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Aviva and General Accident preference shares

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

#127275

Postby shipmate » March 22nd, 2018, 7:25 pm

I don't pretend to be an expert on these matters, far from it.

What I don't understand is how there has been a market in these securities (and other prefs for that matter) for 25 years or more.

Why would anyone purchase any of these securities above par if they knew that the borrower could repurchase your holding at par at any time they so choose. To me they could only 'trade' at par or below.

ChloesDad
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Re: Aviva and General Accident preference shares

#127276

Postby ChloesDad » March 22nd, 2018, 7:26 pm

As I've been banging on about all along, forget the legal niceties involved in this matter. It's highly improbable they will be put to the test now anyway.

Damage is being heaped upon Aviva's reputation and their future ability to gain credit in times of need. I simply cannot understand how a company has turned on its own shareholders - at a time when it is highly profitable. It simply defies all logic. One can talk about their ability to redeem at par, however the yields of the ords and the prefs on March 7 were pretty much the same. Let's redeem the ords at par then and save even more cash ! It's all ridiculous.

Even though Aviva may be able to get away with screwing GA through the courts, I doubt they will pursue that course now. I expect a cringing climbdown very soon.

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Re: Aviva and General Accident preference shares

#127282

Postby ChloesDad » March 22nd, 2018, 7:43 pm

beeswax wrote:I have followed this thread with interest pardon the pun and seems like the old LLOYS Prefs all over again..

People complaining when they may be losing money and then getting the financial press and MP's involved and the FCA who have already said its nowt to do with them. ie sour grapes and they want 8% in perpetuity...


That is not true on two points:

1) The yield at the time of the March 8 announcement was roughly 5% for the prefs - around the same yield as the ords.

2) The FCA are VERY much involved in this matter...

https://www.insurancebusinessmag.com/uk ... 94973.aspx

The Treasury Committee has also stepped in..

https://www.insurancebusinessmag.com/uk ... 95465.aspx

Like it or not, Aviva's "brand" is currently receiving a right old battering - even across the world.

GoSeigen
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Re: Aviva and General Accident preference shares

#127283

Postby GoSeigen » March 22nd, 2018, 7:50 pm

stockton wrote:
GoSeigen wrote:I just happen to be somewhat familiar with this type of security and the relevant legal niceties. So my views are absolutely 100% my current assessment of the situation.


Given that you appear to understand Avivas position, could you perhaps draft your version of the statement that Aviva should put out to persuade others of the correctness of their position.


Aviva have already published it here:

https://www.aviva.com/investors/credit- ... reholders/


stockton wrote:At the moment there appears to be a straightforward dispute as to whether a return of the total nominal value of a preference share as capital can be achieved without "redeeming" that share.


"Redeeming" is a red herring. As explained in the above link, redemption would have set a pre-determined end date for the preference shares at their issue. Investors could have opted for that, but the coupon would have been smaller. None of the four Aviva prefs have a redemption feature. (This is why they are named "Irredeemable").

A company needs capital to fund its activities, especially if there are creditors. Redemption gives creditors a clear understanding in advance of the company's capital position because the redemption date and conditions are in the Articles or authorising resolution. Any other reduction of the company's capital could put the creditors at risk, so was forbidden by the Companies Acts. [Even purchase of own shares does not reduce capital.]

The only exception was via a procedure called Capital Reduction outlined in the CA1985. This allowed capital to be reduced under strict conditions. First, the availability of Capital Reduction had to be written clearly into the Articles of the company. Second, if a capital reduction was sought, then a special resolution had to be put to all the company's shareholders and approved by 75% majority. Third, the approval of the Court had to be sought to evaluate the objections of creditors. The law allows these conditions to be relaxed and tightened but only by language inserted in the Articles.


This Capital Reduction feature was and still is permitted by Aviva's (and GA's) articles. As you see from the above description it is destinct and quite different to Redemption. General Accident have noted this feature of the prefs in their annual accounts for many years.


General Accident plc Articles of Association:
https://s3-eu-west-1.amazonaws.com/docu ... cation-pdf


EDIT:
shipmate wrote:What I don't understand is how there has been a market in these securities (and other prefs for that matter) for 25 years or more.


