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Aviva and General Accident preference shares

Gilts, bonds, and interest-bearing shares
stockton
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Re: Aviva and General Accident preference shares

#124707

Postby stockton » March 14th, 2018, 9:03 am

Has anyone been able to find out the original terms for the House of Fraser prefs. redeemed in 1987 ?
I have been trying to find a suitable email address to ask HoF but have been unable to do so.

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Re: Aviva and General Accident preference shares

#124717

Postby ayshfm1 » March 14th, 2018, 9:32 am

I read this elsewhere, but it did cause me to check.

Interest rates in the UK were VERY high and had been even higher, in that historical context the preference owners would not have been able to prove that they were being discriminated against, I am less and less convinced that HoF case offers the justification Aviva suggests it does.

Until Aviva got cute prefs were simply a riskier proxy on bonds, so were easy(ish) to value, interest rate plus what your view on the probability of the business failing and your view on the future direction of interest rate travel. High interest rates on a fixed interest rate intrument would suggest these things were trading sub-par (why hold something that pays less interest than than a bank deposit account and has some risk of total wipeout.)

88V8
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Re: Aviva and General Accident preference shares

#124740

Postby 88V8 » March 14th, 2018, 10:22 am

Voting:
As mentioned it is not straightforward for nominee holders to vote their shares.

Our Prefs are with ii; they advise:

If you wish to submit a proxy vote for any of your stocks you can contact us and we will send this to the company on your behalf. This would be done on a best endeavours basis. Likewise if you wish to attend a meeting we can issue you with a letter of representation. For both instances we need at least five to seven days notice from the date of the meeting.

Other brokers may not be so helpful, and you would do well to establish your own broker’s position now, rather than just assume.

Here is a link to an article about voting in nominee accounts
https://www.sharesoc.org/investor-acade ... -accounts/

As a footnote, yesterday I bought some GACA at 123p.

V8

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Re: Aviva and General Accident preference shares

#124788

Postby PeterGray » March 14th, 2018, 12:30 pm

I've never had any real trouble getting a letter of representation from any of the brokers I use, or have used, but some are certainly easier than others, and some will charge. The key is to ask as soon as you know the meeting date and details to give them plenty of time to sort things out - and be chased by you if they don't.

Peter

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Re: Aviva and General Accident preference shares

#124837

Postby Alaric » March 14th, 2018, 2:24 pm

A recent post at the fixed interest forum throws another piece of evidence into the mix. This is the document prepared when Aviva bid for Friends Life three years ago.

Link
https://www.fixedincomeinvestments.co.u ... #post-2044

The Articles authorise the issue of redeemable shares. Although the cumulative irredeemable preference shares are not subject to redemption like the ordinary shares, the Articles permit the purchase of the Company’s own shares and Aviva may purchase its cumulative irredeemable preference shares. An English Company may purchase its own shares, including any redeemable shares.


Again if Aviva thought it had the power to perform a compulsory purchase of Preference Shares by the device of a capital return, then would have been a good time to mention it.

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Re: Aviva and General Accident preference shares

#124862

Postby swill453 » March 14th, 2018, 3:39 pm

Alaric wrote:Again if Aviva thought it had the power to perform a compulsory purchase of Preference Shares by the device of a capital return, then would have been a good time to mention it.

Similar to the question as to why for the past umpteen years, each AGM has passed a resolution allowing Aviva to buy back the preference shares at up to 105% of the market value. If they always had the power to cancel them for a quid, why bother?

Scott.

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Re: Aviva and General Accident preference shares

#124870

Postby GoSeigen » March 14th, 2018, 3:50 pm

Alaric wrote:A recent post at the fixed interest forum throws another piece of evidence into the mix. This is the document prepared when Aviva bid for Friends Life three years ago.

Link
https://www.fixedincomeinvestments.co.u ... #post-2044

The Articles authorise the issue of redeemable shares. Although the cumulative irredeemable preference shares are not subject to redemption like the ordinary shares, the Articles permit the purchase of the Company’s own shares and Aviva may purchase its cumulative irredeemable preference shares. An English Company may purchase its own shares, including any redeemable shares.


Again if Aviva thought it had the power to perform a compulsory purchase of Preference Shares by the device of a capital return, then would have been a good time to mention it.


Nice try, but utterly irrelevant. You've conveniently omitted a crucial part of the extract: the title of the section. Here it is:

Equity Share Capital-Rights of Purchase and Redemption.


