Return of the ‘Cash Box’ Placing - the COVID-19 fundraising solution?

As many quoted companies continue to suffer unprecedented cashflow issues, we consider the impact of the latest PEG investor guidance and the resurgence of the ‘cash box’ placing structure

01 June 2020

In response to the exceptional challenges which companies are facing in the midst of the coronavirus crisis, last month The Pre-Emption Group ('PEG', a group representing quoted companies, investors and intermediaries which publishes guidance on the disapplication of pre-emption rights) temporarily relaxed the requirements set out in its 2015 Statement of Principles which limit companies to issuing no more than 5 per cent of their share capital non-pre-emptively for general corporate purposes (with an additional five per cent allowance for acquisitions or specified capital investments). PEG’s statement now encourages investors, 'on a temporary basis', to consider supporting issuances of up to 20 per cent. These recommendations are currently proposed to remain in effect until 30 September 2020.

PEG’s relaxed stance has led to a steep increase in the number of listed and AIM companies opting to raise new capital using the ‘cash-box’ structure.

A cash-box placing is treated as an issue for non-cash consideration under the Companies Act 2006 and therefore falls under the exception from the pre-emption requirements of s.561 of the Companies Act 2006. This is because the shares in the plc issuer are issued in exchange for preference shares in a special purpose subsidiary (traditionally Jersey based). The only asset of the subsidiary is cash (hence the name 'cash-box') which is provided on a subscription of shares by an investment bank (using the placing proceeds).

The process can be implemented very swiftly and therefore enables companies to raise more than they might otherwise be allowed under a 5 per cent disapplication and on an accelerated basis. Given there is no need for a shareholder circular or general meeting (provided there is a 'standard' authority to allot the shares in place), the cash-box structure avoids the associated timing delay and market risk and has a cost advantage over seeking shareholder approval to disapply statutory pre-emption rights. The structure may also lead to the creation of distributable reserves by using merger relief.

Despite its legal treatment under the Companies Act, many shareholder bodies (including the Investment Association) still regard a cash box placing as being, in substance, an issue of equity securities for cash and therefore subject to the limits set out in the Statement of Principles. Indeed, the Statement of Principles expressly states that, 'a 'cashbox' transaction may be structured as an issuance of equity securities for non-cash consideration falling outside the scope of statutory pre-emption. Nonetheless, such a transaction should be regarded, for the purposes of these principles, as being an issuance of equity securities for cash subject to the limits herein'.

The ‘cash-box’ structure has therefore historically not been the most popular fundraising option and has faced criticism over the years given the inherent risk of it being used to circumvent the pre-emption rules.

PEG’s latest guidance supporting non pre-emptive issuances of up to 20 per cent seems to have provided such shareholder bodies with greater confidence to accept cashbox placings (if only temporarily). In light of the logistical difficulties faced by listed and AIM companies trying to hold general meetings in a period of ‘lock-down’, many companies are finding that, at this all important time, they have little or no shareholder authority left to proceed with a new capital raise in the traditional manner. It is therefore no surprise that the ‘cash box’ structure has made a comeback and is emerging as one of the preferred solutions. 

Almost immediately after the ‘lock-down’ period began, the Burges Salmon corporate finance team was instructed by Peel Hunt to assist with one such successful placing, which saw £6.67 million raised to help Van Elle Holdings plc withstand the anticipated negative economic impact of COVID-19. We expect the trend towards ‘cash box’ placings to continue over the coming months as companies seek new ways to ensure they are better placed to respond quickly as the market starts to recover and also to pay down any short-term debt funding which has been in place.

This article was written by Dominic Davis and Bethan Penrhyn-Jones. If you have any questions, please contact your usual Burges Salmon contact or Dominic Davis.

Key contact

Dominic Davis

Dominic Davis Partner

  • Corporate
  • Mergers and Acquisitions
  • Joint Ventures

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