Hopefully the above helps. See also: viewtopic.php?p=127243#p127243

GS
Last edited by GoSeigen on March 22nd, 2018, 8:02 pm, edited 2 times in total.

ChloesDad
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Re: Aviva and General Accident preference shares

#127284

Postby ChloesDad » March 22nd, 2018, 7:52 pm

From an investment point of view, I am deeply mired in Aviva and GA prefs. I have been weighing up whether it's worth offloading a few just in case Aviva do persevere with their "threat" to redeem at par. One needs to think coldly and logically in these times. Will Aviva crack ? Will they offer (say) around 150p per share ? Will they carry on regardless and ignore the current clamour ? I've considered the situation and decided to hold all.

On another tack, I've noticed that Sir Adrian Montague is chairman of the Point of Care Foundation. If he does genuinely care about ordinary people, then surely he will understand the pain this current Aviva situation has caused to small investors, pensioners and charities alike – some of whom are heavily invested in these prefs.

https://www.pointofcarefoundation.org.u ... /trustees/

I think I might write him a (courteous) letter..

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Re: Aviva and General Accident preference shares

#127292

Postby Alaric » March 22nd, 2018, 8:20 pm

GoSeigen wrote: Second, if a capital reduction was sought, then a special resolution had to be put to all the company's shareholders and approved by 75% majority.


A key point though. 75% of who? If it's the case that if the proposed course of action is marginally beneficial to one group of shareholders and very much adverse to another, should the former have the power to outvote the latter and if so, isn't it a major hole in corporate governance and an adverse condition to those who would subscribe to Preference Shares? If relevant, there was an EU Directive which would have plugged that loophole and required 75% majorities for both classes.

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Re: Aviva and General Accident preference shares

#127298

Postby ChloesDad » March 22nd, 2018, 8:41 pm

For those of us who believe Aviva's actions to be unjustified, I think it's important we keep on posting our opinions/press articles/letters, etc on this bulletin board and others. I know from experience that companies monitor such boards. i was in dispute with BT a few years ago and began a thread on a consumer board. BT representatives tried to negotiate with me through that board. I ended up being invited onto BBC Watchdog. Alas, I had to decline because I was going on holiday that very day.

Small voices can be heard when acting in concert. I have joined Mark T's campaign group and I'd urge others to do so. When Railtrack and Energis failed, I just shrugged my shoulders and got on with it. This time is different and I have offered to give up some time to help the campaign. Fight the good fight..

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Re: Aviva and General Accident preference shares

#127299

Postby stockton » March 22nd, 2018, 8:44 pm

GoSeigen wrote:Hopefully the above helps. GS


Thanks.

Personally I do not find it acceptable that words should have "legal" meanings which differ significantly from their natural meaning, and consequently would expect that any such document should be open to challenge.

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Re: Aviva and General Accident preference shares

#127300

Postby Clitheroekid » March 22nd, 2018, 8:45 pm

Alaric wrote:
GoSeigen wrote: Second, if a capital reduction was sought, then a special resolution had to be put to all the company's shareholders and approved by 75% majority.


A key point though. 75% of who? If it's the case that if the proposed course of action is marginally beneficial to one group of shareholders and very much adverse to another, should the former have the power to outvote the latter

As I've said before, at the time the prefs were issued they did have the ability to outvote the ordinary shareholders on a resolution that affected their rights.

However, over the years, Aviva have issued more and more ordinary shares, and there are now 9 times as many ordinary shareholders.

What should have happened, in order to protect the pref holders, is that every time new ords were issued additional pro rata votes should have been given to the prefs, thereby preserving their ability to outvote the ords on any proposal that would aversely affect their rights.

However, the rights of the pref holders have been systematically ignored by Aviva ever since 1992. Although Aviva were legally obliged to (1) notify the pref holders every time they issued additional ords; and (2) invite them to vote for or against the issuance they failed to do so.

Had Aviva behaved as they should the pref holders would have been able to extract additional voting rights as their price of agreeing to the new shares being issued.

Unfortunately, the effect of Aviva’s failure has been that the rights so carefully written in to the 1992 prospectus to protect the prefs holders have been completely destroyed. The additional votes are now worthless.

Because the pref holders can no longer outvote the ords I would think they would have an excellent case to petition the Court under s 994 Companies Act 2006.

