document or offeree board circular. The Takeover Appeal Board agrees with the Hearings Committee that if the words “in connection with” are given too wide a meaning, they would potentially catch any material agreement which would be “occasioned by” an offer or a merger, for example to reflect a new corporate structure, and require publication in full of numerous agreements of no significance to voting shareholders. However, in this case, the amending agreement in issue was made in connection with the merger and its rationale was to avoid certain significant consequences of the original 2013 agreement which would have been caused by the merger had it not been amended.
Were shareholders given adequate information?
The Takeover Appeal Board states that the amount payable under the particular amending agreement was disclosed (involving an aggregate payment to Playtech in Ladbrokes’ shares and cash of £75 million) and Mr Desmond had put forward nothing to suggest that the reason for the amending agreement could have been a material matter for the purposes of the whitewash resolution passed by shareholders at the November 2015 general meeting. The circular could have given more contextual information about the justification for the £75 million payment, but if there had been fuller disclosure there was no rational basis for concluding that the outcome of the shareholders’ meeting could have been different.
Could the amending agreement be an inducement to deal for the purposes of Note 11(a) on the “acting in concert” definition?
The decision looks at the arguments made to the Panel Executive and the Hearings Committee on this point which they rejected, but the Takeover Appeal Board did not analyse this in detail as the point was not pursued by Mr Desmond. However, it does comment that it cannot see how the original agreements, even on the widest interpretation of the Note, could be characterised as an inducement to deal.
Could Mr Desmond disclose to the UKLA information obtained in the course of proceedings?
Mr Desmond had argued that the Ladbrokes’ circular might contravene certain Listing Rules and Disclosure and Transparency Rules and he wanted information put before the Hearings Committee to be disclosed to the UKLA. This request was refused. The Takeover Appeal Board points out that the Rules of Procedure of the Hearings Committee and the Rules of the Takeover Appeal Board provide that hearings will generally be in private and, in its view, it is implicit in these provisions that material which comes to the knowledge of the parties for the purposes of those hearings is confidential and cannot be disclosed to third parties without the consent of the Hearings Committee or the Board, or of all other parties, except to the extent it is contained in a published Ruling or Decision.
(Takeover Appeal Board, Decision of the Takeover Appeal Board: Ladbrokes plc (2016/3), 15.06.16)
On June 14, 2016 the London Stock Exchange (LSE) published AIM Notice 45 which confirms minor changes to the AIM Rules for Nominated Advisers as a consequence of the changes to the AIM Rules for Companies in relation to the Market Abuse Regulation (MAR).
The changes are as follows:
(LSE, AIM Rules for Nominated Advisers – July 2016, 14.06.16)
On June 14, 2016 the London Stock Exchange (LSE) published AIM Notice 45 which confirms minor changes to the AIM Note for Investing Companies as a consequence of the changes to the AIM Rules for Companies in relation to the Market Abuse Regulation (MAR).
Section 5.1 of the Note has been amended to remove reference to AIM Rules 17 and 21.
(LSE, AIM Note for Investing Companies – July 2016, 14.06.16)
On June 17, 2016 the Financial Reporting Council (FRC) published new Revised Ethical and Auditing Standards (the Standards). Revised Standards were initially proposed by the FRC in September 2015 and our summary of the proposed changes can be found here. Final drafts were then published in April 2016, and our summary of the additional changes can be found here.
The Standards are in substantially the same form as the final drafts published in April, with the changes made outlined by the FRC in “Editorial and Consistency Amendments made to Final Draft Standards issued in April 2016”.
On June 17, 2016 the Financial Reporting Council (FRC) published a statement from its Chief Executive, Stephen Haddrill, regarding the implementation of the EU Audit Regulation and Directive.
The statement notes that new auditing and ethical standards have been published and that the updates to the UK Corporate Governance Code and the Guidance on Audit Committees reflect changes arising from the new legislation on audit committees and auditor appointments.
The statement also notes the following:
Publication
On 21 August 2024, the Supreme Court of NSW handed down its decision in Seaforth Securities Pty Limited v Zoya Investments Pty Limited [2024] NSWSC 1061.
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