Go to the above link to view it and read it in its original context in the prospectus. What is the significance? Well the section is discussing Equity Share Capital. The action Aviva is proposing cannot be applied to equity share capital, ONLY to non-equity share capital. It would be grossly misleading for them to claim it in this section.

Clearly they could have added other sections dealing with other types of their securities. I haven't studied it enough to say how they chose the particular things they did to put in this prospectus. It's already hundreds of pages and incorporates the Articles anyway, which is where the CA2006 directs these terms to be.


As I have said before, it's all in the Companies Act 2006. Take a look.


GS

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Re: Aviva and General Accident preference shares

#124878

Postby flyer61 » March 14th, 2018, 4:01 pm

Well have taken the plunge and bought GACA at 120P. Time will tell whether Aviva will play with a straight bat or stick to underarm bowling. GoSeigon I hear you, BUT the UK financial system and it's main proponents were significantly bailed out by the UK taxpayer. Aviva's statement came out of the blue when they could have made things a lot clearer a lot sooner. To me it smacked of arrogance. We expect better.

I am urging the FCA to investigate whether Aviva funds (or their subsidiaries) traded in ANY UK Prefs in the lead up to their announcement. This includes anybody who works for Aviva or it's subsidiaries. With the whole market in turmoil they need to get off their a$%£ and look into this.

Off to see my MP. It was him about 6 years ago mentioned the number 1 complaint he was getting was, when was Lloyd's going to start paying a dividend. Having worked out that they couldn't do this until LLPC etc started up again I went big on these and others. It's has been great however what has happened of late reminds you just how dangerous UK financial institutions can be to your wealth.

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Re: Aviva and General Accident preference shares

#124886

Postby everhopeful » March 14th, 2018, 4:16 pm

So why are ISAs and SIPPs loans from the state? Hasn't this moved somewhat from the topic in hand?

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Re: Aviva and General Accident preference shares

#124892

Postby GoSeigen » March 14th, 2018, 4:28 pm

flyer61 wrote:At the very least I expect the FCA to investigate whether Aviva funds (or their subsidiaries) traded in ANY UK Prefs in the lead up to their announcement. This includes anybody who works for Aviva or it's subsidiaries.


Well that's a very serious allegation or insinuation. Where is your evidence for that?

Given your high moral standards, I take it you're not expecting the FCA to carry out a major investigation into thousands of people based on mere supposition?


GS

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Re: Aviva and General Accident preference shares

#124895

Postby Avidya » March 14th, 2018, 4:35 pm

Prompted by an exchange I had a couple of days ago with Goseigen, I’ve been looking further into the legal details of AV.A and AV.B. I haven’t fundamentally changed my view, but GS has certainly made some powerful points which have been very helpful in trying to understand the strength of weakness of Aviva’s own legal point of view.

Anyway, I’ve been looking at where GS and I disagree on the legal detail. One crucial difference is that GS thinks it would be fairly easy for Aviva to convince a court that repayment of capital followed by cancellation is not the same as “redemption” (they would have to convince the court of this because “redemption” is specifically not allowed under the AV.A and AV.B terms without a separate class vote (clause 4(i) of the terms). I disagree, and I think there’s a strong argument that in this case a repayment of capital at par followed by cancellation is in fact a redemption by another name. I’ve now looked at the terms of the pref that was allowed to be paid up and cancelled in the HoF V AGCE case (they’re in the historic HoF articles at Companies House online). Those terms didn't contain any clause that forbade redemption, and the prefs were only entitled to priority repayment of capital subscribed (i.e. no premium to par) “on a winding up or otherwise”. I think (from a strict legal standpoint) that these are important differences from the Aviva situation - in the HoF case the court didn’t have to consider whether or not “”repayment of capital and cancellation" was the same as “redemption”, because the HoF pref terms didn’t forbid redemption; and repayment at par was exactly what HoF pref holders would have received in liquidation, whereas Aviva pref holders would under the terms of their prefs be due a premium over par on liquidation due to the “Spens clause” in their terms. Case history suggests that courts place some weight on what prefs would receive in liquidation when deciding whether or not a repayment at par constitutes a variation of their rights.

