Our corporate team supports company’s interest in inflammatory disease treatment

Deal | Corporate

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Listed UK diagnostics developer Cizzle Biotechnology has acquired a 5% economic interest in treatments for inflammatory pulmonary and cardiovascular disease – with support from Shakespeare Martineau’s Birmingham office.

Cizzle Biotechnology – which was originally a spin-out from the University of York – has entered into a definitive agreement with Conduit Pharmaceuticals Limited and medical charity St George Street Capital Limited in association with the development of AZD 1656 or other similar treatments developed by the two companies.

In a clinical trial, data showed there was a significant increase in the migration of the regulatory T cells – which potentially reduce serious cardiovascular and lung diseases that are causative in the development of lung cancer, which Cizzle is developing a diagnostic test to identify – from the patients who had taken the drugs compared to those who had not.

Keith Spedding, corporate partner at full service law firm Shakespeare Martineau, who led the deal, said: “The biotech industry is absolutely fascinating – we are seeing huge movements and rapid growth in this market as clinical need increases and technology and innovation races to keep up.

“It has been great to get this deal over the line, which will allow Cizzle to develop treatments and continue developing its blood test for the early detection of lung cancer.”

The agreement is in addition to Cizzle’s existing interest in AZD 1656, which was announced on 20 September 2021. It supports the company’s ambitions to expand its target customer base into the pharmaceutical industry and is in line with its strategy of building a portfolio of early cancer detection tests, companion diagnostics and royalty bearing stakes in significant drug assets.

Executive chairman Allan Syms said: “The agreement represents an important extension to our close relationship with Conduit Pharmaceuticals Limited and St George Street Capital Limited.

“On 20 September 2021, we announced we had acquired a stake in St George Street Capital Limited’s AZD 1656 asset and we are now pleased to have the opportunity to increase our stake by an additional 5%.

“This new agreement supports our ambitions and is in line with our growth strategy. Keith and his team were able to react quickly to get this deal over the line.”

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Keith advises companies (both public and private), partnerships and their owners on all aspects of corporate and partnership law.

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The government has announced a series of measures designed to support business through the uncertainty and challenges caused by the coronavirus pandemic. We marry the corporate, commercial and legal worlds, alongside our extensive network of industry connections and broad knowledge, to provide you with formula that will guarantee your success.

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How to get your start-up investment-ready

Blog | Fast growth & Start-Ups

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With the pandemic creating a wave of entrepreneurialism, many new businesses may now be seeking cash injections. But what do start-ups need to do to make sure they’re ready for investment?

Product innovation, market size and strong financial forecasts will all peak an investor’s interest in your business. However, when ploughing money into a company, investors will want to know their outlay is a safe bet.

With this in mind, there are multiple steps start-ups can take to make sure they have the best chance of securing the cash they need on their scale-up journey after they’ve attracted an investor through their doors.

Corporate structure

It’s very unlikely an investor will give money to an individual, so it’s important to have a corporate structure in place. Having a good idea is a great place to start, but most growing business are operated through a corporate vehicle that enables you to contract with other people – as well as eliminate personal liability for damages. Limited companies or limited liability partnerships (LLPs) are often used.

Contractual arrangements

Investors will need to see that you’ve got proper contractual arrangements established, so that everything you think applies to that relationship is agreed in writing. Supplier and customer arrangements should be governed by some sort of contract that covers important things like limitation of liability, termination, price and deliverables, for example.

Confidential information – which is protected when someone owes an obligation of confidence to someone else – is also something that needs to be thought about. While an obligation may sometimes be owed under common law, it is better if it arises formally under a contractual arrangement with a non-disclosure agreement in place.

Ownership of intellectual property

Intellectual property (IP) – which might be, for example, copyright that exists in source code for software, patents that protect inventions or trade marks to safeguard brands – is a really important factor that people miss all the time. IP is usually the most valuable asset of a start-up business, so it is crucial to get advice on what rights may be registered to get the best protection, particularly as investors will want to see this.  Investors will also want to make sure that any IP is owned by the corporate vehicle into which they are investing, and that third parties do not have conflicting rights.

