Edwin Coe Corporate Blog – AIM formalises its approach to sanctions after developments in Ukraine.

The London Stock Exchange’s AIM Team has released a notice (AIM Notice 40) alerting AIM companies and nominated advisers to their continuing need to keep up to date with international sanctions and to have due regard to their obligations in relation to them, both generally and particularly in the context of a nominated adviser’s consideration of whether a company’s shares are appropriate for admission to trading on the AIM market.

The release of the Notice was prompted by the developments in the Ukraine which resulted in the recent European Union sanctions against Russia, and refers to the consolidated list of persons and entities subject to UK and EU financial sanctions which is maintained on the HM Treasury website at www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets.

The AIM Notice also draws attention to the full text of the two EU Council Regulations (numbers 833/2014 and 960/2014) which provide for further restrictive measures against Russia. The London Stock Exchange requires all AIM companies to inform their nominated adviser immediately, if either now, or at any time in the future, they fall within these Regulations (or any amendments to them).

For so long as the sanctions remain in force, the Exchange does not expect to admit securities to trading on AIM which are issued by companies within the scope of the Regulations or any subsequent amendments. The AIM application process has been modified accordingly and the AIM application form (to admit securities to trading on AIM) has been changed to includes a confirmation that the company making the application does not fall under Articles 5.1 or 5.2 of Council Regulation (EU) No 833/2014, as amended by Council Regulation (EU) No 960/2014.

The Notice also serves as a timely reminder of the impact of international sanctions generally and the need for companies to observe them.  If a company is in breach of any sanctions this is likely to affect its appropriateness as an existing or applicant AIM company.

The full text of the AIM Notice is available via the following link:

www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aim-notices.htm

Edwin Coe’s Corporate group has significant experience in advising on AIM market regulation and legal issues arising from an application for admission to AIM and the market’s continuing obligations. If you would like any further information about these or related topics, please contact Nick Williams by emailing nick.williams@edwincoe.com.

Review of ISDX Growth Market Rules – Implications for eligibility assessment of market participants.

ISDX (ICAP Securities & Derivatives Exchange Limited) has announced that it is conducting a comprehensive review of the entry requirements and Rulebook for the ISDX Growth Market (previously known as the PLUS Market). The current ISDX Growth Market Rulebook was adopted on 9 July 2013, following the market’s acquisition by ICAP. ISDX say that the review is being carried out to ensure an appropriate balance between achieving its regulatory objectives, whilst still making the market attractive.

ISDX welcomes contributions from stakeholders to the review of the rules and entry requirements, which can be provided to Patrick Birley, CEO of ISDX, at patrick.birley@icap.com or to the ISDX team at ISDX@icap.com

The review will be followed by a public consultation on any future rule changes.

ISDX have also stated the review will impact on the implementation of Guidance Notes 4.7 and 5.2 of the ISDX Growth Market rules. These provide that companies already admitted to the ISDX Growth Market on 9 July 2013 (the date the Rulebook was adopted) will undergo an assessment from 9 January 2015 (eighteen months after the adoption of the Rulebook) to see whether they comply with the entry requirements for new applicants to the market provided by Rules 4 and 5. This is a one-off assessment and not a continuing obligation.

Rule 4 provides five tests for an applicant company (other than an investment vehicle) which apply to: the proportion of its shares in public hands (as a percentage of issued share capital), revenue, EBITDA, historic revenue records and gross assets (including cash). To meet the Rule 4 requirements, an already admitted company subject to assessment must demonstrate to the satisfaction of ISDX, based on its most recent audited financial information, that it achieves a cumulative minimum total of twenty points under the tests. Under Rule 5, an investment vehicle is required to raise a minimum of £500,000 (or the currency equivalent) by the subscription of shares at the time of admission. If an investment vehicle didn’t raise that amount on admission, it will need to have raised £500,000 net of expenses subsequently.

Companies not meeting the requirements under the assessment would have to leave the market.

ISDX has confirmed that, although the assessment of companies’ compliance with Rules 4 and 5 would proceed as planned, non-compliant companies will not be withdrawn from trading while the review of the Rulebook and entry requirements is in progress, or until further notice. The results of the assessment will be taken into account during the review.

