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Secondary Issues 1 Notes

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Corporate Finance: SGS 5: Secondary Issues (I) INDEX OF ABBREVIATIONS
- RIE - Recognised Investment Exchange
- IPO - Initial Public Offering
- PR - Prospectus Rules
- LR - Listing Rules
- DTR - Disclosure Guidance and Transparency Rules
- LP - Listing Principles
- PLP - Premium Listing Principles
- FSMA 2000 - Financial Services and Markets Act 2000
- RAO - Financial Services and Markets Act 2000 Regulated Activities Order 2001
- FPO - Financial Services and Markets Act 2000 Financial Promotions Order 2005
- MAR - Market Abuse Regulations
- CJA - Criminal Justice Act 2002
- FSA - Financial Services Act 2012
- UK CGC - UK Corporate Governance Code
- RCF - Revolving Credit Facility
- LSE - London Stock Exchange
- AIM - Alternative Investment Market
- FCA - Financial Conduct Authority
- MAC - Material Adverse Change
- EoD - Event of Default ANNUAL GENERAL MEETINGS (AGM) (1) Notice Periods for General Meetings & Information Rules
- Companies Act 2006 s.336(1): AGM - Every PUBLIC COMPANY must hold a general meeting as its AGM in each 6 MONTH PERIOD after its accounting reference date.
- Companies Act 2006 s.307A(1)(b)/s.360(1):AGM Notice Period - Notice period for an AGM of a TRADED COMPANY (company whose shares are admitted to trading on a regulated market) is at least 21 CLEAR DAYS.
- Companies Act 2006 s.307A (1)(a)/s.360(1): Other General Meetings Notice Period - Notice period for general meetings of a traded company is 21 CLEAR DAYS BUT may be reduced to 14 CLEAR DAYS if: (a) general meeting is NOT the AGM; (b) traded company allows shareholders to vote electronically where the meeting is held on reduced notice; and (c) shareholders pass an ordinary resolution each year at the AGM approving the shorter notice period for nonAGM general meetings.
- CGC E2.4: Non-AGM General Meetings - Notice of non-AGM general meetings should be sent to shareholders at least 14 WORKING DAYS before the general meeting EXCEPT where there are circumstances of urgency (requirements for 14 working days' notice and not just 14 clear days' notice creates a longer notice period).
- Company must comply with or explain departure from the CGC in its annual report under LR 9.8.6R(5)-(6).
- Companies Act 2006 s.311(1)-(2): General Contents of Notice - Notice of a general meeting must always state the time/date/place of the meeting and the general nature of the business to be dealt with at that meeting.
- Companies Act 2006 s.311(3): Notice Information - Traded companies must include additional information in notice of general meetings, including address of website where s.311A Companies Act 2006 pre-meeting information can be found + details of members' statutory rights to ask questions under s.319A(1)-(2) Companies Act 2006.
- Companies Act 2006 s.337(3): Long Notice Information - If notice of a traded company's AGM is given MORE THAN 6 WEEKS before the AGM then the notice must include an explanation of shareholder's right to requisition resolutions under s.338 Companies Act 2006 + to include a matter on the agenda for the general meeting under s.338A Companies Act 2006.
- Companies Act 2006 s.311A: Pre-Meeting Website Information - Prescribed information, including details of company's share capital + matters set out in notice of meeting distributed to shareholders must be made available on company's website on/before day of circulation of notice AND made available for 2 years thereafter.
- Companies Act 2006 s.341(1A): Post-Meeting Website Information - After meeting, traded companies must make available on their website additional information about results of polls held at the meeting (including number of votes cast + number of abstentions).
- Companies Act 2006 s.319A(1): Shareholder's Right to Ask Questions - Shareholders of a traded company have a statutory right to ask questions at general meetings which company must 'cause to be answered.'
- Companies often require shareholder's questions to be REGISTERED in advance to allow for greater control at AGM.
- s.319A(2): Refusing Answer - Company may NOT give an answer to shareholder's question at an AGM/general meeting if: (a) answering question would be contrary to interests of company or undesirable in the interests of the good order of the meeting; (b) answering question would unduly interfere with preparation for the meeting; 1

(c) answering question would involve disclosure of confidential information; or (d) answer to question already available on company's website.
- UK CGC E.2: Purpose of General Meetings - Board of public listed companies should use general meetings to communicate with investors/encourage participation of investors + listed companies should seek to pass as many necessary shareholder approval resolutions and deal with as many other issues as possible at AGM to avoid time/expense of having to call multiple general meetings.
