POST ADMISSION - CONTINUING OBLIGATIONS

Introduction

The directors of a company admitted to trading on AIM are required to ensure that the company complies with a range of "continuing obligations" imposed by FSMA, the general law and perhaps most importantly the AIM Rules for Companies.

General Obligations following Admission of the Company's Shares to AIM 

Principles of Disclosure

The Company must take reasonable care to ensure that any information it notifies is not misleading, false or deceptive and does not omit anything important. 

Notification of Major New Developments

The Company must notify a Regulatory Information Service without delay of any new developments in its financial condition, its sphere of activity, the performance of its business, or its expectation of its performances, which are not public knowledge and which would be likely to lead to a substantial movement in the price of its shares trading on AIM. 

Notification of Information Regarding Directors' Dealings

The Company must notify a Regulatory Information Service of any information disclosed to the Company concerning directors, their spouses and children's dealings in shares in the Company.

Notification of Information Regarding Interests in the Company's Share Capital

The Company must notify a Regulatory Information Service of any information disclosed to the Company concerning holdings of 3 per cent or more of the issued share capital of the Company without delay following receipt of any such disclosure.

Notification of Resignation, Appointment or Removal of Directors

The Company must notify a Regulatory Information Service of the resignation or removal of any director or the appointment of any new Director giving in the case of an appointment full details of the new director, including past directorships.

Substantial Transactions

The Company must notify a Regulatory Information Service without delay of any substantial transaction (i.e. broadly speaking a sale or acquisition of a company or assets amounting to 10 per cent or more of the net assets, profits or gross capital of the Company).

Related Party Transactions

The Company must notify a Regulatory Information Service of any transaction entered into by the Company with a related party (which includes a director or a shareholder holding over 10% of the issued shares or an associate of either) broadly speaking amounting to 5% or more of the net assets, profits or gross capital of the Company.

Publication of Annual Audited Accounts and Interim Report

The Company must publish annual audited accounts within six months of the end of the financial period of the Company including the name and address of both the nominated adviser and broker, and must notify a Regulatory Information Service of the publication of the annual audited accounts. It must also prepare a half-yearly report within three months of the end of the relevant period.

Making Available Copies of Notifications to the Public

The Company must make copies of any notification to a Regulatory Information Service  (and any documents referred to in such announcement) available to the public at an address in the United Kingdom specified in the announcement for at least a month from the date of the announcement. The Company may elect to use a web site to make the announcement available.

Company Information Disclosure

Rule 26 of the AIM Rules requires a Company to make certain information available free of charge on its website, including:

• names and biographical details of its directors;
• its current constitutional documents;
• the number of AIM securities in issue and the percentage of AIM securities that are not in public hands, together with the identity and percentage holdings of any person holding more that 3% of the Company's securities;
• its most recent annual report and half yearly, quarterly or similar reports published since the last annual report;
• all notifications made in the last 12 months;
• its most recent admission documents together with any circulars or similar publications sent to shareholders within the past 12 months; and
• details of its nominated adviser and other key advisers.

Reverse Takeover

In the case of a reverse takeover by the Company (i.e. an acquisition or series of acquisitions in a 12 month period of companies or assets which, broadly speaking exceeds 100% of the net assets, profits or gross capital of the Company) the London Stock Exchange will normally suspend trading in the Company's shares on AIM and the Company must send an explanatory circular to its shareholders and seek the prior approval of its shareholders in general meeting.

If shareholder approval is given and the transaction is completed, the admission of the Company's shares to trading on AIM will be discontinued and if the enlarged Company wishes its shares to be re-admitted it will be required to reapply for admission to trading on AIM.

Disposals Resulting in a Fundamental Change of Business

Any disposal by the Company which results in a "fundamental change of business" must be conditional on the consent of the shareholders given in a general meeting, notified to a Regulatory Information Service without delay and accompanied by a circular setting out particulars of the disposal and other information specified by the AIM Rules for Companies and convening the general meeting. There will be "fundamental change of business" if a disposal, when aggregated with any other disposals over the previous 12 months, exceeds 75% in any of the class tests specified under the AIM Rules for Companies. If the effect of the disposal is to divest the Company of all, or substantially all, of its trading business the Company will be treated as an investing company and the relevant notice and circular must also state its investing policy going forwards. The Company must then make an acquisition constituting a reverse takeover or otherwise implement the investing strategy approved at the general meeting to the satisfaction of the London Stock Exchange within 12 months of receiving the shareholders consent.

Sanctions

If the London Stock Exchange considers that the Company has contravened any of the AIM Rules for Companies, it may fine or censure the Company, publish the fact that the Company has been fined or censured or suspend trading in or cancel the admission of the Company's securities to trading on AIM.

