Included in this update: AIM companies permitted to use Amended IFRS 16; Occupational pension schemes: Government consultation on improving climate change reporting and more...

PEG extends additional flexibility for non pre-emptive securities issuances

The Pre-Emption Group (PEG) has announced the extension, until 30 November 2020, of its recommendation that, on a case-by-case basis, investors continue to consider supporting non pre-emptive issuances by companies of up to 20% of their issued share capital over a 12 month period. By way of reminder, this change of policy was originally announced on 1 April 2020 and was due to last until 30 September 2020 – for further detail, please read our Governance & Compliance update – Issue 158. The policy has been extended to allow companies more time to assess any unforeseen consequences of COVID-19-related financial and cashflow developments.

PEG has taken the opportunity to remind any company looking to use the additional flexibility that:

• it should only do so if it is experiencing extreme circumstances, and issuance is required to fund an immediate concern;
• the particular circumstances of the company should be fully explained, including how the company is supporting its stakeholders;
• effective consultation with a representative sample of the company’s major shareholders should be undertaken, and as outlined in the PEG’s Appendix of Best Practice in Engagement and Disclosure, a company would be expected to disclose information about the consultation undertaken prior to the issuance;
• consideration should be given as to the effect of the issuance on retail shareholders, and how they may be able to take part in some aspect of the issuance;
• the date at which the status of shareholding is assessed for the purposes of pre-emption should be clearly disclosed and, as far as possible, the issue should be made on a "soft" pre-emptive basis. ("Soft" pre-emption is, according to the Financial Conduct Authority (FCA), where the bookrunner allocates shares to investors in accordance with an allocation policy that seeks to replicate the existing shareholder base. The limitations of the exercise mean, however, it is likely that not all shareholders will be able to participate);
• company management should be involved in the allocation process; and
• existing share awards should not be normalised to negate the dilutive effect of the issuance.

PEG has also underlined that its 2015 Statement of Principles applies to all issues of equity securities that are undertaken to raise cash, irrespective of the legal form of the transaction. For example, a “cashbox” transaction may be structured as an issuance of equity securities for non-cash consideration falling outside the scope of the statutory pre-emption regime. Nonetheless, such a transaction should be regarded, for the purposes of the Statement of Principles, as being an issue of equity securities for cash.

After 30 November 2020, PEG's stated expectation is that companies will revert to seeking approvals for directors to be granted a power to allot equity securities for cash otherwise than in accordance with pre-emption rights up to a maximum of 10% as set out in the Statement of Principles (5% for general corporate purposes with an additional 5% for specified acquisitions or investments). That said, PEG also notes that the Statement of Principles already permits companies, on a case-by-case basis, to request a specific disapplication of pre-emptive rights outside of those thresholds where proper engagement and consultation has taken place.

For AG's own review of equity fundraisings during COVID-19 – click here.

AIM companies permitted to use Amended IFRS 16

The London Stock Exchange (LSE) has published an edition of Inside AIM in which it sets out temporary relief for AIM companies who choose to use the Accounting for Lease Modifications (Amendment to IFRS 16 – COVID-19-Related Rent Concessions) before their formal adoption by the EU. In doing so, the LSE refers to the recent Financial Reporting Council (FRC) statement which provides background as to the reasons for the amendments to IFRS 16 and notes the FRC's confirmation that it will not pursue regulatory action where an issuer takes advantage of the amended IFRS, prior to its formal adoption by the EU. In addition, for the purpose of the financial reporting requirements of the AIM Rules for Companies (specifically AIM Rules 18 and 19), the LSE will deem compliance with the AIM Rules where an AIM company, which prepares its accounts in accordance with EU adopted IFRS, takes advantage of the amended IFRS 16 as set out in the FRC statement.

The FCA have taken the same approach as regards issuers on regulated markets. For further detail, please read our Governance & Compliance update – Issue 172.

ICSA publishes updated guidance on directors' general duties, including as regards section 172(1) Statements

ICSA, The Chartered Governance Institute (ICSA), has published updated guidance for quoted companies looking to provide directors with practical guidance on their directors' general duties under the Companies Act 2006 (2006 Act). ICSA notes that much of the guidance also applies to private companies.

The guidance includes an additional section which deals with the 2006 Act requirement to include a section 172(1) Statement in the strategic report of a "large" company in relation to financial periods beginning on or after 1 January 2019. By way of reminder, section 414CZA of the 2006 Act requires the strategic report of a relevant company to include a statement describing how directors have had regard to the factors set out in section 172(1)(a)-(f) when performing their duty under that section. For our "rough guide" to the reporting obligations introduced by The Companies (Miscellaneous Reporting) Regulations 2018 – click here.

The guidance contains:

• examples of decisions where each section 172 factor may be relevant;
• practical issues to consider in relation to the discharge of section 172 as a whole, such as in relation to the preparation and review of board papers;
• advice on the preparation of a section 172(1) Statement;
• suggestions as to the disclosures that might be included relative to each of the issues, factors and stakeholder interests set out in section 172(1)(a)-(f);
• a reminder that the information in a section 172(1) Statement should be tailored to matters that are of strategic importance to the company. Nevertheless, the ICSA states that while this will vary depending on the circumstances, size and complexity of the business, it will be likely to include: the issues, factors and stakeholders the directors consider relevant under section 172(1)(a)-(f); how they formed that opinion; the primary methods used to engage with stakeholders to understand which issues they need to consider; and information on the effect that consideration of those issues, factors and stakeholders has had on the company's decisions and strategies.

COVID-19, CIGA 2020 and the impact on charities and social enterprises: ICSA guidance published

ICSA has published a guidance note dealing with the impact and implications of the Corporate Insolvency and Governance Act 2020 (CIGA 2020) on charities, social enterprises and mutuals in light of financial difficulties created for them by COVID-19.

Occupational pension schemes: Government consultation on improving climate change reporting

The government has published a consultation on policy proposals to require trustees of larger occupational pension schemes and authorised schemes to address climate change risks and opportunities through effective governance and risk management measures. The consultation also seeks views on proposals for these measures to be disclosed in line with the recommendations of the Task Force on Climate-related Financial Disclosures. The consultation closes on 7 October 2020.

Companies House: Change in bank details

Companies House has announced that all those making BACS transfers will need to use new bank account details when doing so from now on. The new details will be included on all letters and in online guidance and emails. Companies House's old bank account will stay open for six months and will close at the end of February 2021.