- Business at AGM - Categorised into ORDINARY BUSINESS +SPECIAL BUSINESS with definitions of each usually contained in company's articles.
- Explanatory circular must be sent to shareholders prior to AGM at which 'special business' to be considered BUT many public companies will voluntarily distribute explanatory circular + annual report + preceding year's accounts with notice of AGM. (2) Shareholder's Requisition Rights
- Companies Act 2006 s.303(1)-(2): Right to Requisition Meetings - Individual shareholder/group of shareholders holding at least 5% of the voting rights in a private/public company can request a general meeting of that company be held - directors then required to call a general meeting once they receive such a request.
- s.303(3): Content of Request - Request for a general meeting must state the general nature of the business to be dealt with at the meeting + text of a resolution to be proposed at the meeting MAY be included in request.
- Companies Act 2006 s.303(4)-(5): Right to Requisition a Resolution - Shareholders can require resolutions to be put before the general meeting which they have convened by exercising their s.303 rights.
- Companies Act 2006 s.304(1): Director's Duty to Call Meeting - Directors required to call a general meeting under s.303 must call a general meeting within 21 days of receiving the request, with meeting to be held in a date not more than 28 days after date of the notice convening the meeting.
- Companies Act 2006 s.305(1) Power of Member's to Call Meeting - If directors are required to call a meeting under s.303 and fail to call a meeting in accordance with s.304, the members who requested the meeting, or any of them representing more than one half of the voting rights of all of them may themselves call the general meeting.
- s.505(3): Timing - General meeting called by members must be called for a date not more than 3 months after date on which directors became subject to requirement to call a general meeting.
- s.505(6): Reimbursement - Any reasonable expenses incurred by the members requesting the meeting by reason of directors' failure to call a general meeting when required to do so, must be reimbursed by the company.
- Companies Act 2006 s.338: Right to Requisition Resolution at AGM - Shareholders of PUBLIC COMPANIES have the right to require resolutions to be put before company's AGM.
- Companies Act 2006 s.338A: Right to Insert Matter on AGM Agenda - Shareholders of a TRADED PUBLIC COMPANY have right to require company to deal with a matter at an AGM if: (a) shareholder/group of shareholders making request hold at least 5% of the voting rights of the company; or (b) group of shareholders making request number at least 100 shareholders with right to vote on resolutions at AGM and, on average, each shareholder has paid up at least PS100 of share capital. (3) AGM: Ordinary Business
- Consideration of Annual Reports/Accounts - Every company must send a copy of its annual accounts/reports for financial year to each member/debenture holder/other person entitled to notice of general meetings (s.423(1) Companies Act 2006).
- Directors of public companies must present copies of annual accounts/reports to company in a general meeting within 6 MONTHS of end of accounting period to which they relate (s.437(1) + s.442(2)(b) Companies Act 2006).
- Shareholder do NOT have to 'approve' annual accounts/reports BUT resolution often passed stating that shareholders have considered/adopted the accounts/reports (company's articles may require specific wording to be used).
- Remuneration Policy - Overarching guidelines for the remuneration of directors, including details of base salaries +
conditions for pay increases/conditional pay arrangements/bonus entitlements etc.
- Companies Act 2006 s.439A(1): Quoted Companies: Binding Vote on Director Remuneration Policy - Shareholders of QUOTED COMPANIES must pass an ORDINARY RESOLUTION to approve directors' remuneration policy prepared/proposed by directors at least every 3 YEARS - vote is BINDING so that once policy approved all payments to directors must be in accordance with the policy OR directors must seek further shareholder approval to deviate from it (s.226B(1) + s.226C(1) Companies Act 2006).
- If newly proposed director remuneration policy is REJECTED by shareholders then company may only make payments to directors which comply with the last approved remuneration policy (s.226B(2) Companies Act 2006).
- Companies Act 2006 s.385(2): 'Quoted Company' - Company whose equity share capital has been included in Official List OR is officially listed in an EEA Member State OR has been admitted to trading on NYSE/Nasdaq.
- Remuneration Report - Report including details of actual amounts paid to each director + any link between pay &
performance + details of how company intends to implement remuneration policy in following year.
