By Unlisted Public Companies
The reasons why a listed company would consider dis-applying the Companies Act 1985, s 89 also apply to unlisted public companies. For these companies the alternative requirements imposed by The Listing Rules do not apply so there is scope for greater flexibility in the dis-application resolution. Even for companies whose shares are admitted to dealings on the Alternative Investment Market, there are no equivalent pre-emption requirements to those imposed on companies listed on the main market. The Listing Rules do not impose additional restrictions on the statutory power to dis-apply s 89
The circumstances in which pre-emption rights can be dis-applied by listed companies are subject to the guidelines agreed with the investment committees of the Association of British Insurers and the National Association of Pension Funds and endorsed by the London Stock Exchange. The guidelines represent an attempt to achieve a compromise between the desire of companies to have flexibility in the methods of raising capital which are open to them and institutional investors' interests in protecting pre-emption rights for the reasons discussed at the start of this chapter. The guidelines are not Stock Exchange rules but companies know that if they act within them they will have the backing of their major institutional shareholders without the need for prior discussion with those shareholders.
Companies can still seek dis-applications in circumstances falling outside the guidelines but their institutional investors may object unless they are persuaded that there are good reasons for the unusual course. Under the guidelines, dis-applications will be approved provided they are restricted to normal rights issues and to an amount of shares that, in any year, does not exceed 5 per cent of the issued ordinary share capital as shown by the latest published annual accounts. Companies are also expected to observe cumulative limits.
A company should not without prior consultation with its institutional investors make use of more than 7.5 per cent of issued ordinary share capital shown by the latest published annual accounts by way of non-preemptive issues for cash in any rolling three year period.
A typical dis-application resolution complying with the pre-emption guidelines is as follows.A rights issue by a private company which is structured so as to avoid the Companies Act prohibition on public offers will not trigger the requirement to produce a prospectus under the Public Offers of Securities Regulations 1995. This is because there is an express exemption in that legislation in respect of offers of securities of a private company to members or employees or the company, or their families, or the holders of debentures issued by the company.Private companies cannot be listed, so the requirements of Part IV of the Financial Services Act 1986 are not relevant.
An offer of new securities is an investment advertisement as defined by the Financial Services Act 1986, s 57 (2) because it contains an offer to enter into an agreement to acquire shares which is an investment agreement as defined for that purpose. The Financial Services Act 1986, s 57 states that investment advertisements can only be issued by or with the approval of an authorised person, that is a person who is authorised under the Financial Services Act 1986 to carry on investment business in the UK, but this requirement is subject to a number of exemptions provided by or under s 58 of that Act. Where a rights issue is structured so as to avoid the prohibition on offers to the public which is imposed by the Companies Act 1985, s 81, it should also be exempt from the Financial Services Act 1986, s 57 by virtue of regulations made under s 58.
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