AIM Regulation censures three issuers for disclosure failures

On 13 August 2018, the London Stock Exchange announced the public censure of MBL Group plc, and two separate private disciplinary actions for breaches of the AIM Rules for Companies (the "AIM Rules").

The last public censure of an AIM company was in October 2017, so these actions are relatively uncommon and provide an important reminder for AIM companies of the expected standards of conduct, particularly around the disclosure of price sensitive information.

MBL Group publicly censured for failure to communicate its worsening financial condition

MBL Group plc ("MBL") was publicly fined £125,000 for breaches of the AIM Rules relating to disclosure failures in relation to its worsening financial position.

Failure to notify the market for two weeks following production of internal financial data showing underperformance, and an intervening misleading update

MBL announced its full year results in August 2017. These did not give an indication of any material change to MBL's financial performance, but subsequent management accounts meant that, by 14 September 2017, MBL's board knew that the group was performing well below expectations.

MBL failed to notify their nominated adviser or update the market on this until 28 September 2017, and in fact issued an intervening financial performance update on 25 September 2017 that made no reference to the deterioration.

Resulting AIM Rule breaches

AIM Rule 11: obligation to notify price sensitive information without delay

By failing to update the market for two weeks, MBL breached AIM Rule 11. AIM Rule 11 requires AIM companies to issue a notification, without delay, of any new developments that are not public knowledge, and would have a significant effect on the company's price if made public. This requirement includes changes in financial condition and means that AIM companies should discuss any potentially relevant changes with their nominated adviser as soon as possible, with a view to updating the market.

AIM Rule 10: ensuring information announced to the market is not misleading, false or deceptive

By failing to include an appropriate update as to financial condition in its 25 September announcement, MBL also breached AIM Rule 10 which requires AIM companies to take reasonable care to ensure that information given to the market is not misleading, false or deceptive and does not omit important information.

AIM Rule 31: seeking advice from a nominated adviser in relation to their obligations under the AIM Rules and ensuring sufficient procedures are in place to ensure AIM Rule compliance

MBL also breached AIM Rule 31 by failing to:

• have in place sufficient procedures, resources and controls to enable it to comply with the AIM Rules; and
• seek advice from its nominated adviser and taking its advice into account.

Challenging circumstances and competing demands on management time no excuse for non-compliance

This public censure of MBL was made notwithstanding the competing demands and challenges facing the board. As AIM Regulation noted:

"[t]hese events took place around the time of a number of board changes involving the departure of two non-executive directors and the Company’s acting CEO, who was also the Finance Director. This left the Company’s non-executive Chairman to take up the executive role on an interim basis, and to progress the sale process, supported by one, newly appointed, non-executive director."

Directors are responsible collectively and individually for an AIM company's compliance with the AIM Rules and should seek advice from their nominated adviser as soon as they become aware of any issues. As AIM Regulation recognised:

"…the failure of the Company to disclose the relevant information was not intentional and that the board was operating in difficult circumstances where it was having to address various challenges. However, notwithstanding such competing demands on the time and resources of its board, an AIM company must ensure that it has sufficient procedures, resources and controls to meet its AIM Rules obligations at all times."

Private censure for improper disclosure of company updates via social media in breach of AIM Rule 10

In a separate enforcement action, an AIM company has been privately censured and fined £75,000 for giving an update on the progress of its business via social media. This was a breach of AIM Rule 10, which requires that information required to be disclosed by the AIM Rules is notified via a regulatory information service "no later than" disclosure through other media. This is to ensure equal, fair and timely disclosure of regulatory information to the market and that integrity in the market is maintained.

In its previous guidance on the interaction of social media with an AIM company's disclosure obligations, AIM Regulation has made clear that:

"[t]he fact that information released through other outlets may be, or may eventually become publically available, is not a substitute for making a notification under the AIM Rules no later than it is disclosed elsewhere. This includes releasing the information to the media even on an embargoed basis. So, disclosure by social media alone will not meet an AIM company’s disclosure requirements and an AIM company must continue to use traditional means of regulatory dissemination which take precedence."

Private censure for failing to keep its nominated adviser updated and resulting failure to update the market

A further AIM company has also been fined £75,000 and privately censured for failing to keep its nominated adviser updated and, as a result, subsequently delaying an update to the market.

In breach of AIM Rule 31, the AIM company did not keep its existing nominated adviser informed as to its progress in appointing a successor nominated adviser. AIM Regulation noted that the incumbent nominated adviser had made frequent requests for updates during the notice period, to allow it to advise the AIM company on its AIM Rules disclosure obligations.

As a consequence, the AIM company delayed notifying the market when the impending departure of its existing nominated adviser and its failure to appoint a replacement nominated adviser had become price sensitive and it could no longer withhold this information under the guidance to AIM Rule 11.

Osborne Clarke comment

These decisions emphasise the close relationship that AIM companies must maintain with their nominated adviser, in particular during difficult times when ongoing consideration of a company's disclosure obligations becomes particularly acute.

It is worth bearing in mind that, for AIM companies, the timely disclosure of inside (or price sensitive) information is regulated not only by AIM Rule 11 but also the Market Abuse Regulation (MAR), for which the Financial Conduct Authority is responsible for enforcing.

Broadly speaking, MAR requires issuers (both Main Market and AIM) to notify inside information to the market without delay (unless the issuer is permitted to delay disclosure under the MAR framework), and so represents a broadly parallel obligation to AIM Rule 11.

Under MAR, issuers are under a general obligation to notify the FCA where a delay in the disclosure of inside information under the MAR framework has occurred, and, at the FCA's request, provide written details of how the conditions justifying delay in disclosure were met.

Issuers and relevant managers within issuers are potentially liable to civil penalties for a breach of MAR (including potentially unlimited fines). Enforcement action by AIM for a breach of the AIM Rules does not preclude further enforcement action by the FCA in appropriate circumstances.