The review and consultation looks as if it will be continuing well into next year, and companies on the market should not assume that there will be any relaxation of the requirements of Guidance Notes 4.7 and 5.2.

Edwin Coe’s corporate group has significant experience in advising on ISDX markets’ regulation and legal issues arising from an application for admission to a market and the continuing obligations. If you would like any further information about this, please contact Nick Williams by emailing nick.williams@edwincoe.com.

London Stock Exchange – Changes to the AIM and Nomad Rules

In January 2014, the Edwin Coe corporate team reported on the proposed changes to the AIM and Nomad Rules (read blog) and now provide an update…

AIM Companies and Nominated Advisers must be aware of the Rule changes including a requirement to update company websites.

On 13 May 2014 The London Stock Exchange issued an AIM Notice (No. 39) that it had implemented changes to the AIM Rules for Companies (AIM Rules) and the AIM Rules for Nominated Advisers (Nomad Rules) as well as a consequential change to the AIM Disciplinary Procedures and Appeals Handbook.

The Notice and amendments to the rules and handbook can be found at http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aim-notices.htm

The Exchange received 28 responses to its consultation on the changes which were proposed in January 2014 and has commented that the objectives of the proposed changes were positively welcomed.

The changes came into immediate effect, except for the new requirements for AIM company websites under Rule 26 of the AIM Rules, which must be implemented by 11 August 2014.

Changes to the AIM Rules for Nominated Advisers

The changes to the Nomad Rules include the following, reflecting the continuing restructuring of nominated adviser firms and the reduced frequency of transactions over recent years.

Emphasising that nominated adviser status should not be regarded as a licence that can be sold or transferred, rules 2 and 11 of the Nomad Rules have been amended so that a nominated adviser is required to inform the Exchange as soon as possible of any potential material change to its structure or organisation or any change of control which is reasonably likely. Following a change of control, a new application for nominated adviser status is required, for which the Exchange will consider in particular the new controller and its ability to satisfy in its own right the requirements set out in rules 1-3 of the Nomad Rules (criteria for eligibility as a nomad and preservation of the reputation and integrity of AIM).

A key factor in achieving or maintaining nominated adviser status is the requirement for a firm to have a minimum of 4 Qualifying Executives. Whereas no changes have been made to the criteria for new Qualified Executive applicants, some latitude has been introduced so that under rule 4 existing Qualified Executives will remain eligible:

  • if they have acted in a lead corporate finance capacity on three relevant transactions in the last five years rather than the current three year period, and
  • if they have over five years’ continuous experience as a Qualified Executive and are actively involved in a corporate finance advisory role, in relation to AIM in particular, provided they have acted in a lead corporate finance role on one relevant transaction in the last five years.

Changes to the AIM Rules for Companies

The changes to the AIM Rules are mainly of an administrative and clarificatory nature, although the Exchange has highlighted two substantive amendments:

  • clarification that when an AIM company de-lists, the Exchange retains jurisdiction over it for the purpose of investigating and taking disciplinary action in relation to actual or suspected AIM Rule breaches; and
  • rule 11 (general disclosure of price sensitive information) has been amended so as to clarify that the new developments requiring disclosure that are referred to (changes in: financial condition, sphere of activity, performance of business or expectation of performance) are by way of example only.

Changes to the Guidance Notes (which form part of the AIM Rules) reflect (amongst other matters) technical guidance previously given in the Exchange’s Inside AIM publication.

AIM companies should review their websites to ensure they comply by 11 August 2014 with the changes to Rule 26 of the AIM Rules, requiring additional information to be displayed.

Edwin Coe’s corporate group has significant experience in advising on AIM regulation and legal issues arising from an application for admission to trading on AIM, the continuing obligations for AIM companies and AIM market transactions.

If you would like any further information about this, please contact Nick Williams by emailing nick.williams@edwincoe.com.

 

 

Edwin Coe Corporate Blog – Structuring International businesses for AIM

International businesses considering an AIM flotation will need to plan ahead to make sure they have an appropriate group structure for listing.

The AIM market, which is the London Stock Exchange’s junior market for fast growing companies, will celebrate its 20th anniversary in 2015. While this is a short lifespan compared to the London Main Market and other stock exchanges around the world, AIM has proved more resilient than other junior markets, some of which have come and gone during its lifetime. With more money raised on AIM and more admissions to the market in 2013 compared to 2012, there is an expectation that the growth in numbers of admissions and amount of funds raised will continue in 2014.

