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Aviva and General Accident preference shares

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

#124063

Postby GoSeigen » March 11th, 2018, 8:44 pm

johnhemming wrote:
GoSeigen wrote:(but do the accusers understand that term of art?)

Where is there a definition of the term of art that varies from the general understanding of continuing for ever.

The legal question is one that will be resolved over time.


Apologies John, I had the word irredeemable before, then changed it to perpetual without altering the parentheses, redeemable is defined in the 2006 Companies Act I believe, and unless I am mistaken Irredeemable is applied to share classes which do not meet the definition. Please correct me if I am wrong, working from memory here.

People seem to be using the word perpetual interchangeably with irredeemable.

All seem to be ignoring the fact that while shares are perpetual in the sense that there is no predefined right to receive or pay back principal, nevertheless company law contemplates capital being returned to shareholders and the shares being cancelled if and when shareholders agree accordingly. I really don't get why this is a challenge, and no one is explaining.

It's also pretty clear that pref holders are only entitled to return of their capital and NOT a share of the profits of the business. Yet that is what posters on this board are demanding. Aviva has run its business well enough that the yield on its securities have fallen and now preference shareholders are demanding that ordinary shareholders give up their profits to the pref holders in order to pay them their nominal value plus a premium. That looks to me like an impertinence.

GS

OwenSwansea
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Re: Aviva and General Accident preference shares

#124064

Postby OwenSwansea » March 11th, 2018, 8:50 pm

All GoSiegen's arguments are absurd, he is just playing with words. The Aviva and General Accident Preference Shares have the word "Irredeemable" in their very title. Surely this fact alone carries more weight than any other.

The Preference Shareholders should consider the possibility of a class action against Aviva and its directors.

GoSeigen
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Re: Aviva and General Accident preference shares

#124065

Postby GoSeigen » March 11th, 2018, 8:51 pm

Wozzitworthit wrote:
Over the weekend I have convinced myself to sell, to hold and then to sell - it might be to hold again later tonight !!
Not expecting any advice - I'm sure I'm not the only one in this postion - just thought I'd put my thoughts down and post them , as it does help to clarify things in one's own mind

Woz


Woz I have been doing my level best to put the Aviva view so that sensible, thoughtful investors like you can make an informed decision. I am not arrogant enough to claim infallibility, but hopefully have put a strong enough case that you can go away, look at the law and come to a decision. Of course the path that pref prices take could wander all over the place in coming weeks but at least you might be able to take a view on the underlying issues and values.

Good luck,

GS

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Re: Aviva and General Accident preference shares

#124068

Postby paulmiller » March 11th, 2018, 9:12 pm

GoSeigen wrote - What do you think irredeemable means? Preferably quote from case law or statute to illustrate. Are ordinary shares irredeemable? Do the ord shareholders as a class have the right to demand ord share capital be returned?

You keep saying that both ordinary and preference shares are irredeemable. I do not have the original prospectus for the Aviva ordinary shares but I would guess that Aviva did not spell out in big bold letters on the front page of the original prospectus that these ordinary shares are "IRREDEEMABLE" ordinary shares.

But Aviva did do exactly that in the prospectus when they sold their preference shares to the public, and Aviva have been using this word "Irredeemable" ever since on their website and in all of their financial accounts ever since then. When people and companies use words they are usually used for a reason and everyone in the UK apart from Aviva executives understood the intent of this word from Aviva up until a few days ago. There is a good case to be made now that Aviva have been misleading the market for all of these years.

It is also quite possible that Aviva are just "flying their kite" now and trying to soften up the market a little in order to lower any future offer price. They have already said that they will look to balance the interests of both preference holders and ordinary holders. Unfortunately because of the Aviva announcement the whole market in preference shares is now in chaos and many small investors and pensioners have seen their shares collapse because of this uncertainty. Aviva should make very clear what they intend to do as soon as possible.