Dealings by Directors and Others in Quoted Shares

Disclosure of Directors' and Connected Persons' Dealings

The Company must notify the London Stock Exchange of any dealings in the Company's shares by Directors and dealings by other persons deemed to be connected with a Director. These include connected companies and trusts. In addition, companies admitted to AIM must notify the grant or acceptance of options in respect of the Company's securities to or by a Director, his immediate family or a connected company or trust as well as the exercise of, and dealings in, options and other similar rights and obligations (including traded options) by such persons.

Restrictions on Dealings

The freedom of directors and certain employees of companies admitted to AIM to deal in the company's quoted securities is restricted in a number of ways by statute, in the form of the Criminal Justice Act 1993, which imposes prohibitions on "insider dealing", creating criminal penalties for individuals who contravene these provisions, and by Rule 21 of the AIM Rules for Companies. 

Rule 21 states that "an AIM company must ensure that its directors and applicable employees do not deal in any of its AIM Securities during a close period".  Even if a Director would not be prohibited by law from dealing in a company's shares, there may be circumstances when it would be undesirable for him to do so to protect both the Company and himself against misinformed criticism. 

Best practice is for a director not to deal in securities of the Company at any time without receiving clearance to do so from the Chairman or other designated director. Rule 21 prohibits dealings during a "close period" which includes when the director is in possession of unpublished price-sensitive information. A director must not be given clearance to deal in a close period or when any matter exists which constitutes unpublished price sensitive information (whether or not the director is aware of the matter) and the dealing would take place after the time when it has become reasonably practicable that an announcement will be required. 

A "close period" is the period of two months immediately preceding the publication of the Company's annual results or, if shorter the period from the year end to the time of publication and (if the Company reports half yearly) the equivalent period preceding the interim report or (if the Company reports on a quarterly basis) the period of 1 month or, if shorter, the period from the end of the quarter to the time of announcement, when a Director is presumed to be in the possession of unpublished price-sensitive information regarding such results. 

These restrictions on dealings in the Company's shares also apply to the grant or acceptance of options, to the exercise of options and to dealings in options by directors and extend to dealings of all such types by members of the director's immediate family and connected companies and trusts. A director must ensure no dealings take place by such persons at times when he himself would be prohibited from dealing.

Although not required, it is advisable for the Company to keep a written record of all notifications and clearances to deal.

Misleading Statements

Care must be taken by a company (as well as by individuals) to ensure that it does not make a misleading statement at any time. This criminal offence involves a person inducing others to deal by:

• making a statement which he knows is materially misleading, false or deceptive;
• dishonestly concealing any material facts; or
• recklessly making (whether dishonestly or not) a statement, promise or forecast which is materially misleading, false or deceptive.

Companies should note that they can also face sanctions if they commit market abuse including market manipulation (see section entitled "Continuing obligations for individuals").

Non-Legal Considerations

In addition to the legal requirements and requirements of the AIM Rules for Companies, the Directors must consider how to approach corporate governance issues. Best practice for AIM companies is to comply with the guidelines published by the Quoted Companies Alliance (the "QCA Guidelines") and with the Combined Code insofar as they are applicable to it. 

Key Provisions of the Combined Code

Structure of the Board

The Combined Code stresses the need for a company to have an effective Board to control and lead the activities of the company. In order to achieve these objectives, recommendations are made pertaining to the structure and make-up of the Board, and in particular, the roles of the chairman and chief executive and the composition of the Board. The Board should include a balance of executive and non-executive directors, and in particular, independent non-executive directors.

Management of the Board

There are requirements concerning the management of the Board and measures considered necessary to improve its effectiveness. These include the need for regular Board meetings, a formal written schedule of matters reserved to it for decision and a clear division of responsibility within the Board.

The non-executive directors should have separate meetings without the presence of executive directors and at least once a year without the chairman present. 

Board appointments

There are requirements for a formal, rigorous and transparent procedure for the appointment of new directors to the Board and the Combined Code recommends that a nomination committee should be established to lead the process for Board appointments and make recommendations to the Board. The composition of this committee is advised to consist of a majority of independent non-executive directors. Board appointments should be made on merit and against objective criteria. Care should be taken to ensure that appointees have enough time to devote to the job. The Board should further satisfy itself that plans are in place for orderly succession of appointments to the board and to senior management to maintain an appropriate balance of skills and experience within the company.

Information and Professional Development

The Combined Code requires that the Board be supplied with accurate, timely and clear information to allow it to discharge its duties. All new directors should receive an induction upon joining the Board and should regularly update their skills and the knowledge and familiarity of the company required to fulfil their role both on the Board and on Board Committees. 