Employment contracts

While not all start-ups employ people, if you do, make sure there are contracts in place so employees know the scope of their roles, their obligations to the company and that anything they create belongs to the business.

Regulatory

Even if you’re only holding customer or employee details, almost all companies will need to comply with data protection law, so it’s important to make sure you know your obligations. Depending on which sector you’re in, there will be other regulations you need to be aware of.

The financial penalties for non-compliance can be significant. If an investor discovers your business is not complying with the necessary regulations during their due diligence checks, they may back out of the deal as the risk of severe fines is simply too large.

Consequences

While an investor is unlikely to pull their cash straight away if none of the above actions are in place, it may negatively affect the investment in some way as the risk profile will have changed. Therefore, carrying out your due diligence checks upfront is key to ensuring you secure the investment you need for future growth.

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Kerry specialises in intellectual property infringement disputes, non-contentious intellectual property exploitation and advertising law, working with both private and public sector clients.

Start-ups & Fast Growth Companies

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Protecting the vulnerable investor

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Protecting investors

As the marketplace continues to evolve at a rapid speed, investing is becoming easier than ever, particularly for younger people. However, this increasing simplicity when it comes to making gains and losses has led to experts asking whether more needs to be done to protect this ‘vulnerable’ demographic.

Recognising a vulnerable investor

The Financial Conduct Authority (FCA) defines a vulnerable investor as ‘someone who, due to their personal circumstances, is particularly susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.

While this has previously been regarded as older people, the rise in young investors is prompting the question of whether this definition needs to be expanded further.

The role of the FCA

Cryptocurrency and trading success stories are often covered widely by the press, so it is no surprise that young people are lured into the world of investing. However, with less financial resilience, making a loss could have significant consequences for them.

While the FCA is taking measures to provide greater protection, due to only regulating specific sections of the wider investment market, it is somewhat limited in terms of what it can control. Many of the cryptocurrency trading platforms that are popular with younger people, fall outside of the FCA’s control.

Protecting young investors

Protecting a younger demographic of investors is an industry wide issue. FCA-regulated or not, it should fall to the society to protect the most vulnerable by raising awareness of the risks involved with investing. Rather than introducing new regulation, which could stifle innovation within the industry, the FCA should be more focused on promoting awareness.

Regulated providers should continue to assess who they regard as vulnerable and focus on producing products that take that risk into account, as well as offering advice on how best to protect new investors.

To help reach the wider market, it would be wise to get larger, well-known advisers on board to help protect and inform younger, more vulnerable investors. As influential voices in the market, sharing their approaches and advice is highly likely to get noticed by smaller businesses.

Unregulated investment product providers could consider crafting a set of principle-based rules. These could offer advice around what should and shouldn’t be said when promoting the product. Although these rules would only be advisory, the more involved they are in promoting them, the greater the impact they would have.

Working together

While there will always be some reckless businesses that expose their customers to greater risk, the vast majority of those operating outside of regulation intend no harm.

With a high appetite for risk and a lack of resilience, the industry must work together to raise awareness and offer advice in a bid to protect young investors.

Get in touch with our  investment funds  team to find out how they can help.

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Kavita is Regional Head for our South region and also Head of our Investment Funds sector. She has a formidable reputation amongst her clients for technical excellence.

She specialises in a broad range of corporate finance transactions, both for public and private companies, including acquisitions, disposals, joint ventures, funding arrangements, restructurings and cross-border transactions.

Our depth and breadth of expertise in the investment funds marketplace means we can help you navigate through what can be a complex arena. Whether you’re a fund manager or an investor, we can advise you how and where to invest, how to establish and structure a new fund, build a portfolio and ultimately, realise value from your investments.

 

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Guides and Advice

Getting investment-ready: 7 tips for start-ups

Tech companies have recently skyrocketed in value, and with plenty of cash looking for a suitable home, start-ups need to know how to land the best investor.

  1. Scope out interest

Reaching out to professional networks is a great first port of call for start-ups. From bankers to accountants, many existing connections will have established relationships with potential investors that could be beneficial. All it takes is an introduction and a good first impression.