Wizard
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Re: Aviva and General Accident preference shares

#124069

Postby Wizard » March 11th, 2018, 9:14 pm

Wizard wrote:
GoSeigen wrote:...This is back-to-front. The reader is being warned that the instrument is perpetual. Fools, please remember :

repayment date -- good
no repayment date -- bad


You cannot be "warned" that you face the risk of your capital being returned. Rather, you are correctly being warned that your capital may NEVER be returned.

This really is absolutely fundamental.

My bold.

Is this not in the eye of the holder, rather than for you to determine GS? I bought a number of perpetual, irredeemable preference shares for the very reason that they are perpetual because I wanted to receive the income until I no longer need it.

More generally, I accept that it would be hard for Aviva to warn that you may lose capital in the event of a capital reorganisation as presumably the preference shares were issued at par, Aviva could not be expected to anticipate where they would trade in the future. However, as they were designated irredeemable, perpetual instruments I would think it reasonable (if such a capital reorganisation was deemed a way to return capital to investors at any point in time) to warn that the anticipated perpetual income stream could be lost at any time, that is after all what was being sold to investors.

I would ask a simple question, if Aviva wanted the option to stop paying the fixed dividend on these preference shares at a time of their choosing why not simply make them redeemable with a call option at Aviva's discretion?

To me it is clear that the language with regard to preference over ordinary shareholders was about demonstrating the capital hierachy in the event the company failed. Aviva are now trying to pervert the original purpose of this language to save themselves the cost of what have now become expensive instruments.

GS, I appreciate you are answering a lot of points in this thread, but I note you have not responded to mine. I would be interested in your view on my point / question. Maybe to make it more explicit, under your interpretation of matters why would there ever be a need to make a distinction between redeemable and irredeemable preference shares? I know this is not being proposed as a redeemption, but the economic result for the company is the same, it pays back par and no longer has to pay the dividends on the shares. If what Aviva has proposed had long been accepted as a legitimate way forward then there would be no point distinguishing between redeemable and irredeemable preference shares, it would be an unnecessary distinction as no option to redeem would be required. On the other hand why make a point of calling some preference shares irredeemable, if you want the right to pay back at par and stop paying the dividend simply call them redeemable?

I would welcome your perspective.

GoSeigen
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Re: Aviva and General Accident preference shares

#124074

Postby GoSeigen » March 11th, 2018, 9:44 pm

OwenSwansea wrote:All GoSiegen's arguments are absurd, he is just playing with words. The Aviva and General Accident Preference Shares have the word "Irredeemable" in their very title. Surely this fact alone carries more weight than any other.

The Preference Shareholders should consider the possibility of a class action against Aviva and its directors.


This is bluster without either proof or evidence. Okay OwenSwansea let's see if you can back up your big talk with substance.

"Redeemable shares" are defined in law. Tell everybody what it means. And then by deduction what "irredeemable" means in relation to preference shares.


GS
P.S. How are you getting on with suing Lloyds for the "mistake" in their prospectus?

GoSeigen
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Re: Aviva and General Accident preference shares

#124076

Postby GoSeigen » March 11th, 2018, 9:51 pm

paulmiller wrote:GoSeigen wrote - What do you think irredeemable means? Preferably quote from case law or statute to illustrate. Are ordinary shares irredeemable? Do the ord shareholders as a class have the right to demand ord share capital be returned?

You keep saying that both ordinary and preference shares are irredeemable. I do not have the original prospectus


Thanks for trying. It seems you don't know the meaning. It's not in the prospectus, you need the Companies Act 2006, which is available online. Section 684 onwards.

GS

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Re: Aviva and General Accident preference shares

#124079

Postby GoSeigen » March 11th, 2018, 9:59 pm

Wizard wrote:GS, I appreciate you are answering a lot of points in this thread, but I note you have not responded to mine.


viewtopic.php?p=124059#p124059

under your interpretation of matters why would there ever be a need to make a distinction between redeemable and irredeemable preference shares?