I’ve looked further into why the Aviva prefs contain the “Spens clause” (specifying that in liquidation pref shareholders get back a capital sum related to the perpetual gilt yield). It’s in clause 4 (ii) of the Aviva pref terms (which specifies what capital payment pref shareholders get in liquidation), but not in clause 4 (iii) (which specifies what they will get on a return of capital due to anything other than liquidation or market buy back). If you go to Companies House on line, you can see that the resolution authorising the issue of these shares back in 1992 did not contain a Spens clause at all, but authorised the directors to insert this sort of clause prior to issue if they decided to. So it’s clear to me that the Spens clause will have been inserted immediately prior to issue at the request of the pref placees - precisely because they will have been concerned that they didn’t want to find their shares forcibly redeemed in liquidation at par via a return of capital at par, if the shares at that time were worth more than par. They would have been aware that in liquidation the pref holders would not be able to block a return of capital under clause 4 (i), hence the need to specify the preferential capital return due to a pref shareholder in liquidation in clause 4 (ii). Further, I think they would have been confident that the clause in the terms (clause 4 (i) ) which expressly forbids redemption without pref shareholder agreement would (except in liquidation) prevent any other attempted return of capital at par without pref shareholder agreement, hence why they didn’t need a Spens clause in 4 (iii). So I think that’s why the Spens clause was inserted in Clause 4(ii) but not in clause 4(iii). And I think this argument may carry considerable weight in court, precisely because Spens clauses did not exist prior to the 1987 HoF V AGCE judgement, and were developed subsequently in response to it. The fact that it is in the Aviva pref terms illustrates that the drafters were concerned to ensure that on a return of capital the pref shareholders would be able to get a premium over par should interest rates have fallen by the time of redemption (and hence the pref price had risen over par). In fact, in the current ultra low interest environment, if the Spens clause were to be applied today to Aviva prefs on a return of capital, pref holders would be due £2 per £1 share (at current long gilt rates the implied price would be over £3, but the clause limits the maximum return to twice par). I’d certainly be perfectly happy with that if that’s what a court chose to award! (Actually this last comment is not entirely frivolous - there is some legal precedent to suggest that if a court did find in preference shareholders favour, it would seek to put them in the same position as they would have been in were the company to be liquidated - this is a point Aviva may bear in mind before risking a court action).

It might be asked (and certainly would be in court!), why have a clause 4 (iii) at all in the Aviva prefs? The answer is, it’s boiler plate language in pref terms. It’s normally there because companies might want to repay or reduce capital for all sorts of reasons, for example where the scale of their operations has reduced to the point where they have too much capital. The point of clauses like clause 4 (iii) is to ensure that even in those sort of situations pref shareholders would at least get back par plus accrued, which they might be glad to get if the company’s operations had shrunk to the point where it was unable to pay the pref dividends because of a deficit on the P&L account. So I suspect the Aviva pref placees would have been content to see this clause left in the terms, and they would have believed that it could only be used with their approval due to their blocking rights in clause 4 (i), so it couldn’t be used as a backdoor route to redemption without their approval. But I have to say that it’s not ideal drafting, because it does open the door to the issuer now arguing that return of capital is not a redemption, and further that a return of capital doesn’t change pref shareholder rights, and then pointing narrowly at clause 4 (iii) to allow the issuer to return capital at par and cancel the shares. It would have been pretty unimagined back in those days that the then issuer (Commercial Union) would try and do this, and as I’ve argued above, on balance I don’t think it will succeed now. But we do live in different times.

It’s certainly relevant that the Aviva pref terms were drafted back in 1992. Those were very different days in the pref market, and I remember them well because at that time I was a principal in one of the leading stockbroking firms dealing in and issuing these shares. Pref share issue documents in those days did not contain risk warnings, partly because it was unheard of for any leading issuer (particularly a major financial firm) to act in bad faith and try and subvert the commonly understood terms of an issue by trying to interpret the legal detail of terms in contravention of prevailing market practice. Had any issuer tried to do that, they would have been barred from the pref market (then an important source of capital) and the eyebrows of the Governor of the Bank of England would have raised more than a fraction.