  1. Take a deep dive into the sector

Knowing the sector and its trends inside and out is a great way to target the right investors. By exploring which investors are currently buying up similar companies, through speaking to successful counterparts or simply reading trade magazines, a selection of targets can be drawn up.

  1. Know what type of investor to target

There are two major types of investors: venture capital investors, who prefer more mature businesses, and business angels, who are willing to take risks and support new businesses with big ideas. There are also a range of alternative funding options such as crowdfunding, pension funds and venture capital trusts (VCTs).

  1. Remember that the business is more than just tech

Innovative tech alone is not enough to guarantee great investment. Choosing to invest in operations such as talent acquisition and IP protection, gives the business a stronger backbone, adding security for investors.

  1. Establish other sources of revenue

Having a diverse and long-term source of income can not only provide extra protection in the form of financial cushioning, but can also demonstrate to potential investors that the business is moving towards healthy growth.

  1. Prove what makes the business unique

In a saturated market it’s important to stand out. Positive publicity, including industry-focused awards and press features can cast a spotlight on the business and attract more investment.

  1. Carry out an internal review

Completing due diligence checks shows investors that the business is fully aware of the risks and opportunities that it holds. By undertaking a thorough internal review early on, start-ups can prepare themselves for any questions or requests from potential investors, keeping them on side and maximising value.

Specialist legal advice can help with this process, giving start-ups the peace of mind that they are investment ready.

Emerging tech start-ups have plenty of investment opportunities to pursue but finding and retaining the right one can be challenging. Robust preparation and future-proofed plans are essential when it comes to securing the perfect investor.

Get in touch to find out how our corporate team can help your start-up take the next steps on its business journey.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

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Blog

The future of state aid in a post-Brexit economy

Now that the UK has officially left the European Union, there are a number of mechanisms within the business world that will gradually begin to change, including the way in which the UK regulates state aid.

However, with a complex system still in place and change on the horizon, can the UK use the opportunity to refine state aid subsidies to its advantage?

What is state aid?

State aid – or subsidy control as it is referred to post-Brexit – is an umbrella term given to various forms of financial assistance provided by a public body to a private business, which carry the risk of distorting competition in the marketplace. Financial support mechanisms that fall under the banner of state aid include:

 

  • Subsidies and grants; and
  • Tax-advantaged venture capital schemes such as venture capital trust (VCT), enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS).

Prior to Brexit, state aid subsidies were governed by a number of EU laws, including the General Block Exemption Regulation (GBER), which aimed to monitor and control Member States when giving aid. Now the UK is no longer required to so closely abide to those regulations, there is an opportunity to formulate a new system that benefits UK businesses and the potential to re-visit some of the rules applicable to the venture capital schemes.

What needs to change?

Past EU Commission audits revealed that the UK was administering the venture capital schemes in a manner which wasn’t fully-compliant with, or in the spirit of, GBER. This led to the introduction of stricter rules, some of which although seeking to ensure greater compliance with EU requirements, are arguably too tightly drawn and fail to take into account the realities of business practice, in particular the very start-up businesses that the schemes seek to support.

One such rule which would merit being looked at as a potential area for change is the company age test.

Company age test

This test was designed to ensure that schemes were more appropriately targeted at young and innovative companiesHowever, this has proven to be regularly problematic. Even for the newest and most novel of businesses, acquisitions of intellectual property or assets from the founder’s prior endeavours, no matter how nominal or incidental, can prejudice the outcome of the test. As a result, companies that should have been eligible for the schemes have been excluded in the past.

Unfortunately, this outcome is a product of legislation which, although rightly designed to avoid artificial structuring and abuse in compliance with the EU state aid rules, fails to provide for any ‘de minimis’ exception. Although the UK must still have a subsidy control mechanism in place which aligns with EU regulation in the new system, there is room for the UK to relax certain parameters, ensuring eligible businesses do not miss out.

How does this benefit the UK?

Whilst it is likely that the current setup of the venture capital schemes will remain largely unchanged, certain tweaks and refinements could smooth out some of the snagging points currently created by the EU’s rules. In this case, refining the company age test would be a good place to start.

The venture capital schemes are one of the most important finance mechanisms we have. They promote investment and provide support to ambitious companies, ensuring a healthy flow of capital through the market and it is essential that these continue, regardless of the changes the UK decides to embrace in future.