I'm hoping OwenSwansea will come back with a really good answer to this. If not I shall have a go. I'm getting the feeling few have investigated this before geting upset... :-)


GS
P.S. Sorry all for the volume of posts. People have responded to my points and I am trying to get back. Will quit eventually. Fascinating situation though... for fixed interest geeks. :-)

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Re: Aviva and General Accident preference shares

#124093

Postby Wizard » March 11th, 2018, 11:27 pm

GoSeigen wrote:
Wizard wrote:GS, I appreciate you are answering a lot of points in this thread, but I note you have not responded to mine.


viewtopic.php?p=124059#p124059

under your interpretation of matters why would there ever be a need to make a distinction between redeemable and irredeemable preference shares?


I'm hoping OwenSwansea will come back with a really good answer to this. If not I shall have a go. I'm getting the feeling few have investigated this before geting upset... :-)


GS
P.S. Sorry all for the volume of posts. People have responded to my points and I am trying to get back. Will quit eventually. Fascinating situation though... for fixed interest geeks. :-)

Thanks GS, apologies that I missed your reply. No need to apologise for the volume of posts, always good to get a contrary view.

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Re: Aviva and General Accident preference shares

#124101

Postby paulmiller » March 12th, 2018, 1:12 am

paulmiller wrote:
GoSeigen wrote - What do you think irredeemable means? Preferably quote from case law or statute to illustrate. Are ordinary shares irredeemable? Do the ord shareholders as a class have the right to demand ord share capital be returned?

You keep saying that both ordinary and preference shares are irredeemable. I do not have the original prospectus


Thanks for trying. It seems you don't know the meaning. It's not in the prospectus, you need the Companies Act 2006, which is available online. Section 684 onwards.

----------

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.

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. 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.

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Re: Aviva and General Accident preference shares

#124125

Postby Darwin » March 12th, 2018, 7:15 am

OwenSwansea wrote:All GoSiegen's arguments are absurd, he is just playing with words. The Aviva and General Accident Preference Shares have the word "Irredeemable" in their very title. Surely this fact alone carries more weight than any other.

The Preference Shareholders should consider the possibility of a class action against Aviva and its directors.


Does not 'Irredeemable' mean exactly what it says?

i.e. if you buy these shares you cannot redeem them by asking the issuer for your money back whenever you like.

Thus it does not mean that the issuer can't return your money in exchange for absolution of its obligations.

The confusion is caused because there was a market allowing holders to sell the shares to third parties, making it look as if the holders could get their money back. But only because there was a buyer who was not the issuer. In short, the shares were tradeable.

If there was no market for the shares, the holders would be stuck with them until the issuer decided to return their capital but that's not the sort of redemption described in the name!

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Re: Aviva and General Accident preference shares

#124127

Postby johnhemming » March 12th, 2018, 7:33 am

That is a question as to whether redemption is considered the exercise of a call or a put. I think it is clearly an exercise of a call and not a put.

https://dictionary.cambridge.org/dictio ... ish/redeem

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Re: Aviva and General Accident preference shares

#124134

Postby tcpace » March 12th, 2018, 8:13 am

GS said he thought "redeemable/redeemed" is defined in the Companies Act 2006. As far as I can see there is no such formal definition in the Act. Am I missing something?

tcpace

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Re: Aviva and General Accident preference shares

#124135

Postby PeterGray » March 12th, 2018, 8:14 am

OwenSwansea wrote:All GoSiegen's arguments are absurd, he is just playing with words. The Aviva and General Accident Preference Shares have the word "Irredeemable" in their very title. Surely this fact alone carries more weight than any other.

The Preference Shareholders should consider the possibility of a class action against Aviva and its directors.


I don't go along with some of the language the GS is using to describe the responses of Aviva (and other perps investors).

However, I think there isn't much doubt that his points about the law in this are correct. The fact that the title says "irredeemable" really says next to nothing about what's going on here. Aviva are making clear that they are talking about a capital reorganisation, and if you read the prospectus, and not just the title, it's quite clear that is something is different in meaning to redemption.

