Largest ever fine levied by the AIM Disciplinary Committee

The AIM Disciplinary Committee ("ADC") has levied its largest ever fine (£600,000) against Regal Petroleum PLC for a series of breaches of Rules 9 and 10 of the AIM Rules over a two-year period.

Three issues which will be of particular interest to AIM listed companies arise out of the Disciplinary Notice:

• The Notice makes it clear that although the ADC will take into account, when considering penalties, whether the company obtained advice from its NOMAD as to the content of an announcement, this does not absolve the company from its primary responsibility for ensuring that announcements comply with the AIM rules.  Senior management cannot absolve themselves of responsibility for the content of an announcement merely by seeking advice from the company's NOMAD, and so must check the content of announcements and (usually together with the NOMAD) ensure that it complies with the AIM rules.
• The Notice also makes it clear that making announcements using only the high and best case estimates (in this case, in relation to the potential volume of oil in a field) and not quoting the low estimate is a may give rise to breach of Rule 9 if information is omitted which is likely to affect the import of information contained in the announcement.  Announcements must, in the context of the announcement itself, previous announcements and the business as a whole, contain sufficient information so as not to be misleading.
• The ADC also found that Regal failed to disclose decisions to plug and abandon the Kallirachi-1 and 2 wells to the market in a timely fashion.  The timing with regard to the announcement of Kallirachi-2 is of most interest, as the announcement of the decision to plug and abandon was made only one week after the decision to do so.  Nevertheless, the ADC decided that this announcement was not made quickly enough to comply with Rule 10.  Even where there may be complex issues as to how to deal with information appropriately, the AIM Rules require that companies move very quickly in getting accurate information out to the market.

Rules 9 and 10

At the time (the rules remain the same save for numbering changes) Rule 9 stated that an AIM company must take reasonable care to ensure that any information it notifies is not misleading, false or deceptive and does not omit anything likely to affect the import of such information.

Rule 10 stated that an AIM company must issue notification without delay of any new developments which are not public knowledge concerning a change in (1) its financial condition, (2) its sphere of activity, (3) the performance of its business, or (4) its expectation of its performance, which, if made public, would be likely to lead to a substantial movement in the price of its AIM securities.

The Regal Announcements

Regal made a series of announcements over a two year period in relation to its subsidiary Kavala Oil S.A.'s exclusive rights to explore the Kallirachi Prospect in the Aegean Sea.  Kavala was carrying out exploratory drilling, and internal reports based on the results of test wells were prepared which included low, best and high estimates of prospective resources.  The announcements referred only to the best and high estimates, without any reference to the low estimate.  In addition, the announcements did not adequately refer to the risks associated with the Kallirachi prospect, and used language which the ADC concluded would have led a reasonable investor to conclude that the reserves were commercial or proven when they were not (and in fact one prospect had already been plugged as it had been found to be uncommercial when some of the announcements were made).  The effect of some of the announcements was that Regal's share price rose dramatically (for example, by 58% on the day of the announcement on 23 January 2004).  However, when Regal announced on 18 May 2005 that testing had been completed on the Kallirachi-2 well and that it was non-commercial, Regal's share price fell by 65%.