The Lemon Fool

johnhemming wrote:I have studied particularly the prospectus of the GA 8 7/8% prefs into which I have now invested.

I cannot see how Aviva can avoid having a class vote of the prefs if they propose to abrogate the rights of the pref shares.

abrogate def:"repeal or do away with (a law, right, or formal agreement)."

SS6 of S630 of the Companies Act 2006 also leads to a similar conclusion. It was passed after the HL decision about House of Fraser.

The problem John is that exercising the preference shareholders right to prior payment is not considered by the courts a variation or abrogation of the rights.



Re Hunting Plc [2005] 2 BCLC 211

On an application by the company for confirmation by the court of a resolution to reduce its issued share capital by the cancellation of convertible preference shares, preference shareholders argued that the scheme of reduction was unfair to them. Held: The reduction was approved. A company is entitled to reduce its capital by cancelling preference shares to replace the preference share capital with cheaper capital. The reduction was not unfair to the preference shareholders because they knew when they acquired their shares they were assuming the risk of being paid off in full.


There is ample case law regarding this. Would you mind commenting on this case and maybe look at the others in chapter 7.3 "Legal Nature of a Share", Unlocking Company Law, Susan McLaughlin 2015 Routledge.

https://books.google.co.uk/books?id=Ihf ... T997vKjYcq

Search for "Hunting Plc" at above link.


GS

johnhemming wrote:I cannot see how Aviva can avoid having a class vote of the prefs if they propose to abrogate the rights of the pref shares.

I got the idea that they thought it could be done by having a vote of all shareholders and that holders of Ordinary Shares would be in favour as abrogating the rights of Preference Shares would be financial beneficial to them. The premise being that profits are increased by paying 100 to get out of a indefinite drain of 8 or thereabouts per year.

These are the two parts of the prospectus:
[5]b) if a resolution is to be proposed abrogating, varying or modifying any of the rights or privileges of the holders of the Preference Shares (in addition to any resolution or approval required under paragraph 7(iii) below) or for the winding up of the Company or for the reduction of capital of the Company (otherwise than on a redemption or purchase of shares), in which case they shall only be entitled to vote on such resolution.

[7](iii) The rights attaching to the Preference Shares may be varied or abrogated with the written consent of the holders of three-quarters in nominal value of such shares then in issue or with the sanction of an extraordinary resolution passed at a class meeting of holders of such shares.

Hence where the preference shares are being affected there are two votes. I don't think they can argue that reduction of capital is separate because if it affects the prefs (which not all reductions in capital would) then it would abrogate the rights of the prefs.

8. RESTRICTIONS ON THE COMPANY - is also relevant
Save with such consent or sanction on the part of the holders of the Preference Shares as is required for a variation of the rights attached to such shares ...

Also indicates that the consent of the holders of the prefs (a class vote) is required. If they want to argue that "variation" here does not include abrogation then there is SS6 of S630 of the 2006 Act.

John,

Ibid.,

In Re Saltdean Estate Co Ltd [1968] 1 WLR 1844, Buckley J confirmed that prior payment of preference shares on a reduction of capital is part of the bargain a preference shareholder enters into:

JUDGMENT



‘The liability to prior repayment on a reduction of capital, corresponding to their right to prior return of capital in a winding up … is part of the bargain between the shareholders and forms an integral part of the definition or delimitation of the bundle of rights which make up a preference share. Giving effect to it does not involve the variation or abrogation of any right attached to such a share.’

Cited by later judgements too.

GS

So referred to as a liability rather than right ...
Does this apply to all prefs??

GoSeigen wrote:various references

Sadly I think you do have a point. If the courts decide that paying off the preference shares is not an abrogation of the rights, then you do have an argument.

There is a good collection of cases here:
https://lawexplores.com/shareholders-sh ... e-capital/

On the other hand the companies Act 2006 was based upon the EC Company Law directive 2:

That states:

http://eur-lex.europa.eu/legal-content/ ... 31977L0091

Article 31

Where there are several classes of shares, the decision by the general meeting concerning a reduction in the subscribed capital shall be subject to a separate vote, at least for each class of shareholders whose rights are affected by the transaction.

