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- Inside the wall
- FSA consultation on PDMR transactions – issues for brokers
- Significant changes to the listing regime
- The end of "no names" calls to the UKLA? And the first edition of Primary Market Bulletin
- AIM Regulation and directors participating in a secondary fundraising
- QCA remuneration committee guide for smaller quoted companies
- Kay Review of UK equity markets – interim report published
In early 2012, the Financial Services Authority ("FSA") issued consultation paper 12/02. The paper launched a consultation on the most significant changes to the UK listing regime since the introduction of the premium and standard listing categories. The consultation period closed on 26 April 2012.
Obviously, this article can only provide a brief summary of the proposed changes and the consultation paper was issued quite some time ago. However, given their significance, it is nevertheless useful to go through the proposed changes.
The proposed changes can be broken down into five categories, which are dealt with below.
Wider issues
Interestingly, the consultation paper notes that there has been a significant amount of comment recently in relation to the nature of the premium listing standard and perceived flaws in the corporate governance regime. In particular, some stakeholders have expressed the view that the free float requirement should be used with the specific objective of assuring effective corporate governance. The consultation paper invites comments on whether any changes to the listing rules may be necessary to provide additional investor protection.
The different areas of proposed change are set out below.
1. Reverse takeovers
The proposed changes seek to clarify the transactions which are caught by the reverse takeover regime and those that are exempt. Where the regime does apply, the proposed rules are less disruptive and onerous in certain circumstances, for example reducing information requirements to avoid suspension, not always requiring a prospectus and moderating some of the financial information eligibility requirements.
Some of the key specific changes are:
- the Listing Rules do not currently treat an acquisition by a listed issuer of another listed issuer as a reverse takeover. The scope of this exemption from the reverse takeover regime has been narrowed so that it applies only to the acquisition by a listed issuer of another listed issuer that is listed within the same listing category. This is designed to prevent reverse takeovers becoming a back-door route to entry to the premium listing category. The issuer will also need to satisfy on-going eligibility requirements and submit an eligibility letter;
- under the proposals, an issuer must contact the UKLA as soon as possible once a reverse takeover is agreed or is in contemplation to discuss whether a suspension of listing is or will be required. The consultation paper sets out a variety of circumstances in which a suspension will not be required; and
- the proposals include the abolition of the treatment of certain smaller reverse takeovers as class 1 transactions, on the basis that the exemption is rarely relied upon and the FSA does not think there is a strong policy rationale for maintaining the exemption.
2. Sponsors
This is an area of significant proposed change, although it is not the intention of the changes to make it necessary for a listed company to retain a sponsor at all times. Notable changes being considered are as follows:
1) changes to the circumstances in which a sponsor needs to be appointed, such that a sponsor is appointed whenever certain key declarations, confirmations, assurances or opinions are required;
2) the definition of “sponsor services” is to be clarified and extended to include, amongst other matters, the submission of eligibility letters and severe financial difficulty letters and advice provided to an issuer which is under an obligation to obtain guidance;
3) the definition also includes all of the sponsor’s communications with the FSA in connection with the sponsor service, thereby ensuring that the definition also catches all preliminary explanations and discussions, formal or informal, written or oral, in relation to the sponsor’s activity. This change is partly designed to ensure that sponsors give proper consideration to the nature and content of their communication with the FSA before making contact;
4) a sponsor will be required to take “reasonable steps” to ensure that any information it provides to the FSA is, to the best of its knowledge and belief, accurate and complete in all material respects;
5) a further Principle for Sponsors will be added to the Listing Rules requiring sponsors to act with honesty and integrity in relation to a sponsor service;
6) sponsors will be required to ensure that they manage any potential conflict between the interests of the relevant issuer client and their obligations under the Listing Rules, including for example the obligation to notify the FSA of any breach of the Listing Rules or the Disclosure Rules and Transparency Rules; and
7) sponsors will be required to retain accessible records that are sufficient to demonstrate the basis on which sponsor services have been provided.
3. Transactions
With respect to transactions:
(a) the notification requirements that apply in respect of class 3 transactions will be deleted. Instead, investors can draw comfort from the disclosure obligations set out under DTR 2.2 in respect of price sensitive information;
(b) a new definition of a “break fee arrangement” is proposed in order to seek to ensure that all such arrangements are caught within the regime restrictions upon such arrangements, adopting a substance over form approach;
(c) a supplementary circular will be required if a change occurs which is considered to constitute necessary information to allow shareholders to make a properly informed decision. Shareholders must be given a minimum period of seven days before the shareholder meeting to consider the new information; and
(d) purchases of 15% or more of any class of its equity by an issuer will no longer need to be undertaken by way of a tender offer.
4. Financial information
A number of detailed changes are proposed in relation to the requirements for financial information to be provided by issuers either seeking a premium listing or issuers with a premium listing that are publishing circulars to their shareholders.
The changes include:
- the clarification of the application of the Listing Rules in relation to the track record requirements for issuers seeking a premium listing; and
- an increase to the disclosure requirements for figures relating to synergy benefits.
5. Externally managed companies
This is a specialist area so it is not one that is covered in detail in this note. However, a certain corporate structure has been adopted by a small number of listed companies that were special purpose acquisition companies, pursuant to which significant management functions were outsourced to an offshore advisory firm. Amongst other proposals designed to deal with such companies, there is a proposal to ensure that such companies cannot obtain a premium listing.
Amerjit Kalirai is a Partner in the Corporate Group of Field Fisher Waterhouse LLP in London.