Summary: Following a review of market practice, the FRC has published a template resolution proposing two separate resolutions for the disapplication of pre-emption rights, each permitting issues of up to five per cent of a company’s issued share capital on a non-pre-emptive basis. Companies are encouraged and expected to use the template resolutions for meetings held after 1 August 2016.

Template resolutions

Currently the Pre-Emption Group’s Statement of Principles allow the annual disapplication of pre-emption rights to include:

  • five per cent of issued ordinary share capital to be issued on an unrestricted basis; and
  • an additional five per cent of issued ordinary share capital to be used for “an acquisition or specified capital investment”.

Following a review of market practice for disapplications, the Pre-Emption Group has decided to assist companies by publishing template resolutions to be used going forward. The template consists of two separate resolutions to disapply pre-emption rights:

  • for up to five per cent of the issued share capital; and
  • for an additional five per cent for transactions which the board determines to be an acquisition or other capital investment as defined by the Statement of Principles.

When the additional five per cent disapplication authority is used, companies should disclose, in the announcement regarding the issue, the circumstances that have led to its use and describe the consultation process undertaken. In addition, the Statement of Principles provides that companies are expected, where they have undertaken a placing using the disapplication of pre-emption rights, to publish in the next annual report:

  • the actual level of discount achieved;
  • the net proceeds raised;
  • how those net proceeds were used; and
  • the percentage increase in issued share capital due to non-pre-emptive assuance for cash over the three-year period preceding the issue.

Companies are being encouraged to use the template resolutions at their next meeting and expects them to do so for meetings held after 1 August 2016.

Conclusion

The new template goes further than the existing wording by requiring the board of a company to determine that the additional authority will be used in the appropriate way. This is designed to provide additional certainty that the relevant share issue has been properly authorised. A board minute evidencing the directors’ determination will usually be required therefore but should suffice for these purposes (assuming the directors are acting in good faith and in furtherance of their statutory duties).

As the majority of companies will have held their AGM by 1 August 2016, these new resolutions are unlikely to be tested until 2017 at the earliest.