In the line of duty

Flotations come with a mountain of legal requirements, ensuring lawyers have a key role to play. John Turnbull outlines a law firm's duties in an AIM flotation.

Flotations come with a mountain of legal requirements, ensuring lawyers have a key role to play. John Turnbull outlines a law firm’s duties in an AIM flotation.

John Turnbull, head of the corporate group at Bircham Dyson Bell LLP, outlines the lawyer’s duties in an AIM flotation.

Corporate lawyers play a key role in AIM flotations and companies seeking to join should choose a firm that has significant experience of the junior market to ensure the flotation process runs smoothly.

The principal role is played by the lawyers to the company seeking to float, but a second firm is required to represent the nominated adviser and broker. In addition, if an acquisition is taking place at the time of flotation there will be lawyers to the vendors and, with international companies, overseas lawyers may also be required to assist with due diligence.

The company’s lawyers deal with the following main areas:

• Undertaking legal due diligence on the company seeking to float and any subsidiaries, in particular to establish the standing of those companies, title to their assets, details of material contracts and any IP material to their business and the absence of material litigation, and providing a legal due diligence report to the directors and the nomad

• Dealing with any reorganisation/restructuring required prior to flotation, for example creating a new plc holding company to act as the vehicle to be floated

• Drafting/negotiation of agreements to be entered into on flotation, for example the agreement with the nomad/broker, lock-in agreements as required by the AIM Rules or the broker, new service agreements for directors, share option agreements or schemes and the acquisition agreement if the company is making an acquisition at the time of flotation

• Considering whether the company needs to pass any shareholder resolutions to enable flotation to take place and, if so, drafting the requisite resolutions and notice of EGM

• Ensuring compliance with all regulatory requirements

The main focus of the company’s lawyers’ role is on the regulatory aspects. This involves:

• Where the company is raising funds by way of a placing or offer, considering the nature of the offer and advising whether a full prospectus is required under the Prospectus Rules – in which case the prospectus will have to be approved by the UK Listing Authority before it is issued – or an admission document complying with the reduced content requirements specified in the AIM Rules

• Considering and advising on any financial promotion issues that may arise under the Financial Services and Markets Act 2000, and on any issues relating to any offer of shares to persons resident overseas

• Assisting the nomad with drafting the admission document or prospectus; ensuring the requisite content requirements are complied with and that the content is verified to ensure its accuracy

• Where the transaction is a reverse takeover, considering and ensuring compliance with the additional content requirements and procedures (in particular the need for a whitewash resolution) under the City Code on Takeovers and Mergers

• Ensuring directors and any proposed directors of the company (all of whom will be responsible for the content of the admission document or prospectus) are properly informed of the duties, responsibilities and liabilities undertaken by them in relation to the flotation and the ongoing requirements with which they and the company have to comply under the AIM Rules and the City Code

• Preparing terms of reference for the operation of any board committees to be established by the company in order to comply with its corporate governance obligations

• Providing confirmation (by way of a letter of comfort) to the nomad that the requisite content requirements have been satisfied and the directors have received appropriate advice concerning the company’s responsibilities and obligations under the AIM Rules; and

• Reviewing and advising on any announcements to be made by the company in connection with the flotation as required by the AIM Rules or the City Code

In addition, the company’s lawyers prepare various ancillary documents, including responsibility statements to be signed by the directors and proposed directors, powers of attorney and board minutes for each board meeting held to consider the flotation at which significant decisions are taken in relation to it.

As one can see, the lawyer acting for the company has a complex and important role to play in the flotation process. The flotation process can be demanding on directors – even to the extent of proving a major diversion from the company’s business on occasions. Choosing the right advisers can make a significant difference to the experience.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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