Contact us

To find out more about what our investment funds team can do for you, contact Peter Mayhew.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

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Guides & Advice

Fund managers: playing a vital role in the UK’s recovery

2020 has been a challenging year for all areas of the economy, but businesses and individuals in the investment industry shouldn’t lose hope, with transactions still going ahead even in these difficult times.

However, that isn’t to say there isn’t a level of uncertainty to contend with. Going forward, fund managers have a host of new considerations to make when it comes to investments.

Managing risk with investments

A balance between understanding and managing risk is always required to succeed in the investment industry. Caution is key, and this has become even more true during the pandemic.

To adapt to this unstable environment, strategies have had to be altered, with institutional investors favouring debt over equity, and individual investors turning to capital protection, ESG and markets perceived to be more stable.

Deals must continue, and investment professionals need to do what they can to ensure this.

The impacts of recession on investment

A sustained recession may be on the cards, which will affect investment behaviour further. Now is the time to apply the lessons learned from the 2008 recession, including diversifying portfolios and giving more thought to long-term rather than short-term decisions.

Longevity is the goal and fund managers will have to change their behaviours to achieve this.

Which sectors are safe bets?

Depending on the geopolitical climate, which sectors are most popular to invest in can change. At present, and largely as a result of the coronavirus pandemic and the continued focus by governments around the world on the environment, investors seem to be favouring the following:

  • Technology
  • Medtech and life sciences
  • Renewables, energy efficiency and sustainability
  • Social impact and infrastructure
  • Logistics and consumables

Although consumables are usually seen as ‘recession-proof’, now that PPE has become part of daily life, businesses that operate in this area have become a more solid prospect for investors.

What will 2021 look like?

Now that the first batch of COVID-19 vaccines have started being rolled out, and Brexit (with or without a deal!) is set for 1 January, a level of certainty is being regained. As such, financially holding back further could create more problems. Particularly after the widespread financial relief offered by the Government in recent months, there will be an expectation for the investment industry to pull its weight in driving the country’s economic revival.

Many investors have funds ready to be deployed and with cash drag starting to take effect, it’s time for them to put their feet back on the accelerator, especially with change on the horizon in the form of capital gains tax changes, for example.

In what has been a difficult year for many, the investment market has battled through valiantly, emerging much better than it would have done 20 years ago. There are a number of reasons to be optimistic about the future, and fund managers will undoubtedly be a core part of the UK’s recovery.

Helping you find an investment funds strategy in an ever-changing market

No matter whether you’re a fund manager, family office, investor or company looking to raise capital, our investment funds team can help – contact Kavita Patel for guidance and support.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.  

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Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

The UK officially enters recessions | what does it means for your sector?

The UK officially enters recessions | what does it means for your sector?

On 12 August, the UK officially entered recession after the economy suffered its worst months on record between April and June

Although largely inevitable after the restrictions that lockdown placed on the country, it is still not the news that any sector wanted to hear. So, what could the impacts of the UK’s first recession in 11 years be?

From general business and investment funds to energy and education, our experts provide their thoughts on what the future has in store.

General business

Over the last few months, there has been a considerable rise in the number of insolvencies. The high street was struggling even before the pandemic, with the closure of restaurants and the forced move to online shopping having been the very last things that many businesses needed.

Andrew Taylor, one of our insolvency partners, said:

“The insolvencies and job cuts we’ve seen over recent weeks have been leading up to this point – now an official recession is here and the economy has bitten back with GDP tumbling by a record 20 percent.

“Cue suffocation of cash flow, with businesses paying more slowly while asking their clients to pay quicker. Those that aren’t struggling should make sure they are paid before their debtors run into deeper financial difficulty.

“Where possible, businesses will want to pay their suppliers on 30 to 60-day terms if their clients are doing the same. It’s also wise to have alternative suppliers on standby, just in case they withdraw from the market, become too expensive, or go bust.

“While the horse has indeed bolted, it’s not too late for businesses to plan for what’s to come. Directors must not bury their heads in the sand. The sooner they seek professional advice and act, the more options will be available, and the quicker they can protect their company’s creditors, the business, and most importantly, themselves.

