• Reducing regulatory involvement in fundraisings. The existing regulatory footprint should be removed for secondary fundraisings. There should be no, or at most very little, regulatory oversight of the secondary capital raising process by the FCA. A company should not have to appoint a sponsor to provide confirmations to the FCA on a secondary fundraising, or to publish an FCA-approved prospectus in relation to admission to trading unless the offer size is at least 75 per cent of existing share capital. Rather than duplicating already available information, fundraising documentation for a pre-emptive offer should focus on the background to and reasons for the fundraising, the amount and use of proceeds and, as relevant, how the transaction will affect the company’s strategy, financial viability and forward-looking guidance (recognising that where circumstances are more complex, or a broader international distribution is anticipated, the offering documentation may need to contain significantly more disclosure). The report also recommends that a company should be able to opt in to an enhanced continuous disclosure regime, which includes, for example, more detailed disclosure in the company’s annual report in certain areas that could be relied on and incorporated by reference where necessary, in particular for international fundraisings. In the absence of a prospectus, the usual liability regime for market disclosure by the company should apply to the published offering documentation (with clarification provided that financial advisers and investment banks are not liable for this documentation). Separately, the report also recommends that the FCA’s approach to working capital statements, when and if required in the future, should be reconsidered and revised to allow greater flexibility and a disclosure-based approach.
• Making existing pre-emptive fundraising structures quicker and cheaper. Secondary offering periods should be reduced from 10 business days to seven business days for both rights issues and open offers. The statutory procedure for pre-emptive offerings should be aligned with this reduced timetable, and updated to reflect market practice exclusions and flexibilities. Companies should still be able to seek annual allotment and pre-emption rights disapplication authorities from their shareholders of up to two thirds of their issued share capital, but this should extend not just to rights issues, as is currently the case, but to all forms of fully pre-emptive offers. The FCA should also consider amending the rights issue regime to permit more flexible structures – for example, by enabling existing shareholders to make excess applications, or the default cashless take-up of rights by non-participating shareholders (whereby rights are sold in the market to fund the take-up of part of the shareholder’s entitlement) – removing or reducing the need to place a large ‘rump’ of shares not taken up. Additionally, the government should have delegated power to reduce the minimum notice period for shareholder meetings (other than AGMs) from 14 clear days to seven clear days, once communication efficiencies improve for investors currently holding their shares through intermediaries.
• Increasing the range of choice of available fundraising structures for companies. The UK should adopt certain features of the Australian models for secondary offerings. These include the use of ‘cleansing notices’ (i.e., that the company is in compliance with its disclosure obligations and is not delaying the disclosure of any inside information), offer documents that do not duplicate existing market disclosures, the involvement of both institutional and retail investors (which could be facilitated by improvements to section 793 of the Companies Act 2006 to enable companies to identify underlying investors more rapidly and accurately), the lack of regulator involvement and the use of market standard terms and conditions with institutional investors.
• Drive to digitisation of shareholdings. Building on existing work, the government should raise the priority of an ambitious drive to digitisation, to facilitate innovation, stewardship and improved market infrastructure, to be actioned by a digitisation task force with an independent chair and a clear set of principles. In addition to eradicating paper share certificates, this should seek to ensure that rights attaching to shares flow to end investors more quickly and clearly and that investors are able to exercise those rights efficiently.

The report recommends that the changes to PEG, the increased annual limits for shareholder authorities and greater involvement of retail investors take place immediately; other changes will require further consultation and/or legislation. The government has accepted all the recommendations made by the report, including the need to amend the Companies Act 2006 to shorten pre-emptive offerings and update the processes around them. It has also appointed Sir Douglas Flint to chair a new taskforce to consider the digitisation of shareholdings (including those in private companies) and improvements on the current intermediated system of share ownership. The FCA and PEG have also published statements welcoming the report.

As mentioned above, the review forms part of the proposed package of wide-ranging reforms to the UK capital markets derived from Lord Hill's UK Listing Review, on which we have previously reported. These include changes to the listing rules on SPACs (effective since 10 August 2021), changes to the rules on the minimum 'free float', minimum market capitalisation and dual-share class structures (effective since 3 December 2021), the government’s proposals for the future of the UK's prospectus regime (published in March this year) and the FCA’s proposals for reform of the UK’s IPO and listing regimes (published in May this year).

Client Alert 2022-211