For all the legal nit-picking above, Aviva's buy-back proposal has questioned the the integrity of the wider fixed-income markets, been criticised in the media, slapped down by a fellow insurer and hardly builds trust in a company whose business relies on the assumption they can be trusted.

I read earlier from a poster that Aviva was "innocent" in this grisly affair. Mmmm. I somehow think that poster is pretty much on his own with that opinion.

I hold a large tranche of GACA and AV.B and I won't be selling a single share. Have held most for nine years - and these have been a great investment due to the yield they have provided in the low interest rate era.

Maybe the PR that Aviva have received over this tawdry affair isn't yet disastrous, however I doubt they would want to go further down this line as I believe trust is crucial to them. Maybe I'm being naive, however I fully expect Aviva's management to quietly withdraw their proposal in a month or so. Keep holding.

johnhemming wrote:

GoSeigen wrote:various references

Sadly I think you do have a point. If the courts decide that paying off the preference shares is not an abrogation of the rights, then you do have an argument.

There is a good collection of cases here:
https://lawexplores.com/shareholders-sh ... e-capital/

I posted that link a couple of days ago, thanks for repeating it; it's basically a copy and paste of the book referred to a few posts back.


I may have a layman's point but I'm sure there are plenty of things to exercise some legal brains in a court room. If it ends up there I may feel the urge to attend again.

Re: Europe, I've no idea what case law there is -- surely this won't go as far as a European court? Besides, we're Brexiting!!


Ooooh no let's not get started on that....


GS

All very interesting so far -
A question - if all pref shares can be called at par at the whim of the issuer (subject to vote across all share classes) what differentiates redeemable from irredeemable prefs? I think a previous poster touched on this but can't find the post.

ChloesDad, you have pointed out some very good reasons why Aviva should quietly drop their iniquitous proposal to cancel their Irredeemable Preference Shares.
It has also occurred to me that many of the cases cited above probably involved Companies whose Prefs. were not traded on any markets, and the directors did not come under the public pressure to which the Aviva directors will be subjected.

I am sure that the very public statement from Ecclesiastical Insurance today will have made Aviva think very carefully before proceeding. To receive such a public protest about the importance of "trust" and "honesty" from a fellow insurer that is also a holder of the Aviva preference shares will be very difficult for Aviva to ignore.

As Mark has said this kind of public rebuke is unprecedented, and I am sure that Ecclesiastical is not the only institution to be thinking in this way. As Avidya also said earlier the legal case is by no means secure, so it is quite possible that Aviva will eventually see a fair offer as the best way forward. They may also decide to forget the idea entirely if it is looking like this may have a damaging effect on their reputation.

It goes without saying, all those preference share holders who are affected by this, and all others who simply see this as very unfair, should write and email their concerns about this situation to every relevant person or organisation including : Aviva Chairman, Aviva CEO, Aviva FD, The FCA, Their MP in Parliament, and all national press and TV including any consumer money shows such as the Martin Lewis Money show on ITV.

Clearly there appear to be doubts and uncertainties in how this would legally pan out.

There would also appear to be doubts as to whether this would even get voted through given weighting to preference shares and the fact a good number including institutions hold ordinary shares and are likely to vote against the reconstruction.

With institutions and some wealthy individuals holding preference shares across a variety of companies, it is likely they could easily fund a legal challenge.

The process could drag for months and months.

Meantime the directors of Aviva will continue to receive flak from all and sundry from what has been demonstrated in the scale of their business and even dividends paid, to be insignificant amounts of money.

Do they really want all this uncertainty and management grief for the foreseeable future ?

Do they have strong non execs who advise on the wider issues involved ?

Did they anticipate this level of outcry ?

And are they really 100% certain of their legal position ?

Should they just not drop this and get on with running their business or do they want this issue to define their brand for a number of months, maybe longer ?

Will wise heads prevail ?

johnhemming wrote:On the other hand the companies Act 2006 was based upon the EC Company Law directive 2:

That probably ties it up. The EU says "no". Or rather it's only turkeys who are permitted to vote on Christmas.

I wonder what the AVIVA corporate Governance committe this of Ecclesiastical's RNS today. I think I will email them to find out.....