The London Stock Exchange has long promoted AIM as “the international market for growing companies” and the latest AIM statistics show that of the 1,087 companies on AIM in December 2013, 463 (about 43 per cent.) have their main place of operation outside the UK. This international momentum has been maintained in recent years by interest from companies in emerging markets in Asia Pacific, India and Central/Eastern Europe, as well as from countries with a long-standing attraction to AIM such as Canada and Australia. Apart from the prestige of having an international listing, and the ability to raise funds from London-based investors (subject to market conditions), one of AIM’s key attractions is that it is more flexible than many other international markets. For instance, AIM has limited requirements for shareholder approval of transactions, no requirement for a trading track record and no minimum market capitalisation requirement.

International businesses coming to AIM will however have to plan ahead to make sure that the structure of their listed group is appropriate. The company applying for admission to trading on AIM is likely to be the holding company of a group of companies, often incorporated in different countries, and that holding company will need to be established in a jurisdiction with which investors in the London market are familiar and comfortable, and also be subject to a legal regime that conforms to the requirement for free transferability of shares under the AIM Rules. Shares in AIM companies also have to be capable of electronic settlement, which invariably means via the CREST system. Companies incorporated outside the UK, Channel Islands, Isle of Man and Republic of Ireland have to constitute depositary interests representing their shares. The depositary interests are traded in the CREST system, and this is marginally more expensive than the shares being traded directly.

While companies incorporated in a number of jurisdictions outside the UK are suitable to have their shares listed on AIM, an international business will usually have to consider whether its holding company is incorporated in an appropriate jurisdiction or whether a new holding company should be put in place. The choice of holding company structure is dictated by a number of factors, including the local legal regime of the holding company and its compatibility with listing, exchange controls, local taxation, the international tax treaties that will apply to the group companies, and the reputation of the holding company’s jurisdiction as a well regulated environment. Cost will also be a factor, as some jurisdictions are more expensive to operate in than others. Transparency of ownership, or lack of it, is unlikely to be an issue, as significant ownership interests in AIM listed companies have to be publicly disclosed.

This approach to structuring is exemplified by Chinese businesses listed on AIM which, having established a domestic corporate structure which complies with Chinese law and regulation (no mean feat in itself!), will typically have a Hong Kong intermediate holding company, which is itself owned by the listed holding company established in an offshore jurisdiction such as the British Virgin Islands or Jersey.

While an offshore centre is commonly used, the UK is often chosen as the place of corporation for a holding company, as it is viewed as having a progressive tax regime and participants in the London market are of course extremely comfortable with investing in UK public companies (PLCs). However, it should be borne in mind that since September 2013, all UK PLCs listed on AIM will be subject to the UK Takeover Code, as the exemption for PLCs considered by the Takeover Panel to have their place of central management and control
outside the United Kingdom, the Channel Islands or the Isle of Man was then removed in relation to AIM companies.

Conclusion
Although it is likely that an international business will be able to identify an appropriate jurisdiction for a holding company with the help of its legal, accounting, taxation and financial advisers, this is something that should be addressed at an early stage in the flotation process, as the mechanics of any necessary corporate restructuring will require planning, drafting, shareholders (most likely in different parts of the world) signing up to the documentation, and often application for regulatory consent and/or tax clearance. Also, the establishment and operation of an overseas holding company will invariably involve local agents, and it is key that a competent firm is engaged, in view of the high standards of corporate governance imposed by the AIM market, including the need to meet strict deadlines for filings and disclosure.

The article above was written by Corporate Partner Nick Williams and first appeared in Jordans Trust Company Limited’s April 2014 newsletter.

For further information about the Edwin Coe Corporate team please click on the follwing link.

London Stock Exchange – Proposed changes to the AIM and Nomad Rules

The London Stock Exchange recognises market conditions with proposed changes to the AIM and Nomad Rules

On 27 January 2014 The London Stock Exchange issued an AIM Notice that it had undertaken a review of the AIM Rules for Companies (AIM Rules) and the AIM Rules for Nominated Advisers (Nomad Rules) and is consulting on proposed changes. 