“This is only the start and, while the wider economy will bounce back, only those businesses that have a healthy balance sheet and have adapted to ‘the new normal’ and changes in consumer habits will survive this recession.”

Investment funds

As an increasing number of businesses struggle due to the financial pressure put on them by COVID-19, it has become difficult for investors to know where it is safe to put their money. However, continued investment is vital to the UK surviving this recession.

Kavita Patel, our head of investment funds, said:

“Private investment has played a pivotal role in the UK economy and this will need to continue as we head into a recession and during the recovery as we come out the other side.

“While existing investment portfolios may continue to see further valuation reductions, the normal ups and downs of economic cycles should mean that this will recover if investors can hang on long enough.

“Continuing to support good businesses will help them manage through the crisis and give them the best platform to grow. Whilst it may remain tough for many for some time, history has shown that there are always good investment opportunities in any market. What’s clear is that with interest rates likely to remain low, investment in UK businesses continues to provide an important route for wealth creation which, in turn, will support economic recovery.”

Energy

There are two sides to the coin when it comes to the energy sector during the recession. To meet the country’s climate change goals, the Government must continue to invest in renewable energy, ensuring a level of stability in this area. However, it could be a different story for those in the retail supply sector.

Andrew Whitehead, our head of energy, said:

“The energy sector’s fortunes in many ways are aligned with the Government’s climate change ambitions (and obligations), and it is crucial that spending our way out of recession benefits the green economy, including continued investment and support for energy efficiency, renewable energy and electric vehicle charging infrastructure. This is especially important with the UK hosting the next round of global climate change talks in Glasgow next year.

“Elsewhere, the retail supply sector, already in some turmoil as a result of a combination of price caps and volatile wholesale energy prices, has been struggling to react to the change in consumption patterns and a mandated go slow on household debt recovery. Those suppliers serving industrial and commercial customers have been exposed to the downturn in consumption as shops and factories have closed, and a spate of corporate customer insolvencies looks set to increase in coming months. In such a volatile environment, we can expect to see increased transaction and M&A activity.”

Education

In past recessions, the education sector has benefitted from increased funding, but this may not be the case this time around. Will the UK see a structural change in higher education?

Smita Jamdar, our head of education, said:

“Ordinarily higher and further education are counter-cyclical when it comes to recessions because governments tend to invest in education and training. This government has made it clear that it wants to invest in technical and vocational skills which it sees as key to the levelling-up agenda.

“So far, that has been reflected in lots of warm words and some money for FE, but the investment gap is potentially still huge, especially to compensate for cuts to funding since 2010 and so I hope to see more.

“The Government seems less keen on higher education and there have been numerous alarming comments about too many people going to university and that widening HE participation may no longer be a priority. Universities have been hit hard by COVID-19 and Brexit and it remains to be seen whether securing the future of universities will become a focus for the Government, or whether this is seen as an opportunity to allow some to reduce in size, and possibly merge with other institutions.”

The recent pandemic has proven just how innovative we are as a nation.

The last six months in particular have been difficult for organisations across all sectors, with some industries being affected harder than others.

Recession is never a term that businesses or people want to hear, but the country has recovered before and it will again. Business will continue, even if it has to take a slightly different form.

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The country’s current pragmatic approach to investment in Islamic finance is a good basis for this, as Islamic finance partner Mohammed Saqub and real estate finance solicitor Ishteyak Hannan explains:

The UK as a global hub

At a Sukuk conference in 2018, it was stated that the UK has potential, post-Brexit, to become an attractive destination for Islamic finance and future investment. According to the president of the Saudi Arabia-based IDB, London has the financial, regulatory and legal experts needed to develop the UK into a successful global hub for Islamic finance.

Issuing sovereign Sukuk

After strong demand, 2014 saw the UK become the first European country to issue sovereign Sukuk. The demand for Sukuk was 10 times oversubscribed, showing a solid market in Britain for Islamic finance. Therefore, a Treasury spokesman has claimed they intend to reissue the bonds when they mature later in 2019. This reissuing could attract attention from investors overseas, adding much needed stability to the UK’s economy.

