The Pre-Emption Group revised Statement of Principles
08 November 2022
08 November 2022
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.
The revised Statement of Principles includes the following:
A company may seek shareholder approval at its AGM by special resolution for a non-pre-emptive issue of up to:
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.
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.
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.
In order to benefit from this flexibility, a company should:
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.
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.
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 will monitor practice annually in relation to disapplying pre-emption rights and issuing equity securities under disapplications.
PEG plans to establish the governance and membership recommended by the UKSCRR and will make a further announcement when this is complete.