Simplification of EU Company Law and Accounting and Audit Regulation - ACT Response

We have consulted our membership and other interested professionals in this immediate instance through our Policy and Technical Committee. Our general position regarding pre-emption rights is, however, of long standing.

We understand that you requested comments on this topic by mid-October. However we would like to add our support to the comments regarding pre-emption rights made in their response to you to you by the Association of British Insurers on 15th October 2007.

Pre-emption rights are essential to prevent possible transfer by a company’s management of value to new shareholders, away from existing shareholders, without the latter’s consent. Transfer of value can occur in two ways:

• Issue of shares by the company at an under-value
• Transfer, by the issue of shares by the company, of fractional ownership and dilution of existing holders’ influence in shareholders’ collective decision making

Protection against this mischief is a fundamental shareholder right and is of great value to shareholders. The absence of such protection in a particular jurisdiction reduces the attractiveness of share ownership and would be expected, over time, to increase the cost of capital for companies. The principle of such protection should run throughout the Single Market both as part of investor protection and to help reduce the complication arising in investing from one Member State into another.