Performance Evaluation

The Combined Code recommends that the Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. The individual evaluations should show whether each director continues to contribute effectively and to demonstrate commitment to the role. 

Re-election

It is recommended that all directors should be submitted for election by the shareholders at the first Annual General Meeting following their appointment, and re-election thereafter at intervals of no more than three years, subject to continued satisfactory performance. The Board should ensure planned and progressive refreshing of the Board. The Combined Code also sets out guidance on the re-election of non-executive directors.

Remuneration

The Combined Code recommends that companies establish a remuneration committee made up of non-executive directors. The function of such a committee would be to implement a formal and transparent policy for fixing directors' remuneration. The Combined Code recommends that the level of such remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, without being unnecessarily high, and be structured so as to link rewards to corporate and individual performance.

Audit and financial controls

The Board should maintain a sound system of internal control in order to safeguard shareholders' investments and the company's assets. An annual review of the internal control should take place, the results of which should be reported to shareholders. The company should establish an audit committee with defined terms of reference, made up entirely of non-executive directors, which should operate as a sub-committee to the board and have functions such as monitoring and reviewing the internal audit controls and making recommendations for improvement.

Relations with Shareholders/Investors

The Combined Code emphasises that the Board as a whole has a responsibility for ensuring that a satisfactory dialogue with shareholders takes place and that there is a mutual understanding of objectives. The Combined Code recommends that the Board should use the AGM to communicate with investors and to encourage their participation.

Remuneration Committee

The chairman of the Board may sit on (but not chair) the remuneration committee where he or she was considered to be independent when appointed chairman. However, the chairman should sit on the committee as an additional director, and not as one of the recommended minimum number of independent directors.

Voting and Disclosure of Voting

The Company must now include a "vote withheld" box on all general meeting proxy forms and publish the results of resolutions voted on a show of hands. The number of valid proxy appointments, votes for, votes against and votes withheld must be disclosed on the Company's website as soon as reasonably practicable after a vote has taken place.

Key Provisions of the QCA Guidelines

Matters Reserved for the Board

There should be a formal schedule of matters reserved for the Board's decision, for example, issues regarding management structure and appointments, strategic and policy considerations, transaction policy and finance.

Timely Information

The Board should be supplied in a timely manner with information (including regular management financial information) in a form and of a quality to enable it to discharge its duties.

Internal Controls Review

The Board should, at least annually, conduct a review of the effectiveness of the group's system of internal controls (including financial, operational and compliance controls and risk management systems) and report to shareholders that they have done so.

Chairman and Chief Executive

The roles of chairman and chief executive should not be held by a single individual. If the chairman is also the chief executive, there should be a clear explanation of how other board procedures provide protection against the risks of concentration of power within the Company.

Independent non-executive directors

The Company should have at least two non-executive directors (one of whom may be the chairman) and the Board should not be dominated by one person or group of people. 

Re-election of directors

All Directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The Board should ensure planned and progressive refreshing of the Board.

Audit Committee

The Board should establish an audit committee of at least two members, who should all be independent non-executive directors.

Remuneration Committee

The Board should establish a remuneration committee of at least two members, who should all be independent non-executive directors.

Nomination Committee

Recommendations for appointments to the Board should be made by a nomination committee (or the Board as a whole) after due evaluation.

Dialogue with shareholders

The Company should maintain a dialogue with shareholders based upon the mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.

Key Provisions of the Policies and Guidelines of the Investor Protection Committees of the Association of British Insurers and The National Association of Pension Funds

Subject to certain exceptions, a company cannot generally allot and issue new shares in the company for cash unless:

• they have first been offered on a pre-emptive basis to its existing shareholders pro rata to their existing holdings

or

• the existing shareholders have waived their rights of pre-emption by passing a special resolution to this effect. The authority contained in any such resolution can endure for a maximum period of 5 years before needing to be renewed. However it is more usual to seek authority to allot and issue shares on a non pre-emptive basis at each Annual General Meeting of a public company.

The Investor Protection Committees of the Association of British Insurers and The National Association of Pension Funds (IPCs) currently advise their members to vote against resolutions seeking disapplication in respect of more than 5% of the issued ordinary share capital as shown by the latest published annual accounts. These bodies also expect companies to observe cumulative limits on the number of shares issued for cash otherwise than pro rata to shareholders, which is currently 7.5% of issued ordinary share capital over a 3 year period. Specific shareholder approval for non pre-emptive cash issues falling outside these guidelines will, therefore, be necessary.