- Companies Act 2006 s.439A(2): Disapproval of Remuneration Report - Rejection of resolution approving remuneration report does NOT affect payments to directors during year to which the report relates BUT does require company to put remuneration policy to shareholder vote at next AGM even if 3 year duration of approval has not yet expired. 2

- Declaration of Dividends - No statutory obligation for directors of public companies to seek shareholder approval of declaration of dividends at general meeting BUT articles of majority of listed companies require dividends to be recommended by directors AND then approved by shareholders at a general meeting.
- Director recommended final dividend usually approved by shareholder resolution at AGM.
- Election/Re-Election of Directors - Listed public company's articles will state which members of board are required to seek re-election at each AGM - opposing director's re-election can be used by shareholders as a means of expressing loss of confidence in board/particular director.
- UK CGC B7.1 - FTSE 350 company directors should be subject to annual re-election by shareholders + directors of all other public companies should be subject to election by shareholders at first AGM after their appointment to board and re-election at intervals of no more than 3 years thereafter.
- LR 9.8.6R(5)-(6) - Listed companies must comply with/explain departure from the CGC guidance on director reelection in annual accounts/report.
- Companies Act 2006 s.489: Re-Appointment of Auditors - Public companies must appoint auditors for each financial year + members must pass an ordinary resolution appointing auditors at general meeting at which company's annual accounts/reports for previous financial year presented/considered. (4) AGM: Special Business
- Companies Act 2006 s.551: Director's Authority to Allot Shares - Listed company will usually obtain authority to allot further shares at AGM to grant board flexibility over future allotments without need to incur expense/delay/
administrative burden of calling subsequent general meetings - whether allotment resolution approved usually depends on whether it complies with Share Capital Management Guidelines produced by Investment Association.
- Companies Act 2006 ss.570-571: Disapplication of Pre-Emption Rights - Whether special resolution disapplying pre-emption rights is approved will depend on whether it complies with Pre-emption Group Statement of Principles.
- Pre-Emption Group (PEG) - Members represent listed companies/investors/intermediaries.
- PEG Statement of Principles - Sets out extent to which disapplication of pre-emption rights for NON PREEMPTIVE ISSUES (issues to external investors) are acceptable - compliance with Statement of Principles is voluntary BUT most Listed Companies will not depart from it without good reason/shareholder consultation.
- Companies Act 2006 s.307A(4): Reduction of Notice Period - Listed companies will propose SPECIAL RESOLUTION each year at AGM seeking shareholder approval of company's notice period for general meetings being reduced to 14 CLEAR DAYS rather than 21 clear days required by s.307A(1)(b) Companies Act 2006. (5) Circulars to Shareholders
- LR App 1.1: Circulars - Any document issued by a listed company to its shareholders including notices of meetings BUT NOT prospectuses/annual reports/annual accounts/interim reports.
- If company requires shareholders to approve a transaction then a circular will be sent to shareholders with information about that transaction enabling them to make informed decision as to whether/not to approve the transaction.
- Listing Rules Chapter 13: Shareholder Circulars - Prescribes rules governing shareholder circulars + specified types of shareholder circulars require shareholder approval under LR 13.2.1R.
- LR 13.8.8R(1): Explanatory Circular - Listed company MUST send explanatory circular with notice of AGM including details of any special resolution to be proposed at the AGM.
- LR 13.8.8R(3): Content - If AGM involves consideration of 'special business' then ALL the content requirements in LR 13.3.1R must be complied with BUT if only 'ordinary business' to be conducted at AGM then the content requirements in LR 13.3.1R(4)-(5) can be OMITTED from the explanatory circular. (6) Communications with Shareholders
- Companies Act 2006 s.308: Form of Notice of General Meetings - Company may give notice of a general meeting by HARD COPY + ELECTRONIC FORM + WEBSITE.
- s.1168(1): Hard Copy - Information supplied on paper/similar form which is capable of being read.
- s.1168(2): Electronic Form - Email/fax - document/information may only be sent/supplied by company to shareholders in electronic form if shareholder has expressly opted in and agreed to receive electronic communications.
- Companies Act 2006 Schedule 5 Pt 4: Websites - Shareholder deemed to have consented to receive information from company by means of website publication where: (1) company has resolved to/articles state that company may communicate by website; (2) shareholder has been asked individually by company to agree to use of website communication by the company; and (3) shareholder has not, within 28 days of being contacted by the company, indicated that he/she does not want to receive website communications.
- Shareholders must be notified of fact that information has been posted on company website and of how that information may be accessed.