Section 994 provides that: "A member of a company may apply to the Court by petition for an order...... on the ground (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

Aviva's failure to protect the interests of the pref holders over the years and their allowing the original protection to be destroyed would seem to fall squarely within the ambit of the section.

GoSeigen
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Re: Aviva and General Accident preference shares

#127312

Postby GoSeigen » March 22nd, 2018, 9:34 pm

Clitheroekid wrote:However, the rights of the pref holders have been systematically ignored by Aviva ever since 1992. Although Aviva were legally obliged to (1) notify the pref holders every time they issued additional ords; and (2) invite them to vote for or against the issuance they failed to do so.


Please quote evidence for this extremely serious allegation. If true I'd like to present it to Aviva. Thanks.


EDIT:
For clarity, please include:
-evidence of the issue of the shares including date
-a reference to the terms showing Aviva's obligation to notify and present a resolution to the preference classes
-evidence that they failed to do so.


Clitherokid, you are widely reputed here to be a practicing lawyer. If you have now retired it would be nice if you could say so. If you haven't please could you declare your interest in these securities. Do you have any beneficial interest in them or are you acting professionally in any way related to them? As a (former?) legal professional, I am sure you appreciate that readers may place a greater reliance on your views than they might for the average poster. Does the above allegation arise out of your work for a client?


Thank you.

GS
Last edited by GoSeigen on March 22nd, 2018, 9:40 pm, edited 3 times in total.

Alaric
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Re: Aviva and General Accident preference shares

#127313

Postby Alaric » March 22nd, 2018, 9:35 pm

Clitheroekid wrote:Because the pref holders can no longer outvote the ords I would think they would have an excellent case to petition the Court under s 994 Companies Act 2006.


You would say then, that the intent of the 2006 Companies Act was to confer protections under the Act, and not as appears to be suggested by Aviva or their advisers to take them away. The position of GA Pref holders is particularly difficult as the "opposition" is just the one holder.

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Re: Aviva and General Accident preference shares

#127317

Postby AleisterCrowley » March 22nd, 2018, 9:48 pm

beeswax wrote:....
People complaining when they may be losing money and then getting the financial press and MP's involved and the FCA who have already said its nowt to do with them. ie sour grapes and they want 8% in perpetuity to be as good and risk free as having your money in a bank account that pays just 0.1% if you are lucky. ..

... Its perverse to expect 8% when rates have been so low for a decade now and no public company should allow that to go on indefinitely as been pointed out that is not fair on the ord shareholders ie the actual owners of the company. Its a dereliction of duty for Aviva not to address it and tell the market.
That's not logical. The rate was set at the time of issue.
Investors took the risk of future HIGH interest rates depressing prices below par and making returns noncompetitive. It's one of the risks of any fixed interest investment.
If rates had been 15% for a decade or so, with these prefs selling below par, do you think pref holders should have the right to ask for redemption at par ?
It's the other side of the coin.



I think I read as part of the Lloyds Judgement it was suggested that these are complex instruments and private investors should seek professional advice before buying them. Different instruments I think

GS has made his case based on company law while some are calling him names because they don't have the same knowledge as him and the plain fact is that the company sold these at one pound and are willing to buy them back at one pound despite all the owners being quids in over the years from interest payments. In fact a bloody good deal if you ask me...

You're assuming holders bought at the outset, whereas I'm sure many (most??) holders bought at a premium to par - the investment decision being based on the running yield in the interest environment at the time, and the risk of default/company failure. Nobody, private or professional, would have bought at 150 if they'd known/suspected Aviva could call at par at any time without a class vote.

...

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Re: Aviva and General Accident preference shares

#127324

Postby thebarns » March 22nd, 2018, 10:12 pm

For those that are not aware it is interesting to follow the market pricing of BBYB over recent years.

These are preference shares, with a high coupon, issued by Balfour Beatty which are redeemable on a stated date in 2020.

These preference shares, certainly in recent years, never reached the scale above par that Aviva and others reached because the market and investors understood that these were clearly redeemable in 2020.

As has been said a number of times, contrast this with the pricing that the market, including sophisticated institutional investors, as well as mere mortal pensioner retail investors, priced Aviva and others.

The market understood BBYB based on clear information that had always been out there.

