Pre-Emption Group publishes monitoring report on disapplication resolutions together with template resolutions

The Pre-Emption Group (PEG) has published a report which looks at the implementation of the PEG’s March 2015 Statement of Principles (Principles) in the year since their publication.

By way of reminder, the Principles provide guidance to companies and shareholders on the factors to be taken into account when considering whether to disapply pre-emption rights. More specifically, the Principles clarify the circumstances in which the issuance of securities on a non-pre-emptive basis might be appropriate and the factors to be taken into account when:  

  • companies propose, and shareholders consider, a general disapplication of pre-emption rights; 
  • companies consider making use of a general disapplication of pre-emption rights to issue equity securities non-pre-emptively; and 
  • companies propose, and shareholders consider, a specific disapplication of pre-emption rights.

The PEG reminds companies that, while the Principles are not a rulebook, it expects all companies to engage with their investors on the basis of the Principles. In general, this appears to have been the case during the period under review. The PEG  also emphasises that the Principles provide a framework for early and effective dialogue between a company and its shareholders on the issue of disapplication; in order to be considered appropriate, any such consultation must be specific and unequivocal and undertaken with a broad range of shareholders.

The most significant change to the Principles in 2015 was the inclusion of further flexibility for companies to undertake non-pre-emptive issuance of equity for cash in connection with acquisitions and specified capital investments over an additional 5% of issued share capital. The report states that most companies seeking this additional authority from shareholders did so in a single resolution at their AGM, with associated undertakings regarding usage in the explanatory notes to the resolutions or the Chairman's statement. Investor representatives on the PEG preferred two separate resolutions of 5% each, with the second resolution referring specifically its use in connection with an acquisition or specified capital investment.

To clarify best practice on the format of such resolutions, the PEG has published template resolutions which underline the PEG's preference for the dual resolution model. The templates also set out the disclosures investors expect to see when such an authority is used both in any placing announcement and in the company's next annual report.

The PEG encourages companies to consider using the templates at their next meeting, and expects companies to use them for meetings held from 1 August 2016.