Disapplication of statutory pre-emption rights on share issues: new Pre-Emption Group (“PEG”) template resolutions - 1 August 2016
PEG has issued a Monitoring Report considering, amongst other things, its revisions last year (detailed here) to its statement of principles (the Principles). The Principles are aimed at, and applicable to, companies listed on the main market of the London Stock Exchange seeking to disapply preemption rights. The revised Principles left PEG’s previous preemption limits unchanged i.e. requests for the disapplication of pre-emption rights would continue to be likely to be considered as routine by investors if the company was seeking authority to issue non-pre-emptively no more than 5% of the ordinary share capital in any one year or 7.5% in any rolling three year period. However the revised Principles also permitted authority to be requested for an additional 5% per year if the company confirmed that it intended to use it only in connection with “an acquisition or specified capital investment which is announced contemporaneously with the issue, or which has taken place in the preceding six-month period and is disclosed in the announcement of the issue”.
PEG’s Monitoring Report, reviewing market practice, notes that most disapplications of 10% were requested in one resolution covering all of the disapplication, with the associated undertakings regarding an acquisition or specified capital investment referred to in the explanatory notes to the resolutions or the Chairman’s statement. Investor representatives on PEG ‘noted a preference’ for companies to propose two separate resolutions, each requesting a 5% authority to disapply pre-emption rights. To clarify best practice PEG has published template resolutions. The preamble to the template notes that companies are encouraged to use it at their next meeting but PEG would expect companies to use it for meetings held after 1 August 2016.
Impact – the Monitoring Report notes that less than 35% of the resolutions to disapply pre-emption rights last year requested a disapplication of 10% or more although it also notes elsewhere in the report that the time of publication of the revised Principles overlapped with the beginning of the AGM season. In the preamble to the template resolution, PEG highlights that when an additional 5% disapplication authority is used, companies should make certain disclosures in the announcement regarding
the issue and publish certain details in their next annual report. PEG also advises that ‘companies which do not comply with the letter and spirit of the Statement of Principles are likely to find their shareholders less inclined to approve subsequent requests for disapplication’.
Background - statutory pre-emption rights apply when
UK companies seek to issue new shares for cash. Unless shareholders have agreed otherwise, any new shares issued for cash must first be offered to existing shareholders in proportion to their current shareholding. In addition, companies listed on the main market are also subject to the FCA’s Listing Rules which require them to have pre-emption rights at least equivalent to the statutory rights. The Pre-Emption Guidelines were first published in 1987 by the original Pre-Emption Group to provide guidance on the considerations to be taken into account when assessing the case for disapplying pre-emption rights. The Guidelines were replaced with a Statement of Principles in 2006, subsequently updated in 2008. The Pre-Emption Group was re-formed in 2015 and revised Principles published.
- In Reveille Independent Llc v Anotech International (UK) Ltd  EWCA Civ 443 the Court of Appeal considered in what circumstances a contract will result when a written offer document states that it is not binding until signed by the offeree and the offeree does not sign but performs in the manner contemplated by its terms. The judgment discusses a number of rules of English contract law including that acceptance can be by the conduct of the offeree so long as that conduct, as a matter of objective analysis, is intended to constitute acceptance. The court concluded that, on the facts, the offeree waived the provision that there would be no binding contract in the absence of its signature and there was no prejudice from this to the other party. It found that there had been acceptance by conduct by the offeree and subsequent conduct on both sides confirmed the existence of the contract.