Following lobbying from the AITC, the Department of Trade and Industry (DTI) has revised its proposa...
Following lobbying from the AITC, the Department of Trade and Industry (DTI) has revised its proposals for reforming company law to allow public listed companies quoted on a recognised stock exchange to hold shares 'in treasury.'
Under the current draft, investment companies are excluded from the reform, but the new consultation specifically raises the question of whether this exclusion is appropriate.
The basic impact of the reform will be to allow public companies that have bought back their own shares to hold them 'in treasury' for subsequent resale.
Under the current rules shares bought back have to be cancelled.
The reform is designed to give Plcs more flexibility so that they can manage their capital structures in a more efficient way.
Ian Sayers, technical director at the AITC, said they have been concerned that the DTI's initial reaction was to propose that investment company boards should not be able to use this potentially valuable tool.
He said: 'The significance of this possible exclusion has been increased by the fact that many boards have chosen to purchase their own shares as part of their efforts to manage discounts. Given the potential value of an active share buyback policy, it is unfortunate that they will not be able cheaply and simply to issue shares from treasury if circumstances change.'
Sayers said the AITC strongly believes that there is no substantive reason for denying this power to investment companies if it is to be given to other quoted Plcs. Indeed, he said, the key risks of allowing shares to be held in treasury ' market manipulation, shareholder and creditor protection ' are arguably lower for investment trusts than other types of quoted Plc.
The consultation on the matter closes on 30 November, and the AITC intends to make representations to the DTI arguing that it must reverse its initial decision.
Sayers said the AITC would like to hear from any interested party that has thoughts on the issue and would be pleased if members were prepared to support them by making their own representations to the DTI.
This issue is covered in the second edition of 'lobby,' the AITCs bi-monthly review of policy and politics in investment trusts.
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