The ACT warmly welcomes today’s issue by the Pre-Emption Group of a new Statement of Principles to replace the old pre-emption guidelines. The new Principles preserve the essential protection of shareholder pre-emption rights while building in a sensible degree of flexibility. For the first time they cover the re-sale of Treasury Shares.
Richard Raeburn, Chief Executive of the ACT commented “Clarification and up-dating of the 1987 guidelines will be helpful to all market participants. This is an excellent first output from the Pre-Emption Group following its re-constitution. The Pre-Emption Group provides a forum for consideration of complex issues and principles away from the strong emotions which can become involved in particular, difficult, cases and we greatly value it for that.”
The Pre-Emption Group brings together investors, issuers and financial intermediaries. The ACT was involved in the Pre-Emption Group’s formation under the auspices of the Bank of England and on an initiative by the Association of British Insurers and the ACT. The ACT has been represented on the Group since then – currently by Stuart Siddall, Finance Director of AMEC plc.
1) Pre-emption rights give existing shareholders in a company the right to subscribe for their pro rata share of any new shares in that company issued for cash, providing them with protection against inappropriate dilution of their investments. Pre-emption rights are enshrined in law and, under the Companies Act 1985, may be disapplied only by a special resolution of shareholders at a general meeting of the company.
2) The Principles relate to issues of equity securities for cash other than on a pre-emptive basis pro rata to existing shareholders by all UK companies which are primary listed on the Main Market of the London Stock Exchange.
3) In 2004 Paul Myners was asked by the Department of Trade and Industry to examine the impact of pre-emption rights on the ability of some companies to raise finance for innovation and growth. In his report, published in 2005, he concluded that pre-emption rights were valuable to shareholders and should remain a cornerstone of UK company law, and recommended that the Pre-Emption Group should be reconstituted to produce updated guidance on disapplying pre-emption rights.
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