British companies will lose out in EU crackdown, insurers warn

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The Independent Online

British investors face losing out on the chance to participate in rights issues, while dividend payouts to shareholders would likely fall under European Union (EU) proposals to simplify company regulations, the Association of British Insurers (ABI) has warned.

Member states have until the middle of October to comment on EU plans that would overhaul company law, accounting and auditing practices across the continent.

But speaking to The Independent on Sunday, Peter Montagnon, director of Investment Affairs at the ABI, warned that the repealing of key directives in an attempt to rid Europe of red tape, may need rethinking.

"Pre-emption rights are a vital safeguard for investors," said Montagnon. "They protect us against dilution and loss of value through the issue of shares to outsiders, especially at a discount, and they also underpin our ability to engage with companies in which we invest. Engagement would be much harder if boards could deflect it by simply issuing more shares to friendly parties.

"The European law basis for pre-emption is very important because it both secures the right in the UK market and also means that other European markets, in which our members invest every day, offer similar protection."

He said that new accounting standards could also result in companies reducing their dividend payments for investors.

The EU's new found crusade to eliminate business red tape began last March. The commission estimated that the initiative could benefit European businesses by as much as £100bn.

The move was hailed by politicians as a victory for British interests with EU heads agreeing to target to reduce administrative burdens by a quarter by 2012.

In July, Charlie McCreevy, the EU's internal market and services commissioner unveiled initial proposals which he said would replace "outdated 20-year company law and accounting measures that are now considered outdated and excessive".

But his claims of red-tape clean up are likely to be met with a large dose of cynicism in Britain following declarations made by the Irishman last year.

McCreevy stunned a City audience, when speaking at the Association of Corporate Treasurers' annual dinner he claimed that the EU already pursued a "light touch" regulatory regime that was "tip-top".