New "Comply or Explain" Regime for AIM Companies

New rules come into force today for AIM companies which now require issuers to comply with a recognised corporate governance code. The changes now align AIM companies with the corporate governance requirements for premium-listed companies.

This change has come into effect through a revised version of the AIM Rules for Companies published by the London Stock Exchange ("LSE") in March 2018, which has extended the scope of information that AIM companies need to include on their website in line with Rule 26 of the AIM Rules.

The new Rule 26 establishes a "comply or explain" regime for AIM Companies structured on the following key principles:

  • Recognised Code

Issuers are required to apply a "recognised corporate governance code", but the LSE has not issued a prescribed list of recognised codes for AIM companies. Issuers are therefore encouraged to select an appropriate code to their size and industry in consultation with their professional advisers.  

It is expected that most AIM companies will look to apply the UK Corporate Governance Code or the QCA Corporate Governance Code.  

If an AIM company is already benchmarking its corporate governance arrangements against an existing code, this should be reviewed to ensure that it remains appropriate for the company and its obligations under the new regime.

For AIM companies that are dual-listed outside of the UK, it may be possible to apply an appropriate corporate governance code from the company's home jurisdiction.   

  • Clear Disclosures

To comply with Rule 26, issuers must clearly disclose how they comply with their chosen code, and if the company departs from the code in any way, explain the reasons for doing so (i.e. "comply or explain"). These disclosures must be "clearly displayed and easily accessible" on the issuer's website as part of its existing AIM Rule 26 information.

It is possible for a Rule 26 disclosure to cross-refer to a separate document for further information, such as the issuer's annual report, but this must be free to access and be explicit on how and where the information can be sourced (such as a hyperlink and page reference). Using the annual report as an example, this will only be acceptable (as at 28 September) where an AIM company is already disclosing against a recognised corporate governance code in its annual report.

  • Annual Review

Issuers should review their corporate governance information and update their Rule 26 disclosures annually. The timing of this review, and the date of the last review, should be made clear on the issuer's website.

It is encouraged that the review should be meaningful and robust (rather than a mere "tick box" exercise) to enhance the engagement between the company's investors and the board.

New companies floating on AIM have been subject to the revised Rule 26 from 30 March 2018. Implementation of the revised Rule 26 by existing AIM companies is required by 28 September 2018.

The London Stock Exchange has not yet indicated how it will address non-compliance with the new regime. This may include an AIM disciplinary notice and/or potentially a fine. At the very least, companies may be at risk of reputational damage if they are found to be in breach of the revised Rules.

The revised AIM Rules for Companies can be found here 

If you would like more information or to discuss the new "comply or explain" regime, please contact Iona Jones or Stuart Fleet in Ashfords' Equity Capital Markets team.

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