Legal development

The Pre-Emption Group revised Statement of Principles

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    Overview

    The Pre-Emption Group (PEG) has issued a new Statement of Principles on the disapplication of pre-emption rights, together with template resolutions. The 2022 Statement of Principles, which implements the revised pre-emption regime set out in the UK Secondary Capital Raising Review (UKSCRR), is effective immediately. (Please see Ashurst PLC article for further information on the UKSCRR).

    The Statement of Principles, which provides guidance on the factors to be taken into account by companies and investors when considering the case for disapplying pre-emption rights, applies to all companies (wherever incorporated) with shares admitted to the Premium Listing segment of the Official List, although companies with shares admitted to the Standard Listing segment of the Official List, to the High Growth segment or to trading on AIM are also encouraged to adopt the Statement of Principles. The Statement of Principles was last updated in 2015 and was relaxed on a temporary basis during the Covid-19 pandemic.

    Whilst the UKSCRR highlighted the importance of the principle of pre-emption, recommending that it be maintained and enhanced, the UKSCRR recognised the need for this investor protection to be balanced against an efficient capital raising process. In line with this objective, the UKSCRR recommended, amongst other things, that the ability for companies to carry out smaller fundraisings quickly and cheaply be increased and that capital hungry companies be provided with greater flexibility.

    The UKSCRR's recommendations were fully accepted by the government and endorsed by PEG.

    Revised Statement of Principles

    The revised Statement of Principles includes the following:

    (1) Increased disapplication threshold

    A company may seek shareholder approval at its AGM by special resolution for a non-pre-emptive issue of up to:

    • 10 per cent of issued ordinary share capital, to be issued on an unrestricted basis; and
    • an additional 10 per cent of issued ordinary share capital, to be used only in connection with an acquisition or a specified capital investment, announced contemporaneously with the issue, or which has taken place in the preceding 12 month period and is disclosed in the announcement of the issue (an increase of six months from the 2015 Statement of Principles).

    The revised threshold represents an increase from the previous model which allowed for a non-pre-emptive issue of up to 10 per cent of issued ordinary share capital, on a five per cent plus five per cent basis.

    Follow-on offers

    For each limb above, companies are able to seek further authority to disapply pre-emption rights for up to an additional two per cent, to be used only for a 'follow-on offer' to retail investors and existing shareholders after a placing. This builds on the recent market trajectory towards increased participation by retail investors in non-pre-emptive offerings. The expected features of such follow-on offers are set out in the Statement of Principles and include that qualifying shareholders should be entitled to subscribe for shares up to a monetary cap to be determined by the issuer of no more than £30,000 and that the number of shares issued should not exceed 20 per cent of those issued in the placing.

    Duration

    The revised disapplication authorities should last no more than 15 months or until the next AGM, whichever is the shorter period, as per the 2015 Statement of Principles. 

    Conditions for use of 20 per cent disapplication authority

    In order to benefit from this flexibility, a company should: 

    • prior to announcement of the issue, consult with its major shareholders to the extent reasonably practicable and permitted by law;
    • give due consideration to the involvement, in the placing and/or in a follow-on issue, of retail investors and existing investors not allocated shares as part of the soft pre-emptive process (see below);
    • provide an explanation of the background to and reasons for the offer and the proposed use of proceeds, including details of any acquisition or specified capital investment;
    • as far as practicable, make the issue on a soft pre-emptive basis;
    • involve company management in the process of allocating the shares issued; and
    • within one week of completion of the issue, make a post-transaction report (a template for which is included in the Statement of Principles). The report should be publicly announced through a RIS and submitted to PEG for inclusion in its Pre-Emption Database.

    As set out in the UKSCRR, the revised model (20 per cent authority on a 10 per cent plus 10 per cent basis) has the advantage of having been 'tried and tested' during the Covid-19 pandemic. The market responded well to the Covid-19 relaxations and it is expected that the increased flexibility now available to issuers on a permanent basis will be welcomed. 

    (2) Additional flexibility for capital hungry companies

    Companies that need to raise larger amounts of capital more frequently ('capital hungry companies'), such as those operating in the technology or life sciences sectors, may seek additional disapplication authority, whether or not in connection with an acquisition or specified capital investment, if the reason for exceeding the usual threshold is specifically highlighted at the time the request for a general disapplication is made. Capital hungry companies may also seek disapplication authority for a longer period if the reason for this is specifically highlighted at the time the request for a general disapplication is made (or, where relevant, disclosed in the company's IPO prospectus). 

    Companies seeking admission to the Official List that wish to be considered a 'capital hungry company' for these purposes and to make use of this approach should make the relevant disclosures in their IPO prospectus.

    Timing for obtaining shareholder approval and transitional measures

    Companies should obtain shareholder approval for capital raisings under the revised Statement of Principles at their next AGM. However, in urgent or exceptional cases between now and the next AGM, where companies wish to make a non-pre-emptive offer under the new regime, they should follow the transitional arrangements (as set out in the UKSCRR), pursuant to which PEG recommends that investors, on a case-by-case basis, consider supporting issuances by companies of up to 20 per cent of issued ordinary share capital, provided they otherwise comply with the prescribed conditions.

    PEG monitoring

    PEG will monitor practice annually in relation to disapplying pre-emption rights and issuing equity securities under disapplications.

    Governance and membership recommendations

    PEG plans to establish the governance and membership recommended by the UKSCRR and will make a further announcement when this is complete.

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