Resolution - Disapplication of pre-emption rights for rights issue Flashcards
What are the relevant CA provisions
s. 561 - Existing SHs ordinarily have a right of pre- emption
S. 570(1) CA – Disapplication by SR
Why is there a disapplication resolution?
A rights issue preserves shareholders’ pre-emption rights as it is an offer to all shareholders, in proportion to their existing shareholdings, to buy further shares in the company.
Therefore, in principle, a company will not need to disapply statutory pre-emption rights under s. 561 in accordance with s. 570.
However, it may not always be practical for a listed company to offer shares to all of its SHs on strictly pre-emptive basis and therefore may seek to disapply pre-emption rights. This is because of two reasons:
a) Overseas SH: - enables the company to exclude overseas SHs from subscribing for shares in a rights issue. This will allow the co to avoid the obligation to comply with onerous securities laws in a variety of jurisdictions.
b) Fractional entitlements: if pre-emption provisions have been disapplied, a listed co can combine the fractional entitlements and sell the resulting shares in the market and typically retain the entire proceeds. These shares do not have to be offered to co’s SHs before sale.
How much will the disapplication be for?
Typically, this resolution will refer back to the full allotment resolution and thereby allow the board to issue shares in a disapplication route rights issue that comprise up to two-thirds of the existing share capital, as long as those shares are still offered first to existing shareholders in proportion to their holdings (subject to exclusions for fractional entitlements/overseas SHs)
