The Pre-emption Group (comprising representatives of listed companies, investors and intermediaries) has issued a new Statement of Principles to be taken into account when considering the case for disapplying statutory pre-emption rights. The new Statement of Principles, which was published on 15 May 2006, replaces the previous guidelines (the so-called ABI guidelines) which date back to 1987.
Under the Statement of Principles requests by companies for authority to disapply pre-emption provisions in respect of issues representing no more than 5% of the issued ordinary share capital in any one year (and no more than 7.5% in any rolling three year period) are likely to be regarded as routine and non-controversial. This reflects the position under the previous guidelines. Most listed companies are therefore unlikely to be affected by the Statement of Principles.
However, the Statement of Principles implements a number of recommendations made by Paul Myners in his report on pre-emption rights prepared for the DTI in February 2005. The Statement of Principles recognises that some flexibility is required when considering requests for authority to disapply pre-emption rights above the levels referred to above. Helpfully, the Statement of Principles sets out certain considerations that are likely to be taken into account by shareholders when looking at non-routine requests for disapplication of pre-emption rights. Such considerations include:
- the strength of the business case
- the size and stage of development of the company and the sector in which it operates
- the level of dilution of value and control for existing holders.
The Statement of Principles emphasise the importance of early and effective dialogue between any company seeking a non-routine disapplication and its shareholders.
The Statement of Principles can be found at http://www.ivis.co.uk/pages/gdsc4_1.html