- DTR 6.1.8R(1) - Decision to use electronic means to convey information to shareholders must be taken at a general meeting UNLESS Companies Act 2006 Schedule 5 Pt 4: Deemed Consent to Electronic Communications applies. 3

- Companies Act 2006 s.146: Nominated Persons - Registered member of a traded company (i.e. legal owner of shares whose name is registered on company's register of members) can request that company supply to 1/more NOMINATED PERSONS (specified beneficial holders of shares), copies of all communications that company sends to its members generally/to any class of members including the member making request - nominated persons then said to possess 'information rights'. SECONDARY SHARE ISSUES OVERVIEW OF SECONDARY SHARE ISSUES
- Secondary Share Issues - Subsequent issue of shares into the market by a company whose shares have already been listed for a period of time in order to raise further equity for the issuer.
- Commercial Reasons for Secondary Share Issue - Listed company may decide to engage in secondary share issue for following reasons: (1) Expansion of Business - Listed company seeking to expand business organically by raising equity capital to fund development without resorting to debt finance/increase in gearing ratio (e.g. raising capital to acquire new equipment/premises and take on new staff). (2) Acquisition of Another Business/Company - Listed company may issue shares to raise capital to allow it to offer cash consideration OR may issue shares and allot them directly to the seller as consideration. (3) Reduction of Debt - Listed company may seek to raise equity finance to meet interest/capital repayments under existing loan agreements/bonds OR may use secondary share issue to increase issued share capital in order to reduce gearing (i.e. ratio of debt compared to issued share capital) in order to strengthen appearance of company's balance sheet and make it easier for the company to obtain debt finance in future.
- Placing - Allotment of shares directly to specific institutional investors identified by way of the bookbuilding process without the shares (or at least the shares allocated for the placing) being offered to the public/other institutional investors.
- Methods Only for Secondary Share Issues - Includes 'rights issues' + 'open offers' + 'acquisition/merger issues' or 'vendor compensation issues'.
- 'Acquisition/Merger Issues' - Also known as 'vendor compensation issues' - issue of shares by a purchasing company in itself for allotment to vendor company as consideration for the acquisition of the vendor company/its subsidiary/its business.
- Secondary Share Issues - Can be further divided into: (1) Non Pre-Emptive - General placing + capital investment placing; and (2) Pre-Emptive - Rights issues or open offers through the Gazette Route or Disapplication Route.
- Underwriting - Underwriter (investment bank, usually the sponsor) agrees, for an agreed commission/subject to conditions, to subscribe for any shares issued by the issuer which are not taken up by market investors.
- Underwriters may seek to offset risk through agreements with sub-underwriters who agree to purchase shares from the head underwriter if the latter is required to subscribe for the issuer's otherwise unallotted shares.
- Allows issuing company to mitigate against the risk of a lack of demand for their shares and ensure that it is able to raise the amount of share capital it predicted/expected by way of the secondary share issue. RIGHTS ISSUES
- LR App 1.1: Rights Issue - Offer to EXISTING HOLDERS of company's securities to subscribed for/purchase securities being offered in PROPORTION to their existing holdings by way of a renounceable letter or other negotiable document which may be traded (as 'nil-paid rights') for a period before payment for the securities is due (e.g. rights issue on a 1:5 basis would allow existing shareholders to subscribe for 1 newly issued share for every 5 shares they already held).
- Certificated Shareholders: 'Provisional Allotment Letters' - Shareholders who hold shares in certificated form - right to buy further shares offered to certified shareholders by way of a 'renounceable letter' known as a 'PROVISIONAL ALLOTMENT LETTER' (PAL) - can be traded by the recipient certified shareholder as a 'nil-paid right' in period before payment for the newly issued shares is due.
- Uncertified Shareholders: CREST Notification - Shareholders who hold shares in uncertified form through CREST - right to subscribe for further shares credited to shareholder's CREST account + no provisional allotment letter used. (1) Options for Shareholders on a Rights Issue (1) Take Up Rights - Shareholder takes up right to subscribe for shares by either: (a) sending back acceptance form contained in Provisional Allocation Letter (PAL) with payment for shares to company's registrar; or (b) sending a 'Many-to-Many' (MTM) instruction through CREST to accept offer of rights.
- MTM Instruction - Completes acceptance of offer to subscribe for additional shares by: (a) crediting stock account of company's registrar with number of nil-paid rights to be taken up by the uncertificated shareholder; (b) creates payment obligation from CREST member's settlement bank in favour of the company's registrar's bank for amount payable in respect of the shares for which the uncertified CREST shareholder is subscribing; and 4

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