Wizard wrote:
I am not trying debate what the law says now, based on old case law. Out of interest, in terms of the EU Directive I guess it comes down to what is meant by "rights" as it may not align to the view of the UK courts. Has this been tested in the European Courts since this directive was issued?
Terry, to be clear I'm not debating with you either or trying to change your mind, just setting out the other side of the argument so that both sides can be judged, in response to someone (you!) who is prepared to think logically and present evidence.
You have a point about the interpretation of rights. But that is not going to be tested in court or in a commercial proposal now I guess.
My point is really that what would protect preference shareholders in future is a change that makes clear that a return of capital requires a vote by the class whose capital is being returned. This is what was suggested to have happened in Australia, but I have not yet found anything confirming that. While they are interested in the issue lobbying the Treasury Select Committee to recommend such a change would be in the interests of holders of irredeemable preference shares.
Terry.
What would also protect preference shareholders is if they did full due diligence and knew what they were investing in. Knew for instance that preference shares are not debt. Knew that the reason some things are not spelled out in the terms is that it is already in company law.
I said in almost my first post on the Aviva issue that pref holders were making a mistake by focussing on the "prospectus" to the exclusion of the law. How a company behaves (and recall pref holders are members) is laid out in two main places: the Companies Acts and the Articles of the Company (and a third: the resolutions). It's been that way for (almost) hundreds of years. But certain people have got it into their heads that preference shares are loan agreements with a 100% contractual basis.
I hope to god that the industrious Mark and supporting baby-boomer contingent don't succeed in changing the law. That would be the death knell for preference shares as a class and potentially have wide ranging repercussions throughout our economy. What Mark is proposing doing is giving minority shareholders a veto over the allocation and return of capital. The complaint (without a shred of justification IMO) is of shareholders' rights being denied, yet they suggest fixing the non-problem by removing the rights of other (the residual) shareholders. That makes no sense at all.
Mark and others have also singularly failed to consider the underlying economic drivers of what has happened here. Aviva's capital reduction came as a natural side-effect of falling yields. Gilt yields collapsed starting ten years ago. All my
perpetual gilts were cleared out by the government "unilaterally" at par. If they hadn't done that my war bonds would now be trading around 150p and still be paying a reliable income stream. Long-dated gilt prices reached almost 200p!
Preference shares are just a few years behind gilts. Their yield has also collapsed and it is only right that companies take the opportunity to refinance their liabilities and even retire their capital when there is so much capital that no-one knows what to do with it. Otherwise what do we do -- cripple our own UK businesses with expensive capital while nimble new entrants from China and elsewhere clean up with their cheaper funding base? It's crazy. There are precious few ways for companies to return capital as it is, removing another one of them is rather regressive in my view.
I've already suggested an excellent way for preference shareholders to benefit from the trend that has tripped them up -- buy equity. It's a good match: what they want is a perpetual stream of dividends issued by solid UK firms. They want to be senior in the decision making and want to be paid last. Equity suits them perfectly.
Don't try to turn prefs into equity. Just sell the prefs and buy the equity. UK shares have gone nowhere in twenty years: surely now is a good time to be buying? Or is this a case of the last bear turning bullish...
GS
P.S. Preferred shares are not equity. That is a clear matter of definition. CA2006 s548
https://www.legislation.gov.uk/ukpga/20 ... ection/548