paulmiller wrote:paulmiller wrote:
I was not disputing the fact that both ordinary shares and preference shares were are both Irredeemable. I was simply pointing out the fact that the Aviva preference shares were always named as Irredeemable, and marketed as Irredeemable, and always referred to as Irredeemable preference shares. The ordinary shares are never referred to as Irredeemable ordinary shares.
paulmiller, you are a gentleman in your responses and thank you for that.
The point about Aviva's preference and ordinary shares both being redeemable is (as I hinted), that the shareholders have and always [during the life of the pref] have had under company law the option of voting to have their capital returned. This is as fundamental to the nature of shares as having wheels is to being a vehicle. Why would any shareholder allow companies to retain profits if they had no right to extract those profits? Some are disingenuously claiming ignorance about these facts, but its an incredibly naive investor who needs to be informed of the nature of a share before investing in them. ("I must warn you sir that this bicycle has wheels and it is liable to begin moving if you sit upon it, especially if situated on a hill.") Even so, I'm pretty sure there is a general warning that shares are risky and investors should be aware of what they are buying, that their price can go down as well as up,that the price in a secondary markets may not reflect the underlying value, etc.
So even though ordinary shares are irredeemable, they can nevertheless be "redeemed" if the shareholders consider it in their interests to do so. The same applies to other share classes, including preference shares. The Companies Act 2006 defines redeemable classes and various protections afforded to shareholders and creditors if redeemable shares are issued. Failure by the directors to heed those protections is a criminal offence. Irredeemable shares are not subject to those conditions, probably because they cannot be redeemed without the prior approval of the shareholders.
Contrary to what the layman imagines, irredeemable means that a share class is not Redeemable as defined by the Act and therefore may not be redeemed by the company except with the express prior approval of the shareholders voting for a (IIRC special) resolution. It does NOT mean that they cannot be redeemed at all.
The Act and case law also lay out the rights of individual classes. Unfortunately for holders of non-equity preference share classes such as Aviva's, such protections must be present in the wording of the Articles or the authorising resolution of the share class and must specifically restrict the right or the procedure for returning capital. Holders have not posted any evidence of such language for the Aviva preference shares and I have found none.
Now to your point about ordinary shares never being referred to as irredeemable. Naming of share classes is not prescribed by the Act; existing naming is arbitrary and descriptive not prescriptive; it reflects an evolved set of conventions. It is required in the Act that there always be in existence a class of residual irredeemable shares. This by definition is what ordinary shares are. They need no special naming. They are alsways there and everyone knows what they are. Other classes of shares have peculiar features distinguishing them from the ordinary shares. Their names aim to highlight these distinctions, though of cause they cannot do so exhaustively. It is always the defining document (i.e. the Articles or defining resolution) that must be referred to.
Hopefully that explains why preference shares might carry the description "irredeemable".
When people read the original prospectus, and when Aviva let the market believe all these years that they were Irredeemable, then it is not a big surprise that everyone apart from Aviva believed that the income stream would never end.
Hopefully you can see by now that everyone calls them irredeemable because they ARE not redeeemable! Hopefully you can also see that does not prevent them being retired in a capital reduction. It merely means that the express prior authorisation of the shareholders (and approval of the high court) is required in order to effect such a capital reduction and it is subject to any restrictions (or relaxations) specified at their issue in the authorising document.
And if Aviva is attempting to end this income stream now then they should either make fair compensation to preference holders, as they may well do, or be suspected of misleading the market.
Aviva directors may of course want to be always known as rogues, but it seems more likely that they will try to balance the interests of preference holders and ordinary holders as they have already stated.
You are not looking at this from the Company's point of view, only your own. From your own point of view, you have arrived at a value for your preference shares derived from your own opinions of the business and the market. That value does not necessarily accurately reflect the underlying value of the shares but it is the price you are happy with. None of that is any concern of the company. It is entirely down to your own judgement and skill.
From the company's point of view, these are its obligations: to repay you the full nominal value of your preference shares; to do so
prior to repaying any capital of the residual classes of shares; and only then to pay any remaining profit to the residual shareholders.
You as a preference shareholder have a claim to prior repayment of capital but you have expressly abandoned any claim to profits in the company. So what right do you have to say "I believe the company is worth more than the nominal value of all its shares and I want a proportion of that value above the nominal value of my preference shares"? None at all. That is not the deal you entered into. You exposed ordinary shareholders to the full risk of loss if assets fail to exceed the value of your preferred stock. Would you allow in different circumstances the shareholders to say "Oh no there is nothing left for us after we have paid you: please share some of your nominal value with us. How about you take 50% of par and we get paid too?" No, that would be an impertinence, and equally it is an impertinence for pref holders to have taken their preference, taken their higher coupons than redeemable preference shareholders, and then also demand to be treated the same as ordinary shareholders and get a share of the company profits.
I would be amazed if you got offered any sweetener, but there is no harm in asking, and if you wanted the best chance of achieving it you might throw your full weight behind any affort Mark Taber makes. Like I say, I think holders are on a hiding to nothing, but good luck anyway!
GS
