AIM Rule 26 (company information disclosure) was amended when the latest version of the AIM Rules for companies was published in March 2018. From 28 September 2018 AIM companies are required to disclose on their websites details of a recognised corporate governance code that the AIM company has decided to apply, how the AIM company complies with that code and, where it departs from the code, an explanation of the reasons for doing so. This replaces the existing AIM Rule 26 requirement to disclose details of the corporate governance code that the company applies and how the company complies with that code, but if no code has been adopted, the company must give details of its current corporate governance arrangements. The 28 September date has been chosen so as to allow adequate time for companies to prepare for the changes and implement the new requirements.
On 26 July 2018, the London Stock Exchange (LSE) issued guidance in relation to the new requirement answering some of the common questions raised by nominated advisers.
Timing of disclosure
The information should be reviewed annually and the website should include the date on which the information was last reviewed. The LSE expects that in most cases the review will take place at the same time as the company prepares its annual report and accounts. In conjunction with this review, the company should update its AIM Rule 26 disclosures. The statement should reflect the up to date position when it is published – not the position at the company's last year end.
Where to make the corporate governance disclosure
The disclosures should be clearly presented and easily accessible from the AIM Rule 26 page on the company's website. It is acceptable for the statement to be incorporated by cross reference (for example in a corporate governance section of the annual report) provided that the material is freely available and the statement clearly indicates where interested parties can read or obtain a copy of that material (for example, the relevant section of the annual report or the URL for the relevant web page).
If an AIM company has not yet made disclosure against a recognised code in its annual report, the corporate governance statement must be disclosed on its website by 28 September 2018, in accordance with AIM Rule 26. Many AIM companies are, however, already making disclosures against a recognised code in their annual report.
The LSE has not prescribed a list of recognised codes so that AIM companies can apply a code that suits their specific stage of development, sector and size. However, the LSE expresses the view that an AIM company should 'comply or explain' against one of the industry codes which is appropriate for a company admitted to a public market and refers to established benchmarks such as the recently released Quoted Companies Alliance Corporate Governance Code (widely regarded as suitable for small and mid-size companies) and the recently amended UK Corporate Governance Code; these are the most likely codes to be applied in practice.
For AIM companies that have a dual listing in their home state, it is acceptable to report using an appropriate standard in their home jurisdiction provided that the disclosure is available on its website and reviewed annually, in accordance with AIM Rule 26.
It is important that AIM companies ensure that they keep informed of any changes to the recognised code that they apply.
As the QCA points out, one area where the change could have significant implications is executive remuneration, including in relation to quantum, performance conditions and factors such as wider employee pay. Disclosures in the Directors' Remuneration Report are likely to expand.
The LSE considers that good standards of corporate governance are a significant contribution to a company's long term success. Accordingly, AIM companies and nominated advisers are reminded that good corporate governance is supported by a meaningful explanation of the company's practices against the principles of the chosen code, rather than simply identifying areas of non-compliance. The new corporate governance requirements are intended to provide information to investors to enhance the engagement between investors and the boards of AIM companies. The information should be informative and not misleading.
New applicants to AIM
Although the implementation of this requirement will take effect from 28 September 2018, new applicants from 30 March 2018 are required to state which corporate governance code they intend to apply but otherwise will have until 28 September 2018 to comply.
Need for review and preparation of disclosures
AIM companies need to review their corporate governance arrangements and if the company is not already disclosing on a comply or explain basis against an appropriate corporate governance code, it should (in conjunction with its Nominated Adviser) adopt an appropriate code and prepare the disclosures that will need to be made in advance of the deadline. AIM companies that are already disclosing on a comply or explain basis against a corporate governance code will have to consider what further disclosures will be required and whether any changes are required to their internal corporate governance policies and practices.
Admission document content change
There is also a change to the content requirements of an admission document in Schedule 2(l). The admission document must now include:
- details of the recognised corporate governance code that the board has decided to apply (from 30 March 2018); and
- how the company complies with that code and, where it departs from the code, an explanation of the reasons (from 28 September 2018).