The Pre-Emption Group has published a revised Statement of Principles, which permits the disapplication of pre-emption rights up to 20% (10% plus 10%) of a company's issued ordinary share capital.
The Principles allow the annual disapplication of pre-emption rights to include:
- 10% of issued ordinary share capital to be issued on an unrestricted basis;
- an additional 10% issued ordinary share capital to be used for either an acquisition or specified capital investment, which is announced contemporaneously with the issue or occurring in the previous 12 months; and
- an additional 2%, to be used only for the purposes of a "follow-on offer" to existing holders of securities not allocated shares under an issue made under either of the two bullets above.
The increased threshold mirrors the additional flexibility supporting issuances of up to 20% which was introduced by the Pre-Emption Group on a temporary basis between April and November 2020 in order to help companies raise capital during the COVID-19 pandemic.
When an additional 10% disapplication authority is used for an acquisition or specified capital investment, 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 Principles provide that companies are expected, each time they have undertaken a placing using the disapplication of pre-emption rights under any general disapplication of pre-emption rights, to publish a post-transaction report containing the details set out in the Principles and also include those details in its next annual report.
A "cashbox" transaction should be regarded for the purposes of the Principles as being an issuance of equity securities for cash and therefore may only be used for up to the amount of the pre-emption disapplication authority.
Capital Hungry Companies
The Principles allow "capital hungry companies" to seek additional disapplication authority, for use whether or not in connection with either an acquisition or specified capital investment, and to seek disapplication authority for a longer period if the reason for exceeding the threshold or longer disapplication period is specifically highlighted at the time at which the request for a general disapplication is made. Companies that wish to be considered a "capital hungry company" for these purposes should disclose that fact in their IPO prospectus.
The Principles now expressly state that they will be monitored on an annual basis.
The Pre-Emption Group has also published template resolutions to guide market practice in this area.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.