The Notice and changes can be found at http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aim-notices.htm

The Exchange welcomes comments and feedback from all AIM companies, nominated advisers and other market participants, which should be sent on or before Monday 3 March 2014 by email to aimnotices@lseg.com

It is currently intended that the new rules will come into effect during 2014.

Proposed changes to the AIM Rules for Nominated Advisers

The proposed changes to the Nomad Rules include the following, reflecting the continuing restructuring of nominated adviser firms and the reduced frequency of transactions over recent years.

Emphasising that nominated adviser status should not be regarded as a licence that can be sold or transferred, it is proposed that rules 2 and 11 be amended so that a nominated adviser is required to inform the Exchange as soon as possible of any potential material change to its structure or organisation or any potential change of control.  Following a change of control, a new application for nominated adviser status is confirmed to be required, for which the Exchange will consider in particular the new controller and its ability to satisfy in its own right the requirements set out in rules 1-3 of the Nomad Rules (criteria for eligibility as a nomad and preservation of the reputation and integrity of AIM).

A key factor in achieving or maintaining nominated adviser status is the requirement for a firm to have a minimum of 4 Qualifying Executives.  Whereas no changes are proposed to the criteria for new Qualified Executive applicants, some latitude is proposed so that under rule 4 existing Qualified Executives will remain eligible:

  • if they have acted in a lead corporate finance capacity on three relevant transactions in the last five years rather than the current three year period, and
  • if they have over five years continuous experience as a Qualified Executive and are actively involved in a corporate finance advisory role, in relation to AIM in particular, provided they have acted in a lead corporate finance role on one relevant transaction in the last five years.

Proposed changes to the AIM Rules for Companies

The AIM Notice emphasises that the proposed changes to the AIM Rules are mainly of an administrative and clarificatory nature, although it highlights two substantive changes:

  • clarification that when an AIM company de-lists, the Exchange retains jurisdiction over it for the purpose of investigating and taking disciplinary action in relation to actual or suspected AIM Rule breaches; and
  • rule 11 (general disclosure of price sensitive information) is to be amended so as to clarify that the new developments requiring disclosure that are referred to (changes in: financial condition, sphere of activity, performance of business or expectation of performance) are by way of example only.

Changes to the Guidance Notes (which form part of the AIM Rules) are proposed to reflect (amongst other matters) technical guidance previously given in the Exchange’s Inside AIM publication.

Edwin Coe’s corporate group has significant experience on advising on AIM regulation and legal issues arising from an application for or admission to trading on AIM. 

If you would like any further information about this, please contact Nick Williams by emailing nick.williams@edwincoe.com

http://www.edwincoe.com/people/profiles/corporate/nickwilliams.asp

http://www.edwincoe.com/services/corporate.asp

Edwin Coe highlight the dramatic new rules for Limited Liability Partnerships

December 2013 saw the publication of legislation which has a dramatic effect on virtually all Limited Liability Partnerships (LLPs) in the UK. It deals with “disguised salaries” of LLP members and other anti-avoidance measures for tax purposes. The legislation will generally take effect from 6 April 2014 but with some measures already effective from 5 December 2013 where there are tax motivated profit allocation structures. Under the disguised salary rules a member of an LLP will be treated as an employee for tax purposes if all of the following conditions are met:

  1. if an individual performs services for the LLP and the amounts payable by the LLP in respect of the individual’s performance will be wholly or substantially wholly fixed, or if variable, variable without reference to, or in practice unaffected by, the overall profits or losses of the LLP;
  2. the mutual rights and duties of the members and the LLP and its members do not give the individual significant influence over the affairs of the LLP; and
  3. the individual’s contribution to the LLP is less than 25% of the disguised salary.

There are also new rules which apply to LLPs which have corporate entities as members. The legislation will reallocate for tax purposes excess profits from a corporate partner to an individual partner where the following conditions apply:

  1. a corporate partner has a share of the firm’s profits which is excessive;
  2. an individual partner has the power to enjoy the corporate’s share or their preferred profit arrangements; and
  3. it is reasonable to suppose that the whole or part of the corporate share is attributable to that power.

HMRC have also restricted the ability to allocate income and capital losses between individuals and corporate partners where it is tax motivated.

