Companies leaving AIM due to financial stress reaches record low

Only seven companies left AIM due to financial stress or insolvency during the past year compared to 82 in the year following the bankruptcy of Lehman Brother as the pandemic left London’s junior market “largely unscathed”, according to UHY Hacker Young.

UHY Hacker Young says that the number of companies delisting from AIM due to financial stress is at its lowest level on record.

The firm said a key reason for the low levels of insolvency among AIM companies is the London Stock Exchange moving the market towards larger, more financially stable businesses over the last ten-plus years.

Compared to the last financial crisis far more of AIM’s companies are now later in their development cycle and either at or near profitability. This means they are more likely to get support from shareholders for additional fundraising during times of economic stress, it added.

UHY said another reason for low levels of AIM company insolvencies is the London Stock Exchange’s commitment to improving governance on the market in recent years as AIM companies are now obliged to comply with a corporate governance code as part of a series of regulatory reforms aimed at improving investor confidence in AIM.

Daniel Hutson, partner at UHY Hacker Young, said: “The pandemic year has turned into an unexpected success story for AIM.

“Some expected the effects of the pandemic on AIM to look similar to the effects of the last financial crisis. That simply hasn’t happened – the market has weathered the storm extremely well. 2009/10 saw a huge wave of insolvencies among AIM companies but the current market constituents are a much higher-quality and more diverse group.”