I agree that the proposed action (the details of which we don't yet know) has the possibility to be shoddy, immoral or whatever, but that won't cut much ice in the courts. It may have some bearing on the markets, public perception etc - though nothing like as much as holders are likely to assume. Probably more significantly the sums done by seeking alpha suggest that even in a combined vote by pref and ord shareholders success is not guaranteed for Aviva. Judging by the statements that they have made I expect that we will see an offer somewhere between par and the market price a week ago in the near future. That is the sensible way forward for Aviva, a compromise offer, which reduces the heat and potential for failure on their side. However, the more pressure that Aviva holder can bring to bear in the meantime the better that offer is likely to be.

Peter

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Re: Aviva and General Accident preference shares

#124137

Postby GoSeigen » March 12th, 2018, 8:17 am

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

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Re: Aviva and General Accident preference shares

#124139

Postby GoSeigen » March 12th, 2018, 8:28 am

johnhemming wrote:That is a question as to whether redemption is considered the exercise of a call or a put. I think it is clearly an exercise of a call and not a put.

https://dictionary.cambridge.org/dictio ... ish/redeem


[EDIT: Eek John is right. It refers only to calls, but either the company or shareholders have the option! The rest of this reply stands.] Actually, John, the law defines redeemable shares as those which are either putable or callable. [For those who can't find it, s.684-689 Companys Act 2006]

(1)A limited company having a share capital may issue shares that are to be redeemed or are liable to be redeemed at the option of the company or the shareholder (“redeemable shares”), subject to the following provisions.

John surely this is capitalism 101? Does this part of the Companies Act really need redrafting because it is confusing unfortunate retail investors?

GS

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Re: Aviva and General Accident preference shares

#124146

Postby GoSeigen » March 12th, 2018, 8:49 am

PeterGray wrote: However, the more pressure that Aviva holder can bring to bear in the meantime the better that offer is likely to be.

Peter


Agree with Peter that the best hope for holders is to bring influence to bear to make the outcome of the vote as uncertain as possible to Aviva (or other issuers), which will make a tender more attractive. It's likely such a tender would be combined with a vote and bind those holders agreeing to the tender.


GS

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Re: Aviva and General Accident preference shares

#124150

Postby GoSeigen » March 12th, 2018, 9:04 am

GoSeigen wrote:
johnhemming wrote:[EDIT: Eek John is right. It refers only to calls, but either the company or shareholders have the option! The rest of this reply stands.] Actually, John, the law defines redeemable shares as those which are either putable or callable. [For those who can't find it, s.684-689 Companys Act 2006]


Sorry, posting too hastily here. Of course the company is one party and the shareholders are the other party so the law defines redemption as involving exercise of either a put OR a call option.


The confusing issue with these Aviva shares is that the pref holders have no right to their own vote on their class of shares but vote alongside the ordinary shareholders -- in my understanding this is because the issue affects the entire share capital of the company and the pref holders of course have no equity share in the company.

GS

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Re: Aviva and General Accident preference shares

#124152

Postby johnhemming » March 12th, 2018, 9:17 am

GoSeigen wrote:John surely this is capitalism 101? Does this part of the Companies Act really need redrafting because it is confusing unfortunate retail investors?

The question is not whether it is possible for any particular instrument to be redeemed. It is a mixture of contract law and false representations.

If a Company states that it has investments that are not subject to compulsory redemption then the company should stick to that.

This I think is the key Scottish Court of Appeal Case
http://links.info.news.co.uk/ctt?kn=5&m ... &mt=1&rt=0

It looks entirely at the construction of the prospectus and does not consider whether or not describing the stock as "perpetual" or "irredeemable" is relevant.

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Re: Aviva and General Accident preference shares

#124155

Postby johnhemming » March 12th, 2018, 9:33 am

Sorry for linking to the wrong item in the last post.

http://swarb.co.uk/house-of-fraser-plc- ... d-hl-1987/


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