Recognising the vital role of capital markets in mitigating the effects of
COVID-19, on April 8, 2020, the UK’s Financial Conduct Authority (FCA)
announced additional primary market measures intended to aid companies
listed on a UK-regulated market (such as the London Stock Exchange) or SME
Growth Market (such as AIM) during this turbulent time. These measures are
intended to help listed companies seeking to raise new funding to increase
their liquidity while ensuring that they retain sufficient investor
protection. The measures apply with immediate effect and are intended to be
temporary interventions, but as the situation is still evolving, their
duration remains open-ended.
Relaxation of Rules on Share Issuances
Smaller Share Issuances
The FCA has referred to the relaxation of the Pre-emption Group (PEG)
principles, published April 1, 2020. The statement recommends that
investors consider, on a temporary and case-by-case basis, supporting
increased issuances of companies for general corporate purposes, from 5
percent to 20 percent of their issued share capital, with an additional 5
percent for specified acquisitions or investments. This allows relevant
companies to issue up to 20 percent of their share capital without the need
to issue a prospectus, enabling capital to be raised more quickly in the
face of volatile markets.
The PEG guidance sets out certain conditions for companies seeking to make
use of this option.
B. Share Issues With a Prospectus
The FCA has directed issuers to the simplified prospectus regime available
for secondary issuances, introduced in July 2019 under the Prospectus
Regulation. This regime aims to allow secondary issuances to provide less
detail on the basis that investors will be familiar with the company, and
so will be primarily concerned with any changes since the latest annual
report and the reason for the issuance itself. Companies making use of this
regime will not be required to make disclosures on operating and financial
review, organisational structure, capital resources, remuneration and
benefits or board practices.
This option is available to companies which have been admitted to trading
on a regulated market or SME Growth Market for at least 18 months and are
seeking to raise more than 20 percent of their issued share capital (and
thus not making use of the PEG principles outlined above). However, this
option is not available where the offer has a non-EU component relating to
a jurisdiction which has its own disclosure requirements (such as the
Working Capital Statements
While the FCA has supported the approach taken by recommendations from the
European Securities and Markets Authority (ESMA) regarding “clean”
and “qualified” working capital statements, they also recognise that the
financial modelling required to make such a statement, and in particular,
the required “reasonable worst case scenario,” is extremely challenging in
the wake of COVID-19. Without certain allowances, the result would be a
large number of working capital statements being qualified but failing to
provide investors with an accurate representation of the issuer’s financial
condition. The intention is to provide sufficient information to allow
investors to distinguish between companies experiencing short-term cash
flow issues due to COVID-19, and those genuinely in distress which do not
have sufficient working capital for the next 12 months.
In order to address these concerns and provide clarity, the FCA has
announced a new approach to working capital statements. The approach
involves including the following in an otherwise clean working capital
- The key modelling assumptions which underpin the “reasonable worst case
scenario.” These must be related to the coronavirus pandemic and expressed
in a clear, concise and comprehensive way. These assumptions are permitted
but not mandatory.
- A statement that the working capital statement has otherwise been
prepared in accordance with the ESMA recommendations and the technical
supplement to the FCA’s statement of policy on the coronavirus crisis. The
inclusion of this statement is mandatory.
Listing Rules and General Meetings
Due to the social distancing and self-isolation measures currently in
place, issuers are experiencing difficulties in holding general meetings in
accordance with the FCA’s Listing Rules. This, teamed with the potential
for general meeting notice periods to disrupt the issuer’s ability to raise
finance quickly, prompted the FCA to change its policy to allow premium
listed companies to apply to dispense with holding general meetings where
shareholder approvals at general meetings are required for class 1
transactions and related party transactions under the Listing Rules.
Premium listed companies can now apply for a dispensation of the
requirement to hold a general meeting. To apply, such companies will need
to do the following:
- Obtain written undertakings (the “required undertakings”) from
shareholders who are eligible to vote under the Listing Rules, that they
approve the proposed transaction and would vote in favour of a resolution
to that effect if the general meeting was held prior to publishing a
circular via (a) the relevant FCA-approved explanatory shareholder
circular, or (b) an RNS; or
- Publish a circular which states that they have yet to obtain the
required undertakings, but intend to apply for dispensation. Then, on
receipt of the required undertakings, the issuer will be required to
release an additional announcement confirming the required number has been
The companies seeking to apply for dispensation will need to obtain the
required undertakings from a sufficient number of shareholders to meet the
threshold requirements set out in the Listing Rules for shareholder
On receipt of an application, the FCA will consider the request for
dispensation on a case-by-case basis.
It is worth noting that there will be no changes to the requirements under
the EU Market Abuse Regulation, and the FCA has made it clear that
companies are still required to fulfil their obligations concerning the
identification, handling and disclosure of inside information.
For more information, or for advice on these measures, please contact the
authors of this briefing or the McGuireWoods corporate team.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.