The Edwin Coe team are already working on varying partnership arrangements in both the professional services and in the financial services sectors. Few, if any, LLPs remain unaffected by this draft legislation and partnerships will be looking at the options which may include increasing capital contributions, members becoming salaried or self-employed. Complications arise where firms financial year end will not coincide with 5 April 2014.

For further information please contact:

Victor Hawrych, Corporate Partner
Email: victor.hawrych@edwincoe.com
Tel: 020 7691 4065

http://www.edwincoe.com/people/profiles/corporate/victorhawrych.asp

http://www.edwincoe.com/services/corporate.asp

Edwin Coe – Business crowdfunding – the revolution that never was?

Edwin Coe Corporate Partner, Nick Williams comments on the fact that the emergence of crowdfunding over the last few years has been hailed as an internet generated revolution.  The term encompasses a range of activities, usually website based, whereby members of the public are asked to make a financial contribution to philanthropic, artistic and business related causes.  Among the latter, the concept has been taken up by companies and their advisers looking to raise funds by issuing shares (investment-based crowdfunding) and borrowing (loan-based crowdfunding).

Companies raising funds by offering their shares is not a novel concept, and in the early rush to embrace the investment-based crowdfunding revolution, some participants appeared to lose sight of the fact that they were operating in a heavily regulated environment.  The Financial Conduct Authority (FCA) in October 2013 released a consultation document to clarify and refine the regulatory position and to assert its authority over loan-based crowdfunding as well.

The FCA’s proposals reflect the higher risks for investors that crowdfunding involves, compared to more traditional investments and deposits.  The FCA confirms that a person operating an investment-based crowdfunding website or platform will be carrying on a regulated activity in the UK, if for example they are arranging deals in specified investments.  As a result, the website operator would have to be authorised by the FCA, or be the appointed representative of an authorised person.

In addition, the FCA is proposing from 2014 to restrict the direct offering of unlisted shares or debt securities by firms to one or more of the following types of client:

  •  retail clients who are certified or self-certify as sophisticated investors; or
  • retail clients who are certified as high net worth investors; or
  • retail clients who confirm that, in relation to the investment promoted, they will receive regulated investment advice or investment management services from an authorised person; or
  • retail clients who certify that they will not invest more than 10% of their net investable portfolio in unlisted shares or unlisted debt securities (i.e. excluding their primary residence, pensions and life cover).

The FCA also proposes that operating a loan-based crowdfunding platform will from 2014 be a regulated activity which requires the operator to be authorised by the FCA, subject to certain transitional provisions.  The FCA’s proposals will require firms to ensure that investors have the information they need to be able to make informed investment decisions and that all communications are fair, clear and not misleading.  In addition to this, to protect investor interests, the FCA are consulting on a set of core requirements for firms, including:  minimum prudential requirements to ensure their ongoing viability; steps firms should take to ensure existing loans continue to be managed in the event of platform failure; and rules that firms must follow when holding client money;

While crowdfunding websites provide a great forum for companies looking to raise funds, and also give investors the opportunity to invest in early stage companies that don’t have a listing, the FCA consultation provides further proof that the revolution remains subject to the existing regime.

The FCA’s consultation document can be found on its website at www.fca.org.uk . Comments are invited by 19 December 2013 using the online form provided.  The FCA have indicated that it will consider the feedback and publish its rules in a Policy Statement in February or March 2014.

If you would like any further information about this, please contact Nick Williams by emailing nick.williams@edwincoe.com 

http://www.edwincoe.com/people/profiles/corporate/nickwilliams.asp

http://www.edwincoe.com/services/corporate.asp

Where’d the FSA go?

Since 2001, the Financial Services and Markets Act has conferred the role for regulation of the majority of the UK’s financial services (FS) system to the Financial Services Authority (FSA). However, as a result of the global financial crisis, it was determined that a more robust approach to UK FS regulation was essential.

Therefore, major reforms were introduced by the Financial Services Act 2012 (which came into effect on 1 April 2013), the main goal being the establishment of a regulatory framework that would deliver financial stability.

