The London Stock Exchange has watered down proposals for a clampdown on cash shell companies on AIM, its junior market.
It has scrapped plans to automatically suspend the shares of companies that fail to make an acquisition within a year of flotation. Instead, shareholders will be given an annual vote on whether the company should continue in its existing form.
The Exchange has become concerned over the risks to AIM's reputation from the growing number of cash shell companies which float without having a trading business. There are more than 100 cash shells on the market out of almost 1,000 AIM companies.
Entrepreneurs often list shell companies to obtain a share currency with which to make larger acquisitions than they would otherwise be able to afford. But their shares are impossible to value and are therefore volatile and subject to rumour-mongering. Investors have also voiced concerns that some shell companies can languish for years without doing a deal, while directors pay themselves a salary from the set-up cash.
Several corporate brokers and advisers are believed to have raised objections to the plan to automatically suspend an inactive shell after a year, and delist it six months later. Mat Wootton, the deputy head of AIM, said: "We were told not to rush a company into a deal in month 11, which might give the vendor an undue advantage."
The Exchange's main proposal, however, will go ahead. From 1 April, all cash shells must be set-up with an initial investment of at least £3m.
The Exchange believes this will mean that most shell companies will require an institutional investor, which it says is likely to demand better corporate governance than private shareholders.Reuse content