On 7 December 2018 the London Stock Exchange (the "Exchange") released a disciplinary notice highlighting the importance of an AIM company needing to follow the guidance given by its nominated adviser ("Nomad"), particularly with regards to a company's disclosure obligations under the AIM Rules for Companies (the "AIM Rules").
The notice was issued to Bushveld Minerals Limited ("Bushveld"), an AIM listed South African mining company, concerning its breach of AIM Rules 11 (General disclosure of price sensitive information) and 31 (AIM company and directors' responsibility for compliance).
Further details of the breaches and the key points to note from the Exchange's disciplinary notice are considered in further detail below:
Background to AIM Rule Breaches
Bushveld was seeking to acquire a vanadium mine and processing plant which would constitute a reverse takeover under AIM Rule 14. In furtherance of this transaction, Bushveld entered into an exclusivity agreement ("Exclusivity Agreement") with the potential seller of the mine which required Bushveld to deposit US$500,000 (the "Exclusivity Fee") with its solicitors under the terms of an undertaking (the "Undertaking") whereby those monies were to be released to the proposed seller, once certain conditions had been satisfied.
The Nomad advised Bushveld that the Exclusivity Fee was, at the time of entry into the Exclusivity Agreement, a material sum in the context of the company’s financial position and that this would trigger an obligation under AIM Rule 11 to disclose this fact to the market. However, instead, Bushveld sought and elected to follow the contradicting advice of its independent legal advisers and chose not to disclose the Undertaking immediately as required. The Exchange found that Bushveld had failed comply with the requirements under AIM Rule 11 by failing to make any such disclosure.
Whilst deciding not to follow the Nomad's advice, Bushveld simultaneously instructed the Nomad to seek further guidance from the Exchange regarding whether, in the context of a hypothetical reverse takeover, the AIM Rules would require the immediate suspension of the company's shares. However, whilst the Nomad was liaising with the Exchange on this point, Bushveld proceeded to give the Undertaking without the Nomad's knowledge. This breached AIM Rule 31 as, by failing to disclose all relevant information to its Nomad, Bushveld allowed the Nomad to misrepresent the true facts to the Exchange, thus jeopardising the Nomad's ability to follow its obligations under the AIM Rules for Nomads.
The Undertaking and Exclusivity Fee were then unintentionally disclosed to the Nomad in subsequent weeks. Bushveld's securities were suspended, and a public censure and a fine of £700,000 were imposed (reduced to £490,000 for early settlement).
Points to note for AIM companies
This case highlights the expected disclosure standards for AIM companies:
Firstly, it emphasises the fundamental role of the Nomad and the importance of being 'fully transparent' in order for it to have a full understanding of the facts. The Exchange notes in its public notice that 'The nominated adviser has the depth of knowledge and experience in dealing with and applying the AIM Rules through its own day-to-day experience with companies'. AIM companies should be conscious of the fact that the disclosure obligations under Rule 11, 'should not be approached in a narrow way' and therefore a Nomad's extensive knowledge and advice regarding this interpretation should be utilised to its fullest.
Secondly, AIM companies should be aware that obtaining and choosing to follow conflicting advice from an independent legal adviser does not override or mitigate the breach of the AIM Rules. The Exchange has approved certain individuals and companies to become Nomads specifically for the purpose of supporting an AIM company's compliance with its AIM Rules obligations and thus, in an occurrence of conflicting opinions (e.g. with its legal advisers), AIM companies should follow the Nomads' advice.
Finally, companies should note the importance of providing the Nomad with full knowledge of the facts before requesting the Nomad to liaise and seek guidance from the Exchange. Not only does insufficient disclosure of information lead to the company and the Nomad being in breach of the relevant AIM Rules, but it also hinders the Exchange's ability to make fully informed regulatory decisions.
Bushveld admits that its actions of non-compliance were spurred by commercial motives, as it wished to delay the notification of the Undertaking and the reverse takeover to postpone the immediate suspension of its shares required under AIM Rule 14. It has since acknowledged that, had it maintained a fully open dialogue with its Nomad, it would have been able to both achieve its economic aims and continued to fulfil its compliance obligations as an AIM company.