Those were more innocent days, and we live in a very different and far more cut throat world now, but the prevailing market practice at the time the prefs were issued would be a factor for the court to consider. And it’s notable that, even in our current cut throat world, there is widespread surprise and shock (even amongst Aviva’s fellow issuers) that Aviva has raised the possibility of relying on a never before considered interpretation of the drafting terms of an irredeemable pref in order to try and redeem it at par without the holders’ consent. To the best of my knowledge, the idea that this might be considered for preference shares which were marketed as irredeemable has never been raised before in the long history of the quoted preference share market. The “common sense” view would be that these Aviva prefs (and many other comparable issues) have been trading for over 25 years, usually well over par, without anyone ever raising the possibility that they could be forcibly repaid at par. It’s not just investors (both institutional and private) who have not been aware of the legal argument Aviva is now making, it’s also all other issuers and their legal and financial advisers, and indeed Aviva itself prior to last week’s bombshell. We do have risk warnings on pref share issues now, and it’s interesting that if you look for instance at the Lloyds pref issue documents from the 2009 pref swap, you’ll see no reference at all to any possibility that the shares could be redeemed at par at any time via return of capital. Indeed, it seems clear that until recently even Aviva themselves did not believe the shares could be forcibly redeemed in the manner they now claim they can be, because for the past 25 years they have made no such claim. And, as Mark Taber has pointed out, it’s only last year that they sought and received shareholder approval to buy back their preference shares at market prices well in excess of par! It’s hard to escapee the conclusion that they must only recently have been alerted to the possibility that there may, in a strict legal sense, be a way to redeem some of their prefs at par without being blocked by a class vote of pref holders. Maybe they came across this wrinkle during an exercise looking into general liability management possibilities. I don’t know. But however it’s arisen, it’s thrown a bomb into the whole irredeemable pref market, and I suspect Aviva themselves may not have fully thought through the potential consequences before raising this issue - for example, having become aware of the wrinkle, they could first have discussed it with other issuers of these sort of prefs, decided on a common approach, then discussed it with the regulator and potentially also with shareholder representative bodies before deciding how best to proceed balancing the interests of all stakeholders. Instead, they simply baldly asserted, out of the blue, that they have the right to repay the prefs at par, and said they hadn’t yet decided what to do about it. It’s not exactly responsible or market friendly behaviour!

Of course, Aviva have not yet followed though on their implied threat, and they say no decision has been made, but if they do I think it would be good to see this tested in court, because having been raised I think the question now needs clearing up. The pref market is a specialised one, but it is not an irrelevant “backwater”. The UK irredeemable pref market is worth billions, and constitutes an important part of many private investor and institutional portfolios. Aviva’s abrupt and unexplained stance has already led to substantial quotational losses for investors across the market, and in many cases those have turned into realised losses as private investors in particular have sold out in a panic. All in all, I’d say that the Aviva board will need to consider its next steps very carefully indeed, and if I were one of their non-executive directors I’d now be asking some pretty hard questions abut exactly how Aviva got into this situation….. .

Finally, I’ve now had a quick look at the terms of the General Accident prefs. A previous poster (maybe on the other board?) wondered if they have the same degree of legal protection as AV.A and AV.B . Regrettably, I think their terms are significantly weaker. They are certainly described as irredeemable, and indeed they are irredeemable in the sense that the issuer has no specified right to redeem them. But they don’t appear to contain the crucial clause 4 (i) which is in the Aviva A and B prefs which specifically blocks redemption without pref shareholder approval. Neither do they have a Spens clause specifying what they are to receive on liquidation - on liquidation they just receive par plus accrued. So I’’m afraid I agree with Goseigen that if Aviva were ruthless enough to try and retire these by repaying par capital plus accrued, then the chances of Aviva prevailing in court would be significantly higher than in the case of AV.A or AV.B. Yes, they are described in the terms as “irredeemable” (and arguably have been treated as such by both Aviva and market participants for many years), but without the above two clauses I suspect they would face a tougher battle in court. It would partly hinge (ludicrous though this sounds from a common sense point of view) on what the word “irredeemable” means in the context of the prefs: Does it mean “has no fixed redemption terms/date” or does it mean “cannot be redeemed without pref holder approval”. On the positive side, if Aviva were to decide that AV.A and AV.B are tough nuts to crack and leave them alone, it might be seen as the height of cynicism for them to go after the weaker Gen Acc prefs alone. We’ll see.

One thing all this highlights (and I may not be popular for repeating this), is that the preference share market is highly complex from a legal point of view. The legal position of every individual class of preference share depends on the detail of the issuer’s Articles of Association and the specific issuing terms of that preference share, and these details can vary significantly between different preference shares, resulting in different degrees of legal protection for different preference shares. These are shares, not bonds, and their terms and rights have evolved piecemeal over many years and are subject to the complexities of company law. Historically, back in the 1990’s and before, investors often didn’t worry too much about understanding the precise terms and legal background, because issuers could be trusted to “do the right thing” from a reputational point of view. Sadly, that’s no longer the case. This adds an extra layer of risk to preference shares, because (as we have seen in recent court disputes) even the finest legal minds often disagree on what the rights of a particular preference share actually are. Of course, this can create opportunities for investors prepared to delve into the legal details and take the risk of being wrong - but one can’t emphasise too much that this really is an area where DYOR and caveat emptor applies!

