Even within the EU, harmonisation of capital raising is not
as advanced as the Directives would make you think. Moreover,
for some international investors the continuation of
pre-emption rights and other limits on new issues comes as
something of a surprise. The flowcharts below provide a guide
through the maze of regulations, law and guidance.
All companies must follow the rules set out in the Companies
Act 2006 and the UK Listing Authority (UKLA) Listing Rules.
There are also a number of institutional investor bodies which
provide guidance on the allotment of share capital and the
disapplication of pre-emption rights. Although not legally
binding, such guidance is followed as market practice. The
guidance is generally aimed at companies with a primary listing
on the London Stock Exchange main market, but companies listed
on Aim (the Alternative Investment Market) are also encouraged
to comply. Listed companies that do not wish to comply with the
guidelines should discuss the matter with the relevant
institutional investor body.
|Authority to issue shares
Note 1 – Section 562 Companies Act 2006 prescribes
that a pre-emptive offer should be made in hard copy or
electronic form, state a period of not less than 14 days during
which it may be accepted and, for shareholders who have no
registered address in an EEA State, and have not supplied the
issuer with such an address, be published in the London
Note 2 – An issuer may wish to disapply pre-emption
rights even though the issue of shares is to be done
pre-emptively in order to:
(i) exclude overseas shareholders;
(ii) aggregate fractional entitlements and sell them in
the market for the benefit of the issuer; and
(iii) deal with convertible securities.
Note 3 – The latest guidelines published by the
Association of British Insurers (ABI) (in November 2009)
address the recommendation of the Rights Issue Review Group
that an issuer should be able to issue one-third of the
company's issued share capital plus any additional amount
required for deferred consideration or options; and issue a
further one-third of issued share capital provided it is used
for a fully pre-emptive rights issue and the given authorities
expire at the next annual general meeting.
The National Association of Pension Funds (NAPF) has
endorsed this proposal.
Note 4 – An offer by way of rights issue, under
which invitations are given to existing shareholders to
subscribe or purchase further securities in proportion to their
holdings, can be done in two ways - through a rights issue or
an open offer.
A rights issue is made by the issue of a renounceable letter
which may be traded (as nil paid rights) for a period before
payment for the shares is due. Shareholders can (i) take up
their rights; (ii) sell their rights; (iii) let their rights
lapse; or (iv) carry out a combination of the previous three
An open offer is not made by a renounceable letter or other
negotiable document; the rights can not be traded. If a
shareholder fails to take up his entitlement, he will not
receive anything. To limit the use of open offers, the Listing
Rules provide that open offers may not be discounted more than
10% (except with prior shareholder approval or pre-existing
general disapplication authority).
Note 5 – If statutory pre-emption rights have been
disapplied, issues in accordance with that disapplication are
permitted under the Listing Rules (LR 9.3.12R(1)).
Note 6 – The Pre-Emption Group's Statement of
Principles on Disapplying Pre-Emption Rights (published in 2006
and updated in 2008), which are endorsed by the ABI and the
NAPF, provide that disapplication of pre-emption rights should
be limited to 5% of ordinary share capital in any one year with
a cumulative limit of 7.5% in any three-year rolling