Pre-Emption Group publishes Terms of Reference

Overview

On 26 April, the FRC published on behalf of the Pre-Emption Group (PEG) Pre-Emption Group - Terms of Reference. The Terms of Reference respond directly to a recommendation in the UK Secondary Capital Raising Review (UKSCRR) that the PEG's role in guiding best practice in relation to the pre-emption rights regime should be further centralised and formalised through revised terms of reference in addition to, amongst other things, a dedicated and easily accessible website and a review of the PEG's membership to ensure that it is representative of UK capital markets. In November 2022, the PEG issued a new Statement of Principles on the disapplication of pre-emption rights, together with template resolutions, implementing the revised pre-emption regime set out in the UKSCRR (see Ashurst update here).

Terms of Reference

In a bid to promote transparency in the activities of the PEG, the Terms of Reference outline the PEG's role, membership and nomination process. As noted in the UKSCRR, the aim of the Terms of Reference is to allow the PEG to continue to guide market practice in respect of the pre-emption regime.

Role

The Terms of Reference highlight that the PEG is an industry group which acts on a voluntary basis and represents listed companies, investors, intermediaries and other stakeholders in the equity capital markets in relation to the UK pre-emption rights regime. Its role is to:

• monitor practice in respect of the disapplication of pre-emption rights and report annually on the application of the Statement of Principles in addition to the observance by stakeholders of the pre-emption regime more generally;
• regularly review the Statement of Principles and, if necessary, agree any revisions to them and the related template resolutions following consultation with interested parties, and promote stakeholder awareness of any revisions;
• monitor whether the processes relevant to both pre-emptive and non-pre-emptive issuances could operate more efficiently for the benefit of companies and shareholders and, where relevant, make recommendations to the appropriate authorities; and
• provide the market with a clear view of what is regarded as acceptable practice when raising equity and equity-related capital non-pre-emptively in the UK equity capital markets.

The PEG will not express a view on, or otherwise intervene in, individual cases.

Membership

The Terms of Reference provide that the PEG will have at least fourteen members and its membership will at all times be representative of the key stakeholders in the UK equity capital markets, including global institutional investors, the retail investor community, the AFME, the 100 Group, the QCA and the PLSA in addition to four independent members and an independent chair. Representative membership was highlighted in the UKSCRR as being key to maintaining the credibility of the PEG, with the retail investor community and global institutional investors being proposed as potential additions to the composition of the PEG. Appointments will be for a period of up to two years and a nomination committee approach will be adopted for the appointment of the chair and new members, in line with the overarching theme of transparency.

Comment

In addition to the revised Statement of Principles, the establishment of the Digitisation Taskforce and the updates to the Investment Association's Share Capital Management Guidelines (see Ashurst AGC update here), the Terms of Reference implement another recommendation of the UKSCRR. An anticipated change flowing directly from the UKSCRR recommendations is the amendment of the Companies Act 2006 to streamline the process for secondary capital raisings, including by reducing the notice period for general meetings and by enabling companies to disapply pre-emption rights in particular instances without the need to obtain shareholder approval.

More broadly, however, the Terms of Reference represent a further step in the movement for the modernisation of UK capital markets, kick-started by Lord Hill's UK Listing Regime Review. Much progress has been made since the UK Listing Review, the central aim of which was to enhance London's attractiveness as a leading listing venue in a post-Brexit world. Some significant rule changes have already been implemented by the FCA, including with respect to SPACs, free float requirements and dual class share structures, and the dialogue in relation to the overarching proposals as to the structure of both the listing regime and prospectus regime is continuing to evolve (see Ashurst update here). Most recently, HMT published an illustrative statutory instrument showing how the Government proposes to implement the revised prospectus regime, further to HMT's UK Prospectus Regime Review. The FCA will also announce its proposals in relation to its enhanced rule-making powers under the new prospectus regime in due course. In relation to the listing regime, the FCA has confirmed that it aims to publish a blueprint for further reform soon (see Ashurst AGC update here). The final form of these sweeping proposals is highly anticipated and it will be very interesting to see their combined effect on UK capital markets, and the UK economy more broadly.