On 19 April 2018, the Financial Conduct Authority (the FCA) published a letter to CEOs of listed companies regarding irredeemable preference shares and other similar capital instruments. In its letter, the FCA highlights the importance of ensuring that investors have access to the information that they require in order to properly assess the risks and rewards attaching to such shares.
Access to key information
In particular, the FCA's letter urges CEOs to ensure that certain information is made readily accessible to all holders of, and potential holders of, such shares, including:
- the terms and conditions of the instrument (as included in the original prospectus or document issued at the time of the offer and/or admission of shares);
- any changes to the terms and conditions made after the issue of the shares;
- the articles of association of the issuer, especially those terms relating to the shares, such as the constituency and conduct of any relevant shareholder votes;
- a Q&A type publication which makes information clear and comprehensible for investors. Items which may be clarified would include:
- the extent to which rights of the shares can be changed without specific resolution of the affected class of securities;
- the ability to cancel the shares at a price less than the prevailing market price without the specific assent of the affected holders (either individually or as a class); and
- whether the company has made a decision regarding its approach to the use of either of the above, in particular where it has the ability to cancel the shares at par or at a price less than the prevailing market price.
Consider your MAR obligations
Additionally, the FCA states that listed companies must consider whether any intention to cancel or retire a class of irredeemable (or similar) shares at a price based on factors other than the prevailing market price, or their company's deliberation on any such intention, constitutes inside information under Article 7 of the Market Abuse Regulation.
Consider the market's understanding
The FCA also urges CEOs to consider whether there is a risk that the prevailing market price of any of the company's shares or other signals from investors suggests that there is a lack of understanding over the terms and conditions of those shares and/or the company's intention regarding them. In the event that a company has publicly stated or proposes to publicise its intentions regarding the securities, the FCA urges the company to set out the governance process and the approach to disseminating any future changes it might make.