Fashion chain Laura Ashley is set for a bitter investor showdown this week over controversial moves to issue stock without key shareholder rights.
The retailer is seeking authority at its annual general meeting on Friday to issue shares, equivalent to 10 per cent of the overall share capital, without pre-emption rights. These are the rights held by investors to veto or approve the sale of company shares - something protected under UK and European law.
Guidelines from the Association of British Insurers (ABI), the shareholder body, say 5 per cent should be the maximum amount of shares issued without pre-emptive rights.
The limitation is there to protect existing shareholders. If a company were able to sell large chunks of shares without pre-emptive rights, the concern is that their holdings in the business, along with their voting interests, could quickly become diluted.
The ABI has therefore issued a "red top" alert on Laura Ashley. Although the association does not recommend voting for or against resolutions at AGMs, it does colour-code companies depending on the level of its concerns. Red is the highest level.
A spokeswoman said the ABI had not received "an adequate or satisfactory explanation" from Laura Ashley about why it was proposing the move. "We regard [pre-emption rights] as a very important safeguard for investors. Although they can be flexible, we do want a good explanation when it does happens."
RREV, a joint venture between the National Association of Pension Funds and Institutional Shareholder Services, is also understood to be concerned about the proposal, as is Pirc, a fellow shareholder group.
A Pirc spokesman said: "Laura Ashley fails to provide an adequate explanation of its reasons for seeking to breach the [5 per cent] threshold."
Laura Ashley was unavailable for comment.