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Re: Aviva and General Accident preference shares

#124900

Postby paulmiller » March 14th, 2018, 4:40 pm

Another very public rebuke today for Aviva from institutional investor “TwentyFour Asset Management”. It is available to read on their website. “Aviva upsetting the equilibrium”.

On a side note the article says that Aviva would have to seek court approval for this “extraordinary act”. I am just a private investor so could someone please explain what does this mean exactly? Does it mean that there will have to be a court case if Aviva try to take this action? If so do Aviva have to argue their case in front of a judge to see if it is lawful? Is there any other party apart from Aviva involved in this process? How exactly does this “court approval” process work?

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Re: Aviva and General Accident preference shares

#124904

Postby Alaric » March 14th, 2018, 4:47 pm

GoSeigen wrote: Well the section is discussing Equity Share Capital.


In common parlance "equity share capital" is taken to mean all forms of capital where the holders are owners of the Company. I'm not sure why you would have expected readers of a retail Prospectus to be familiar with what seems a strange redefinition of meaning in the 2006 Companies Act.

Indeed a search for the term "equity share capital" comes up with this link
https://bizfluent.com/info-7748783-mean ... pital.html
in which

Companies raise two types of capital to source money for their operations: debt capital and equity capital. Debt capital is procured through lender loans where lenders are paid interest on the funds. Equity capital is issued to individuals who want ownership rights in the company. These investors are issued shares of the company stock. There are two broad categories in which shares are issued: preference shares and equity shares


Dangerous then to use the term "equity share capital" in a prospectus without placing into the context of a Companies Act redefinition.

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Re: Aviva and General Accident preference shares

#124906

Postby Alaric » March 14th, 2018, 4:53 pm

paulmiller wrote:On a side note the article says that Aviva would have to seek court approval for this “extraordinary act”. I am just a private investor so could someone please explain what does this mean exactly?


This might be a useful link
https://www.lexisnexis.com/uk/lexispsl/ ... of-capital

It's a standard process for return of capital that first a shareholder resolution has to be passed and then second it has to be approved by a Court. You see this reasonably often when Companies use the "reconstruction of capital" method of paying a special dividend.

A dispute in the Aviva case is whether Preference shareholders should have their own vote as to whether they are to be disadvantaged.

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Re: Aviva and General Accident preference shares

#124919

Postby GoSeigen » March 14th, 2018, 5:22 pm

Alaric wrote:a Companies Act redefinition.


Okay you're trolling. I geddit. Very f'in funny.

GS

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Re: Aviva and General Accident preference shares

#124941

Postby stockton » March 14th, 2018, 7:46 pm

Avidya wrote:It’s hard to escapee the conclusion that they must only recently have been alerted to the possibility that there may, in a strict legal sense, be a way to redeem some of their prefs at par without being blocked by a class vote of pref holders. Maybe they came across this wrinkle during an exercise looking into general liability management possibilities. I don’t know.


It seems reasonable to connect this willingness to enter into legal controversy about "small print" with Lloyds victory in respect of the ECNs. If people are writing to the FCA it might be appropriate to point out that their failure to act in that case has not been without consequences.

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Re: Aviva and General Accident preference shares

#124944

Postby paulmiller » March 14th, 2018, 8:00 pm

Alaric - Thanks for the link and for the information.

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Re: Aviva and General Accident preference shares

#124953

Postby paulmiller » March 14th, 2018, 8:33 pm

Avidya - Thank you very much for another very informative post and also for sharing your expert knowledge.

Do any of the posters here know if it is likely that any of the Aviva board of directors or their legal advisers are likely to have seen, or will likely see, these 2 recent posts that Avidya has written? I would think that a reading of these 2 recent posts would be enough to make Aviva and their legal advisers think very carefully about doing anything.

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Re: Aviva and General Accident preference shares

#124991

Postby Holts » March 15th, 2018, 7:37 am

https://www.thetimes.co.uk/article/fca- ... -bz72z39rh

FCA making active enquiries of Aviva

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Re: Aviva and General Accident preference shares

#124999

Postby OwenSwansea » March 15th, 2018, 8:15 am

If Aviva go through with their threat to cancel their Irredeemable Preference Shares, it will be the most dishonourable act ever carried out by a UK plc against it's shareholders.


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