Shariah compliant banks

In the UK, there are currently five fully Shariah-compliant banks and over 20 others that offer a level of Islamic banking. There are approximately £500 million worth of Islamic funds, which between them have hosted 65 Sukuk worth £35 billion.

Maintaining ambition

Brexit must not hinder the development of the UK’s Islamic finance ambitions. Instead, it is essential that the country takes an open-minded stance and acts on the opportunities that Islamic finance brings.

Investors in the Middle East are still keen on UK real estate and our robust legal system means investing here is a safe option. Many aim to hold onto their assets in the UK, and are still hopeful that these assets will perform well, even after Brexit.

Utilising Islamic finance during this period of uncertainty could be a positive move for Britain. Building strong relationships outside of the EU will be vital to maintaining some form of stability for our economy.

In this article we explore the detail of the ruling and what it means to companies which have listed bonds and other instruments which are subject to MAR.

The back story

Tejoori had two major investments, one of which (Bekon Holding AG) was the subject to a drag-along mechanism. This would have effectively required Tejoori to sell its shares to the bidding company, in a squeeze out by share purchase agreement for no initial payment. There was the possibility that the deferred payment would be significantly less than Tejoori’s valuation of $3.35 million. Tejoori had a mistaken understanding of the effect of the sale and purchase agreement and when it would be paid.

The FCA penalised Tejoori because it failed to release an announcement as soon as possible after being notified that the drag-along would occur. Tejoori’s misapprehension was highlighted by the fact that, once the takeover had been announced, there was a lot of speculation, mostly on bulletin boards, as to how much Tejoori would have received for its holding, with the Tejoori share price rising by 38% in two days. When it finally announced the details of the sale, however, its share price closed down 13%.

Details of the case

The BEKON shareholders’ agreement contained a drag-along provision that could be used by majority shareholders to require other shareholders to sell their BEKON Holding AG shares in the event of a takeover. In July 2016, Tejoori was notified that several major shareholders of BEKON had indicated that they would issue a drag-along notice to the other shareholders that would require them to sell their shares in BEKON as part of a takeover by Eggersmann Gruppe GmbH & Co. KG (Eggersmann). The drag-along notice would require Tejoori to sign a share purchase agreement (SPA) with Eggersmann.

Under the SPA, Tejoori would sell its BEKON shares to Eggersmann for no initial consideration with the possibility of receiving deferred consideration that was significantly less than Tejoori’s then known valuation of its investment in BEKON. Tejoori received the signed drag-along notice in July and its shares in BEKON were transferred to Eggersmann in August. Both BEKON and Eggersman issued press releases regarding Eggersmann’s acquisition of BEKON. The press releases did not refer to Tejoori and Tejoori did not release an announcement at that time.

Under MAR, companies are required to release information which is likely to affect the price of their shares or bonds or other tradeable instruments as soon as possible. The online bulletin boards contained clear evidence of speculation that the news would be good for Tejoori’s investment. Tejoori’s share price then rose by 38% over just two days after investors heard of the Eggersman buy-out of BEKON, not realising Tejoori had already had sold its shares. The failure came to light after the London Stock Exchange queried the quick rise in share price with Tejoori in August, however, the FCA found there had been “a misunderstanding of the legal effect of the SPA”, which meant Tejoori did not understand it had in fact sold its entire holding in BEKON. Tejoori, which first listed on AIM in March 2006, did not inform shareholders or the public about the sale despite it being classed as inside information.

Tejoori cancelled its admission to trading on AIM in December and co-operated fully with the FCA investigation, settling at an early stage in order to secure a 30% discount on the fine which would have otherwise been £100,000.

How does this affect businesses?

This is the first ruling since MAR came into force in 2016. It is very likely that the FCA will continue to impose further fines on companies in breach of MAR regardless of whether they act, or don’t act, recklessly or deliberately but, as with Tejoori, mistakenly. In addition to any financial penalty the reputational damage potentially caused by a breach could impact your business.

It is imperative that all companies with publicly traded shares, bonds or other instruments should have the appropriate processes in place to identify inside information and make such disclosures as are necessary.