Ann: Appendix 3B, page-22

Actually, directors with large holdings in small companies that tie up share liquidity are often encouraged to sell out a percentage to help liquidity and expand the amount of shares traded per day. This encourages institutions to buy as they are reluctant to buy into closed markets where they cant get out if they want to re-balance their portfolios.
The only two ways to do this is issue more shares via a cap raising or get directors to sell.

I wouldn't be surprised to see both happening over time. The trick is to do it when the company is in a strong (ie cash flow positive and expanding) period so as not to confuse the market!