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Re: Aviva and General Accident preference shares

#127329

Postby paulmiller » March 22nd, 2018, 10:19 pm

ChloesDad wrote:
Even though Aviva may be able to get away with screwing GA through the courts, I doubt they will pursue that course now. I expect a cringing climbdown very soon.


I would not worry too much about the Aviva or the GA preference shares. You can be fairly certain that Aviva directors are in crisis management at the present time and the very last thing they will be thinking about now is seeking a Court Approval for anything connected with the preference shares.

The article in The Times today said "Who would trust Aviva now"? Such a statement from a leading national and international newspaper would be damaging enough for any company, but for an Insurance company it is far worse as the reputation of any Insurance company is directly connected with fairness and with trust. The last two weeks has been a PR nightmare for Aviva, and if they go anywhere near a UK court then it will become even worse for them.

I would also think that the chances of them winning any court case would actually be very weak as any reasonable judge would most likely rule that the intention of the original prospectus was not to redeem the shares or to cancel them in any situation outside of insolvency etc. There is also the question of EU regulation requiring a separate class vote. There is also extensive UK legislation requiring directors to act fairly, to not mislead etc.

Aviva also have the FCA investigating now, and also UK Parliament and the Treasury Select Committee. Most Institutional investors are also probably completely opposed to the idea. Most of their non-execs will also probably be completely opposed to the idea.

So I very much doubt that Aviva will be going ahead with their very nasty plan now, but if they really want to try to take away the capital and the income of British pensioners let them go ahead! I think that the publicity from such a case would probably be enough to completely finish off Aviva's image as a UK company that could ever be trusted again.

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Re: Aviva and General Accident preference shares

#127332

Postby Alaric » March 22nd, 2018, 10:22 pm

thebarns wrote:These are preference shares, with a high coupon, issued by Balfour Beatty which are redeemable on a stated date in 2020.


I noticed CNV in the title as well.

http://www.hl.co.uk/shares/shares-searc ... red-prf-1p

Does that mean there's an option to convert to Balfour Beatty ordinaries? Presumably out of the money at the moment as the price just looks to reflect the added value of getting 10.75% for another couple of years.

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Re: Aviva and General Accident preference shares

#127334

Postby rippleog » March 22nd, 2018, 10:30 pm

The question I have asked the CFO of Aviva is this:

"For a number of years Aviva has sought annual approval from it’s Ordinary shareholders to have the option to tender to buy Preference shares from holders at a price calculated as market value plus 5% plus proportionate dividend. Why you have requested this “tender at market value” approval for so many years if you always believed you could cancel the Irredeemable Preference shares at par value?"

No reply yet.

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Re: Aviva and General Accident preference shares

#127338

Postby beeswax » March 22nd, 2018, 10:38 pm

So I very much doubt that Aviva will be going ahead with their very nasty plan now, but if they really want to try to take away the capital and the income of British pensioners let them go ahead! I think that the publicity from such a case would probably be enough to completely finish off Aviva's image as a UK company that could ever be trusted again.

I'm a pensioner but that statement made me cringe with the Lloy Prefs and it does now with Aviva..

Not one single investor or gambler depending on ones point of view should rely on equities for their capital preservation or their income and what did they used to say?

Never ever invest or gamble money that you cannot afford to lose...

Nobody should expect to receive 8% unless there was a real risk of the company going bust...

IF people really want to preserve their capital as most pensioners do obviously, then there are banks and building societies everywhere but even so are only guaranteed up to what 70K per institution? I think anyone with OVER 70K in them should at least receive a higher interest rate or coupon if you like....And don't forget Prefs have the obvious advantage that they get priority over ordinary shareholders in the event of a collapse..should they not pay for that privilege?

Pensioners are NOT the victims here and they really ought not to put money into things they don't understand and cannot afford to lose...

It turns me off any sympathy I may have when this is mentioned, sorry!

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Re: Aviva and General Accident preference shares

#127342

Postby Alaric » March 22nd, 2018, 10:48 pm

beeswax wrote:Pensioners are NOT the victims here and they really ought not to put money into things they don't understand and cannot afford to lose...


