AGM notices for listed companies – Latest guidance

As we head into the 2023 AGM season, public companies will be preparing AGM notices for circulation to their shareholders. Shareholders pay close attention to their company’s AGM notice, to ensure that the AGM is conducted in accordance with the latest guidance. A company’s AGM will often consider the disapplication of pre-emption rights (the statutory requirement to first offer shares to existing shareholders prior to issuing to a new shareholder), to raise capital and attract new investment.

Latest guidance

The Pre-Emption Group (associated with the Financial Reporting Council) publishes guidance for companies on the disapplication of pre-emption rights, the latest version of which was published on 4 November 2022 (‘2022 Principles’).

Whilst the 2022 Principles directly apply to companies with shares with a premium listing and admission to trading on the Main Market of the London Stock Exchange, it is advisable for companies with a standard listing, or those admitted to trading on the AIM, to adopt the 2022 Principles. A summary of the updated 2022 Principles is as follows:

• Increased non-pre-emptive limits – Companies can now seek disapplication of up to 10% of issued ordinary share capital, whether or not in connection with an acquisition or specified capital investment, representing a 5% increase over the previous recommended limit. Companies can also seek a further disapplication of up to 10% of issued ordinary share capital to be used in connection with an acquisition or a specified capital investment, representing a 5% increase over the previous recommended limit.
• New provisions for “follow-on” offers – The 2022 Principles also make provision for retail and smaller shareholders to participate in equity issues, allowing for a further increase of 4% on top of the limits above. The 2022 Principles set out the features of a “follow-on” offer such as defining qualifying shareholders, an individual monetary cap, the size of the offer, price, offer period and timing.
• “Capital hungry” companies – The 2022 Principles further provide for the concept of “capital hungry” companies, which need to raise larger amounts of capital more frequently, who may seek authority for further disapplication, if the reason for exceeding the levels is specifically identified at the time at which the request for a general disapplication is made.
• Procedure – Prior to announcement of the issue, companies should consult with major shareholders to the extent reasonably practicable and permitted by law. Companies should also make the issue on a soft pre-emptive basis, as far as practicable, and consider including retail or other investors. Additionally, companies should provide an explanation of the background to and reasons for the offer and the proposed use of proceeds, including details of any acquisition or specified capital investment. After completion of the issue, companies should make a post-transaction report.

Market trends

The Investment Association published its Share Capital Management Guidelines in February 2023, which are supportive of the 2022 Principles on the new disapplication limits. The Investment Association expect any company seeking a disapplication of pre-emption rights up to 24% of the issued share capital to follow the Pre-Emption Group’s template resolutions as far as applicable.

Since publication of the 2022 Principles, the majority of companies we have reviewed appear to be within the limits prescribed by the 2022 Principles, and whilst some companies choose to make reference to the 2022 Principles through an explanation of the resolutions within the Chair’s letter, other companies have included a separate explanatory notes section. Regardless of the approach, the market trend is to provide an explanation of proposed resolutions, and confirm that these comply with the 2022 Principles, in order to assist shareholders when voting on proposed resolutions.

The Capital Markets Team at Birketts has experience of assisting clients to prepare for upcoming AGMs. If you require any assistance on any of these issues, please contact Adrian Possener or Dominic Cowie.