To meet this goal, three entities have been created. A new and independent part of the Bank of England, the Financial Policy Committee (FPC) is tasked with the macro-prudential regulation. Its functions include removing or reducing systematic risks so as to ensure the stability of the financial system as a whole, providing direction to the other two entitles (discussed below), supporting the Government’s economic policy and developing financial stability reports.

The second entity is the operationally independent subsidiary of the Bank of England, the Prudential Regulation Authority (PRA). The PRA is responsible for micro-prudential regulation: it ensures the safety and soundness of banks, building societies, credit unions, and insurance providers (PRA-authorised individuals). The PRA accomplishes this task by authorising these organisations and approving individuals within the firms who undertake PRA functions. Compared with the pre 1 April structure, the PRA replaces the FSA as the regulatory authority for PRA-authorised individuals.

The final branch in the UK’s new FS regulatory tree is the Financial Conduct Authority (FCA). Rather than being a like-for-like replacement of the FSA, the FCA and PRA together now form the “twin peaks” of FS regulation. An independent institution, the FCA promotes market integrity, consumer protection and effective competition. It is also responsible for the conduct of business rules for all authorised individuals. Any firm or person undertaking a regulated FS activity which is not a PRA-authorised individual must be authorised by the FCA.

In summary, whereas previously the FSA was the one-stop for UK FS regulation, the Financial Services Act has introduced a three-branch structure, segregating the micro-regulation between the PRA and the FCA, both of which are guided by the FPC.

If you would like any further information about this, please contact Brenna Baye by emailing brenna.baye@edwincoe.com.

Registration of charges

New regulations come into effect on 6 April 2013 making various changes to the scheme for registering charges with Companies House.

The current position is that the Companies Act lists the types of charges that are registerable, whereas the new regime will provide that all charges are registerable other than certain specific categories of charge, the most notable of which is a rent deposit deed. In practice, apart from rent deposit deeds no longer being registered, the new provisions are unlikely to have much impact on what charges are registered or not: the consequences of failing to register are so draconian (the charge is void against a liquidator) that a ‘safety first’ attitude will still prevail in terms of deciding whether or not to register.

There are some procedural changes being brought in as well, the most important of which is the introduction of an electronic filing facility. Companies will be able to file charges against their own company using their existing company authentication code. A lender will also be able to file charges electronically and any lenders who wish to be able to do so should visit the Companies House website to apply for a lender authentication code.

In addition, from 6 April 2013, Companies House will no longer accept the original instrument. A certified copy of the instrument will have to be filed with the application to register a charge and any originals submitted will no longer be returned.

Once registered a copy of the instrument will be placed on the public record and will be capable of being downloaded.

It will be possible to redact any personal information from the filed instrument such as:

  • personal information relating to an individual (other than the name of an individual);
  • the number or other identifier of a bank or a securities account of a company or an individual; or
  • a signature.

If you would like any further information about these changes please do get in touch, by emailing david.kinch@edwincoe.com.

Update: Chinese AIM Listed Companies

It is now more than 15 years since Griffin Mining became the first Chinese business to be admitted to AIM in 1997.  Since then more than 90 companies with an underlying Chinese business have joined AIM.  There was a peak of 31 Chinese IPOs on AIM in 2006, reflecting general trading conditions, and a high of 67 Chinese businesses on AIM in 2008.  Reflecting the downturn, the number dropped to 43 in 2011.

However, the trend appears to be reversing, as the total number of Chinese AIM listed companies increased to a reported 48 at the end of 2012 - the result of 5 de-listings and 10 IPOs during 2012. Edwin Coe is delighted to have advised on 3 (30%) of these IPOs.

The 48 Chinese AIM listed companies were reported to have an aggregate market capitalisation of £2.76 billion and an average market capitalisation of £57.50 million (most AIM companies have a market capitalisation of less than £25 million).  £42.45 million is reported to have been raised for IPOs with a further £7.92 million from secondary fundraisings in 2012.  Although the aggregate market capitalisation of Chinese companies at the end of 2012 represents a decline of 19.3% over 2011, the increased number of admissions is encouraging.

We have seen continuing interest from businesses in the Far East in obtaining a listing in London, and we are currently beginning work on a new Chinese AIM float. As our team has been involved in nine successful AIM flotations of Chinese businesses, we are looking forward to capitalising on this experience and working on further transactions.