The rules governing companies listed on the Main Market of the London Stock Exchange (LSE) and its Alternative Investment Market (AIM) fill an important gap in the general law regulating related party transactions (RPT). The regulatory techniques used in these ‘Exchange rules’ are principally disclosure to the market at the time of the transaction and, in a more limited range of cases under the Main Market rules, prior approval of the transaction by a majority of the uninvolved shareholders.
This article investigates the outcomes of these rules by analysing the RPT announcements made by companies on these two markets over a twelve-month period beginning in June 2019. These announcements related to nearly 500 RPT. The article concludes that neither mechanism works at an optimum level. The Main Market shareholder approval requirements catch only a small number of companies, predominantly outside the FTSE 350. The disclosure rules omit an important element in the information the market needs, namely the company’s analysis why the transaction is considered fair. In cases where there is an operative shareholder approval requirement (from whatever source), then the need to obtain shareholder approval is likely to force revelation of the company’s fairness analysis, but this driver does not operate across the majority of RPT. The article makes some suggestions for simple reforms to address these defects.