The Board strongly believes that good governance and strong, responsible, balanced leadership by the Board are critical to creating long-term shareholder value and business success. The committee’s role is to assist the Board in shaping the culture and ethical values of the Group through overseeing and advising on conduct, reputation, community, people and financial crime matters.

The committee comprises independent Non-Executive Directors.

Claudia Arney (chairman) (appointed 01 June 2016)1
Belén Romana García (appointed 26 June 2015)
Michael Mire (appointed 12 September 2013)
Glyn Barker (appointed 10 May 2017)
Keith Williams (appointed 01 August 2016)

AleisterCrowley wrote:All very interesting so far -
A question - if all pref shares can be called at par at the whim of the issuer (subject to vote across all share classes) what differentiates redeemable from irredeemable prefs? I think a previous poster touched on this but can't find the post.

Yes, I posted about this a while back. Briefly: in the CA2006 "redeemable shares" are those that have language about their redemption rights when created and the redemption process is policed by a set of rules in the Act. The company may redeem according to the terms without further recourse to the shareholders but failure to heed the procedure in the Act is a criminal offence. "Irredeemable" shares do not have this language, or more usually are specified as being "irredeemable". This does not mean they cannot be repaid, but repayment by capital reduction for example requires the express authorisation of a special resolution and approval of the High Court.

So your supposition that all prefs can be called "at the whim of the issuer" is not correct. Alaric dreamed that one up I believe. There are rules and hurdles.

According to the law prefs may be repaid in a cpaital reduction. This is done (maybe at par) if this is approved by the requisite shareholder vote(s) and if the other statutory and contractual terms allow it and are followed. The procedure can be tightened or relaxed relative to the stautory default by the terms of the prefs [putting it simply]. Most pref terms do allow recall at par; why wouldn't they?

In practical terms though few prefs would be considered in danger of early recall at par. First, it is seldom economically viable to do so (price below par, no spare capital and many other reasons). Second, the terms may make it difficult or impossible procedurally. Third business, regulatory or other reasons might deter the company or shareholders from reducing capital. So most of the time it is perfectly reasonable to consider prefs as perpetual or requiring repayment around market value or better to induce holders to give them up.


Contrary to what some have claimed I didn't see this coming. I just happen to understand Aviva's point of view and think they are likely to succeed. And I'm left shaking my head at the vitriol unleashed by some holders!


GS

I hold the ordinaries, I may buy the prefs. However I hold my shares in nominee form with the Halifax, which as things stand means I can't vote. However I have written to the Halifax to suggest that they make available a facility so Aviva shareholders can vote on this resolution, should it ever be made.

I would suggest you all do the same.

thebarns wrote:The process could drag for months and months.

Meantime the directors of Aviva will continue to receive flak from all and sundry from what has been demonstrated in the scale of their business and even dividends paid, to be insignificant amounts of money.

Do they really want all this uncertainty and management grief for the foreseeable future ?

Do they have strong non execs who advise on the wider issues involved ?

Did they anticipate this level of outcry ?

And are they really 100% certain of their legal position ?

Should they just not drop this and get on with running their business or do they want this issue to define their brand for a number of months, maybe longer ?

Will wise heads prevail ?

Water off a duck's back IMO.

GS

GoSeigen wrote:So your supposition that all prefs can be called "at the whim of the issuer" is not correct. Alaric dreamed that one up I believe. There are rules and hurdles.

It's Aviva who are now claiming that power and think they can deliver.

According to a posting on another forum, there was a resolution at the 2017 AGM that Preference Shares could be repurchased at up to 105% of the market price. Why put forward such a resolution if they believed the shares could be cancelled/ redeemed/ returned at par?

Aviva are making it up as they go along and creating chaos in the market for Preference shares in the process.

Alaric wrote:.According to a posting on another forum, there was a resolution at the 2017 AGM that Preference Shares could be repurchased at up to 105% of the market price...

Resolutions 23 and 24 here (and passed at the AGM).
https://www.aviva.com/content/dam/aviva ... e_2017.pdf

but it's nothing new, been there since at least 2004...
https://www.aviva.com/content/dam/aviva ... gm2004.pdf