Included in this issue: Pre-Emption Group relax guidelines; FCA launch Storage Mechanism and more...


Pre-Emption Group expectations for non-pre-emptive share issues during COVID-19 

The Pre-Emption Group (PEG) has published its expectations for share issues in the light of COVID-19 in order to enable companies access to the capital they need to maintain their solvency.

PEG recommends that investors, on a case-by-case basis, consider supporting non-pre-emptive issuances by companies of up to 20% of their issued share capital on a temporary basis, rather than the 5% for general corporate purposes with an additional 5% for specified acquisitions or investments, as set out in the 2015 Statement of Principles. Those companies whose business models may require an injection of equity capital investment in the short to medium term in light of the disruption caused by COVID-19 may therefore consider proposing a revised 20% resolution at their forthcoming AGM in substitution for the usual 5+5% formulation.

If the additional flexibility is sought:

  • the particular circumstances of the company should be fully explained, including how they are supporting their stakeholders;
  • proper consultation with a representative sample of the company’s major shareholders should be undertaken; 
  • as far as possible, the issue should be made on a "soft" pre-emptive basis, although this is not prescribed; and
  • company management should be involved in the allocation process. 

In addition to the disclosures expected in a company's next annual report and accounts, as outlined in the PEG’s Appendix of Best Practice in Engagement and Disclosure, PEG would expect any companies issuing up to 20% of their capital to disclose information about the consultation undertaken prior to the issuance and the "efforts made to respect pre-emptive rights, given the time available". 

In addition, the PEG are clear that existing share awards should not be "normalised" to negate the dilutive effect of the extended issuance. 

The PEG recommendation for investors to apply additional flexibility will be in place on a temporary basis until 30th September 2020. The PEG will reconvene prior to that date to assess how companies and investors have responded to the flexibility. Following the end of the temporary period, the PEG will also carry out a wider review of how the additional flexibility was used by companies. For the avoidance of doubt, the statement does not signify an intention by the PEG to consider an extension beyond the 5+5% threshold applicable in normal circumstances.

Virtual board and committee meetings – Chartered Governance Institute publishes guidance

The Chartered Governance Institute has published a guidance note on "Good practice for virtual board and committee meetings" which provides a brief overview of the legal and practical issues to consider in light of COVID-19. The guidance deals with various issues including:

  • initial considerations - such as choice of platform and the validity of such meetings and decisions taken;
  • issues arising before, during and after virtual meetings;
  • various technical considerations; and
  • the alternatives to holding meetings.

Appendices also set out notes for the chair, company secretary and presenters at such meetings together with suggested "ground rules" for participants and a comparison of virtual meeting providers. 

In addition, Independent Audit has published a useful article on making virtual board meetings work well, as well as producing a checklist which can be downloaded here.

Investment Association comments on dividend payments and executive pay in light of COVID-19 

The Investment Association has published comments from its Chief Executive, Chris Cummings, on dividend payments and executive pay in the current climate, specifically highlighting the following key points:

"First, we expect boards to be taking decisions on their dividends based on what is best for their business over the long term; they will have to decide if any dividend payment is sustainable in light of the current market conditions and business needs."

"Second, investment managers would certainly expect companies to follow the guidance of their regulator and have been supportive of companies that have stopped their dividend to retain much needed cash for the business so far." 

"Third, importantly, we should not lose sight of the crucial role of dividends for the wider economy, and the current situation should not be used as an opportunity to rebase or reduce the dividend unnecessarily. Shareholders would expect companies to restart them as soon as it is prudent to do so.”

“Executive pay should always be linked to long term company performance and take account of the shareholder experience, not just financial performance. If companies are stopping dividend payments, boards and remuneration committees should be considering how this impacts on executive pay both for the current year and also in relation to the year the dividend was for.” 

AQSE extends dealing for publishing annual accounts

In line with similar dispensations announced by the Financial Conduct Authority (FCA) and the AIM Regulation team, Aquis Stock Exchange (AQSE), formerly NEX, has announced a temporary, one month, extension to the deadline by which companies admitted to the AQSE Growth Market must publish their annual audited accounts, thereby affording companies seven months from their year-end to do so as opposed to the usual six.

FCA confirms launch of new NSM portal on 6 April 2020

The FCA has confirmed that the new National Storage Mechanism submission portal was launched on 6 April 2020 and that all registration, authorisation and submission activities should be carried out via the Electronic Submission System (ESS). The FCA has reminded issuers that ESS registration and authorisation is required prior to submission on the new system and that filing of regulatory announcements and information should no longer be undertaken via the Morningstar facility.

Key Contacts

Richard Preston

Richard Preston

Managing Associate, Governance and Compliance
London, UK

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Neville Moore

Neville Moore

Legal Director, Corporate Finance
Leeds

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