Suppose you retired in 1991 and invested £ 10000 in Aviva or GA Prefs on the premise that it gave you a lifetime income of around £ 850 a year, fixed remember, and something to distribute in your estate. Your position should not really be so much different from your fellow pensioner retiring at the same time who bought an annuity from Aviva or GA. They should be slightly better off in income terms by virtue of forfeiting the eventual payment to their Estate. Aviva and GA aren't allowed to cancel annuities, similarly they shouldn't be allowed to cancel Prefs without giving the holders enough compensation to enable them to repurchase the income elsewhere.

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Re: Aviva and General Accident preference shares

#127345

Postby rippleog » March 22nd, 2018, 10:57 pm

Beeswax

At no point in the last 5 years have the Aviva preference shares yielded 8%

The average current yield of Aviva 8.75% Cumulative Ireedemable Preference share #1 (av.a) in the past 12 months has been 5.26% (average price of 166.29)

Please dont confuse the coupon with the yield

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Re: Aviva and General Accident preference shares

#127347

Postby XFool » March 22nd, 2018, 11:03 pm

GoSeigen wrote:
Wordchild wrote:This company is in very robust financial health, as they trumpeted with their recent results. They have surplus capital by any measure. They are forecast to make operating profits of in excess of 3 billion for 2018. Yet they are seeking to impose heavy losses on a group of stakeholders in order to make savings of a few tens of millions. ummm! it does not look like a smart move, at least in terms of their corporate reputation.

This is simply not true.

1. Aviva have announced no concrete plan yet.
2. They have given no indication that they will offer a penny less than shareholders' entitlement under their terms.
3. Any losses faced by individual investors will have two origins: the price the investor paid to buy the share and the price the investor was entitled to receive under the contract. Neither of these figures is under the control of the company.
4. The company could make an offer to investors. Frankly even if it were 102p they should welcome such a gesture. It's more than they are entited to.
5. The fact that shareholders thought they had made huge paper gains is down to two factors -- the business being successful and economic conditions in general. Only the first is under the direct control of the company and they can hardly be criticised for it!
6. Preference shareholders are entitled to a fixed capital repayment under their terms. Any hypothetical premium on this can only be interpreted as removing from residual, ordinary shareholders part of the residual profits of the business to which they alone are entitled.
7. The market price of a share is a fantasy: the value that marginal traders ascribe to holding or not holding a security at a particular moment in time. As we have seen time and again, it often has a tenuous connection with the actual underlying economic value of the asset. That is not Aviva's fault.
8. Your argument would carry more weight if the securities were debt, paying mandatory interest and not discretionary dividends: they are not, and investors have been compensated for their risk with a higher coupon.
9. If investors wanted certainty over redemption, they could have bought a redeemable security of which there are many, but they did not and have been compensated for their risk with a higher coupon.
10. Any loss a holder believes he is making is a gain for ordinary shares: let him by the ords; and if he argues that any gains will be diluted among the larger ordinary shareholding, that is very true -- but he then must also recognise that he has taken a leveraged bet on the hope that he can continue in perpetuity to extract the company's profit from the pockets of its residual shareholders -- and leveraged gains carry the risk of leveraged losses.

[Comments primarily focussed on GACA/B]

GS

Oh yes it is true! It's all your comments that are irrelevant as far as I am concerned.

Fortunately for me I have no direct interest here, I am not an Aviva shareholder (and after this I never will be!) nor a holder of Aviva preference shares (and never will be!), though I am a preference shareholder with another company - and so HAVE been affected (pricewise at least).

Aviva is a business, what kind of business? As I understand it, it's in the insurance business, am I right?

https://en.wikipedia.org/wiki/Insurance

"Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss."

That's the business Aviva purports to be in, yeah? So Aviva is in the business of "protection from financial risk" and it's current business model is to achieve results by transferring unanticipated risk onto some of its stakeholders? Great! So if I were to insure (against risk) with Aviva - don't worry, I won't be! - its approach to business may well be to work out some 'clever' wheeze of transferring that risk back to me? Perhaps it will add to shareholders value by coming up with some similar wheeze whereby it doesn't need to pay me if and when I make a claim. I just don't know...

So I guess, in order to be certain, I'd better get insurance, from another company, against such a risk of insuring with Aviva. Hang on! I think I see a way...

If you can't figure this then my guess is you may already be a member of the Aviva board.


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