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ABI best practice for lock-up agreements


At the time of an IPO or significant secondary fundraising, shareholders with significant shareholdings may be required by the issuer’s Nomad/Broker (with regards to AIM-listed companies) or Sponsor/Broker (with regards to Main Market-listed companies) to undertake not to sell their shares for a specified period, except in certain limited circumstances.

Such lock-ups can be important in maintaining an orderly market in a listed company’s shares and provide comfort to investors.

For companies admitted to trading on AIM, the AIM Rules for Companies require lockup/lock-in agreements to be provided by all “related parties” and “applicable employees” (each as defined therein), for a minimum period of one year, where an applicant’s main business activity has not been independent and revenue earning for at least two years.

AIM Rule 7 also sets out the limited exceptions permissible with regards to such lock-ups, which include the death of the relevant shareholder, acceptance of a takeover offer which is open to all shareholders and an intervening court order.

In respect of Main Market-listed companies, the FCA Handbook is not prescriptive with regards to the circumstances in which lock-up agreements are required, and therefore, this decision is one for the investment bank in question, in light of current market expectations. The same goes for AIM-listed companies when AIM Rule 7 does not apply.

In recent years, there has been a trend for such lock-ups to be drafted so that they can be waived at the sole discretion of the investment bank and, as a matter of fact, such lock-ups are being waived prior to their expiry dates.

ABI Best Practice

On 14 April 2014, the Association of British Insurers (“ABI”) published a statement of best practice in relation to lock-up agreements, with a view to establishing a balance between maintaining the value of lock-up arrangements whilst providing sufficient flexibility for investment banks.

Robert Hingley, Director of Investment Affairs, ABI summarised the issue with the current market practice of waiving lock-up agreements early when he stated that:

"ABI members believe this development [in current market practice] is unwelcome and damaging to market integrity. Lock-Up Agreements have a significant market function. In particular, they are important to investors as they regulate the supply of shares in the company and so are relevant to price formation. Investors are therefore intended to – and do – place significant reliance on them. Lock-ups should do what they say and there has to be a real difference between a lock-up for a stated long period and one for a stated short period.”

The ABI distinguishes between soft lock-ups and hard lock-ups, as follows:

  • Soft lock-ups: where the lock-up arrangements may be waived at any time at the sole discretion of the investment bank, and
  • Hard lock-ups: where the relevant shareholder is restricted from selling any shares at all or is only permitted to sell shares in very limited, objectively definable, circumstances (whilst the guidance is not aimed at AIM shares, an AIM Rule 7 lock-in is a form of hard lock-up).

The ABI’ recommendations include:

  • that the period of the lock-up, and the circumstances in which any sale might take place prior to its expiry should be clearly disclosed, and in particular, the extent to which any period of the lock-up is “soft”, and
  • that the appropriate period and terms of a lock-up will be dependent on the particular circumstances and are a matter for the shareholder and investment bank.

However, in general:

  • Soft lock-ups are only appropriate for periods of relatively short duration
  • Where lock-ups of a longer duration are entered into, it is appropriate for the lock-up agreement to specify an initial period of hard lock-up
  • Where or to the extent that a lock-up may be waived at the sole discretion of the investment bank, any such waiver should only be given after careful consideration, taking full account of the overall merits from the perspective of investors and of the need to maintain market integrity; any such waiver would generally only be expected to be granted at a time close to the stated expiry of the lock-up


Whilst for AIM companies the provisions of AIM Rule 7 have given rise to a generally clear distinction between hard lock-ups and soft lock-ups, utilisation of such agreements by investment banks for Main Market companies is more varied and subject to trends in market practice.

The current trend to waive such agreements early is considered unwelcome by ABI members. The ABI statement of best practice will hopefully help set market practice back on a path where lock-up agreements can be relied upon by investors and continue to play an important role in maintaining an orderly market.

For more information please contact Mark Howard on +44 (0)20 7203 8902 or at mark.howard@crsblaw.com