I need a bit of help. My good friend, the ever assiduous BillyBhoy68 has brought to my attention a juicy morsel from Companies House. It is a Special Resolution “dis-applying Pre-emption rights” in the shares of Sevco 5088 Ltd.
The significance of it is not clear to me, and if anyone can clarify matters regarding it, it would be much appreciated.
You can see it here. Sevco Resolution Disapplying Pre-emption Rights
I will confess that the full significance of this is not totally clear to me, but I am sure a reader can explain it for me.
As far as I can see, Pre-emption rights are dealt with by Part 17 Chapter 3 of the Companies Act 2006.
The Act provides that a company proposing to allot shares may not allot them for cash to any person unless it has previously offered them on the same or more favourable terms to its existing shareholder.
These are known as pre-emption rights and are intended to protect shareholders from having their shareholdings diluted by the issue of more shares. These rights can be disapplied by the company provided it follows the correct procedure.
The pre-emption right is only triggered by a proposed allotment of relevant shares (excluding subscriber shares and bonus shares) and rights to subscribe for or to convert securities into relevant shares.
Relevant shares mean all the shares in the company except:
- Shares which carry a right to participate only up to a specified amount in a distribution of a dividend or capital, i.e. shares such as non-participating preference shares where the right to income and capital is fixed
- Shares allotted (or to be allotted) under an employees’ share scheme
A company can disapply the pre-emption rights of existing shareholders in relation to either of a specified allotment or to allotments generally.
Pre-emption rights in relation to a specific allotment can only be disapplied by passing a special resolution of the shareholders of the company at a general meeting. The resolution must be proposed to the shareholders, in advance with sufficient notice, by the directors who have to set out their reasons for making the recommendation, the amount of payment for the shares being allotted and the directors’ justification of that amount.
As a result of these cumbersome requirements, it is unusual for a company to disapply the pre-emption rights in relation to specific allotments. Normally, the directors are given general authority to allot shares and at the same time the company can disapply the provisions of the CA 06 in relation to allotments made under that general authority. This general disapplication must:
- be contained in the articles of association of the company; or
- be effected by way of a special resolution passed by its shareholders.
So what does this tell us about Sevco 5088 Ltd?
At that date the sole director and shareholder was Mr Green. He owned two shares, being the only shares issued.
He therefore would have been entitled to have any new shares allotted by Sevco 5088 Ltd to other parties offered to him first on the same, or better, terms.
The blacked out section of the Resolution will be the part setting out the director’s “reasons for making the recommendation, the amount of payment for the shares being allotted and the directors’ justification of that amount.”
Therefore shares in Sevco 5088 Ltd were being allotted to someone other than Mr Green, and the Resolution prevented them having to be offered to him first.
As at 23rd May, being the date of the resolution, Sevco Scotland Ltd had not yet been formed. If it was the intention all along, as a Sevco spokesman said, to have the Ibrox team owned by a company based in Scotland, then why use Sevco 5088 Ltd, a company incorporated in Wales, and whose Registered Office was moved to London?
What happened between 23rd May, when the Resolution passed, and 29th May when Sevco Scotland incorporated? Is it the case that the investors put their money into Sevco 5088 Ltd so that it could buy the assets and immediately on the purchase being effected, the assets were switched to Sevco Scotland Ltd?
There might be nothing in this issue at all, but it seems odd, and until there is “transparency and clarity” then people will see shadows.
Please feel free to drop any comments into the box below, or to email me at Scotslawthoughts at aol dot com. (As I believe you are meant to write email addresses to avoid spamming)
Posted in a head scratching mode by Paul McConville