Shareholder approval now required to de-list from AIM

On 1 December the London Stock Exchange (LSE) amended Rule 39 of the AIM Rules to require a company which is seeking to cancel its AIM listing to obtain the consent of its shareholders at an EGM. Until now, shareholders have not been able to vote on a company's decision to de-list. The new Rule gives the LSE discretion to waive the requirement for shareholder approval.

As before, a company proposing to cancel its listing on AIM must notify the market of its intention to cancel - stating the reason - at least 20 business days prior to the proposed cancellation date. In addition, unless the LSE agrees otherwise, de-listing from AIM must now be made conditional on the approval of 75 per cent of votes cast in person or by proxy in general meeting.

For this purpose, the company must send a circular to its shareholders convening the EGM and setting out the reasons for seeking the de-listing. The circular must also provide a description of how shareholders will be able to effect transactions in the company's securities once the listing has been cancelled, and include any other matters relevant to shareholders (such as the tax implications for shareholders holding shares which are listed on another market or which are not listed at all), so that they can make an informed decision.

The Guidance Notes to the new Rule give the following two examples of circumstances where the LSE might agree to waive the requirement for shareholder approval:

• where "comparable dealing facilities (such as upon an EU regulated market) are to be put in place to enable shareholders to trade their AIM securities in the future". Thus shareholder approval may not be required if the company proposes to transfer its listing to a regulated market in another EU member state, such as Nasdaq Europe, the Paris Bourse or Amsterdam Euronext. (A full list of each market currently designated by member states as a 'regulated market' can be found on the European Commission's website here).

• where, as a result of a takeover offer becoming wholly unconditional, a bidder has received valid acceptances in respect of more than 75 per cent of each class of AIM securities (ie. the 'free float' is less than 25 per cent). It is likely that the LSE will more readily agree to waive the requirement for shareholder approval if the offer document or a subsequent circular to the company's shareholders includes a statement of the bidder's intention to de-list the shares once the offer becomes wholly unconditional.

Contrast with the Listing Rules

At present the Listing Rules require a company seeking to cancel the listing of any of its equity or preference shares on the Official List to notify the market at least 20 business days in advance and, in most circumstances, to send a circular to shareholders explaining the proposal. As with all circulars, a "clear and adequate explanation" of the proposed action must be given. No circular is required if the company is to step down to AIM or where, in the context of a takeover offer, the offer document or any subsequent circular has stated in the last 20 business days that the company (or bidder) intends to cancel the listing. But the company is not required to obtain the consent of its shareholders.

A decision to de-list from the Official List is therefore primarily a matter for the board. They will of course weigh up the advantages of maintaining a listing (such as prestige and access to equity funding) against the disadvantages (such as cost of complying with the Listing Rules) and will take into account the wishes of the company's largest shareholders. Investors whose own rules do not permit them to hold shares in unquoted companies are of course likely to resist any move to de-list, particularly if they will not be able to sell their holding at an acceptable price before the listing is cancelled.

Holders of quoted shares may well expect their listing to be maintained unless and until the company is taken over or becomes insolvent. However, unless the shareholders can point to an agreement or undertaking by the company to maintain the listing (in most cases there will be none), it will probably be difficult for a shareholder successfully to claim that it has been unfairly prejudiced by the de-listing. In principle, however, since an EGM can be requisitioned by 10 per cent of the shareholders, and the whole of the existing Board replaced with the sanction of an ordinary resolution, the Board is likely to decide to cancel a listing only if it expects the decision to be supported by a substantial proportion of shareholders.

If the majority of shareholders do support de-listing, the minority have few options. The Listing Rules contemplate that the UKLA may refuse to cancel a listing if the correct procedures are not followed, but they do not prescribe for the UKLA any role in assessing the merits of the proposal or in protecting the interests of any particular group of shareholders. It is known, however, that in some circumstances the FSA, in its capacity as financial services regulator, may not allow a company to de-list its shares where it considers that the minority are being treated unfairly.

Future change to the Listing Rules

In its consultation paper, 'Reviewing the Listing Regime', published on 8 October 2003 (after the LSE's consultation on Rule 39 had closed), the FSA stated that some time in the summer of next year it intends to introduce a new rule which will require a company proposing to cancel its listing on the Official List to obtain the consent of its shareholders. Details of the exact rule changes have not yet been published.

For further information, please contact John Burton at john.burton@cms-cmck.com or on +44(0)207 367 2138 or Peter Bateman at peter.bateman@cms-cmck.com or on +44(0)207 367 3145.