Pre-Emption Group issues updated guidance on expectations for issuances

1st April 2020

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The Pre-Emption Group – which issues best practice documents regarding authorities to disapply pre-emption rights - has issued a recommendation that investors consider, on a case-by-case basis, supporting issuances by companies of up to 20% of their issued share capital on a temporary basis, rather than the 5% for general corporate purposes with an additional 5% for specified acquisitions or investments.
 
The full statement can be read here.
 
The recommendation for investors to apply additional flexibility, will be in place on a temporary basis until 30th September 2020.
 
The group has issued the following guidance on how companies should seek to exercise additional flexibility from investors.

  • The Statement of Principles already permits companies to request a specific disapplication of pre-emptive rights outside of the normal thresholds, and this process should continue to be respected.
  • The particular circumstances of the company should be fully explained, including how they are supporting their stakeholders.
  • Proper consultation with a representative sample of the company’s major shareholders should be undertaken; - as far as possible.
  • Any issuance should be made on a soft pre-emptive basis; and - company management should be involved in the allocation process.
  • In addition to disclosures expected in the Annual Report and Accounts, as outlined in the PEG’s Appendix of Best Practice in Engagement and Disclosure, Companies are also expected to disclose alongside the issuance, information about the consultation undertaken prior to the issuance and the efforts made to respect pre-emptive rights, given the time available.
  • Existing share awards should not be normalised to negate the dilutive effect of the extended issuance and the directors of the Company will be held accountable for their decisions at the AGM following its use.

The Pre-Emption Group’s Statement of Principles apply to all companies with a Premium Listing on the Main Market. They do not strictly apply to companies on AIM, or those companies with a Standard Listing, however these companies are encouraged to adopt the principles.

Pre-emption is correctly viewed by investors as a fundamental right, and while institutions are normally able to participate in placings of new shares (sometimes referred to as soft pre-emption), though not necessarily avoiding dilution, we recognise that retail investors rarely can. However, because of the clear crisis we find ourselves in and the necessity for many companies to raise capital in an accelerated fashion, we are supportive of a temporary relaxation of these guidelines around pre-emption. In essence, it is more important that companies are able to survive in this uncertain period and are thus sufficiently well funded to do so. 
 
Will Pomroy, Chair, QCA Corporate Governance Expert Group

Andy Crossley, Chair, QCA Primary Markets Expert Group

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