A & GA Prefs

[ayshfm1]

The ords were the key. The holders of at least 25% Aviva ords (and probably a lot more) are also holders of prefs, if not AV, someone elses. The whole class was in turmoil and en masse they used their ord position in AV to defend their pref positions across the market.

[Wordchild]

Yes, exactly, of course they did, as it should have been obvious (that they would ) to anyone who thought about it for more than a few seconds. That was always going to be the reaction, this was a battle that had to be fought, and the Aviva management had to be put back in their place.
But why did it get that far? That is the mystery to me.

[Alaric]

But why did it get that far?

A recent tweet by Mark Taber
https://twitter.com/MarkTaber_FII/statu ... 8119425024

This shows the ABI rules of engagement for repayment of capital and clearly states that you should have a separate vote if proposing to do something with Preference Shares.

[Wordchild]

As I have thought about this I have become more convinced that we will see executive departures. It’s about trust. This executive team hatched a plan that , even with the company in robust financial health, would have created significant destruction of value for key stakeholders. These stakeholders comprise funds and institutions that hold both ordinary and preference shares. Because of the nature of the device or legal interpretation , that Aviva was threatening to use, it also posed an existential threat to the value of a number of assets held by these same institutions.
The question will be for these institutions, how can we trust this executive team to look after our interests going forward? And I think the answer will be, we can’t, or not without a significant change.
My initial feeling had been that the FD (and former investment banker) Thomas Stoddard would be the most likely casualty and maybe the only one of the senior team to depart. I am not so sure now, I feel this is so serious and, trust has been so depleted that the CEO Mark Wilson , may also end up having to depart.

[Wordchild]

There has to be executive departures, if nothing else, “ pour encourager les autres”: the key institutions involved do not want to see another management team attempting this.

[NealMorris]

Of course the rumour about the investment bank may have been circulated by the pro cancellation camp of execs within Aviva. After all they may simply be looking for a scapegoat to deflect the issues around poor governance away from themselves.

Regardless though, I agree. We really do need to see some departures from the board. They may have appeased preference share investors, however it still feels to me like there is a huge amount of trust that's been destroyed here.

[Wizard]

Dod

I am not sure that you will get a clear answer here. The other thread you refer to seemed to get to a somewhat unpleasant place pretty quickly and this one may well follow that path*.

Terry.

* IMHO you are likely to find a better discussion of the topic on OldBoyReturns' discussion board if you frequent that as well as here. So you may want to post your question there.

No Terry, I don't want to post over there. I happen to like Lemon Fool and the people who post here. Why should I have to go to a different website to discuss something of interest to me. If you are the one who asked for the other thread to be shut down that was not very nice. It was an extremely popular and useful thread. I know I probably posted a bit too much there, but many readers were asking me specific questions as they were trying to evaluate the legalities of what Aviva were attempting. And yes, the thread got heated in places, but that was already handled and fixed as far as I can tell, and Mark's board was even worse with some quite personal and unpleasant things being written about both Aviva and other posters.

GS

My suggestion was to Dod, not you and I was merely trying to be helpful; I do not understand why you felt the need to respond to my post. Why would you suggest, based on this post, that I would ask for the other thread to be closed? I made no such request, indeed I hold GACA and I was therefore interested in any posts on that thread which provided insight into the situation, your posts included. Frankly I find the tone of your post to me rather unpleasant.

Terry.

[GoSeigen]

GS,

I've answered this issue before, both here and on the fixed interest board. I think that the earlier statement:
subject to the provisions of the Companies Act 2006, the Company may at any time purchase any preference shares at either par or on the prevailing market price upon such terms as the Board shall determine. is a simple statement of their right, which there have been resolutions on at various AGMs, to purchase the prefs. We all knew that - why would anyone have queried it?


Peter

Because it states the right is to purchase at par at any time, and the only place that is allowed in the terms is capital reduction as far as I can see. The word par should have rung alarm bells instantly for anyone who read it.

That's my view. Now you tell me where else a par purchase is allowed in the Articles and why it shouldn't bother an investor. Many people think I have this wrong.

I don't read it as saying they have a right to compulsory purchase at par, regardless of the current SP, which is not the same thing. And the fact that the "additional information" that Aviva put out 10 days or so ago about their proposals made it explicit that a "purchase" was something different to what they thought they had a right to do, and were proposing, underlines that. They did not see their recent moves as having a connection to any previously stated right to "purchase".

Now we're mixing up things here.

1. The words you we quoting are from the accounts, not from the Articles. The Articles incorporate definitions from law, while AFAICS the accounts are far more lax with language. We just have to accept that, because we can't have teams of lawyers poring over accounts for minor missteps in wording every six months (or 3 months in the USA!). Besides, it's an informational document, not contractual.
2. Purchase is a very general word, especially without any further context. If they wrote "Purchase of Own Shares" one might be tempted to go with the CA2006 definition, but a mere purchase is simply an exchange of an asset for some consideration. Any transaction where the company takes ownership of shares from a shareholder involves a purchase, whether it is by redemption, purchase in the market or capital reduction: the company receives the shares in return for consideration, normally in the form of cash or new securities.
3. The words EITHER par OR market price can only mean one thing: par is a specified price at which they are obliged to purchase. The word "par" compels you to go and find out why par is significant. It certainly has nothing to do with the shareholder approved market purchases. Have you even bothered to look back at every instance of that wording and verify that they had authority to buy back when it was written. But why would you have to put in the words "either par or ..."? They are superfluous unless par value is specified for some transaction.


By the way IIRC the company is obliged to cancel the shares once purchased, they cannot be held (except treasury shares as approved by shareholders). This is from memory I may have to go back and reread the law.



GS

[GoSeigen]

My suggestion was to Dod, not you and I was merely trying to be helpful; I do not understand why you felt the need to respond to my post. Why would you suggest, based on this post, that I would ask for the other thread to be closed? I made no such request, indeed I hold GACA and I was therefore interested in any posts on that thread which provided insight into the situation, your posts included. Frankly I find the tone of your post to me rather unpleasant.

Terry.

Sorry Wizard, it wasn't meant to be unpleasant. It was rushed off before going out for the day, now I'm just back and catching up at almost 3am, so likely to sound offish again. I perhaps wrongly inferred from your post that you had been in favour of closing the thread because it had turned nasty or for some other reason and was inquiring whether that was the case -- but in a rush as I say so it came out wrong.

Hope that explains.


GS

[johnhemming]

My guess is that there are some advisors who have been going around arguing the case that a redemption at par is possible based upon a capital reduction.

The most recent piece of information was an ABI document which talked about requiring a class vote for prefs for this to affect prefs.

I personally cannot understand the legal arguments if all that they are relying on is the House of Fraser judgment. The word "irredeemable" which does not have otherwise to be in the terms and conditions has to imply a requirement for a class vote.

[stockton]

I personally cannot understand the legal arguments if all that they are relying on is the House of Fraser judgment.

Read the GA prospectus using the following dictionary. It may explain where Aviva are coming from, although it does not explain the origin of the definition.

https://en.oxforddictionaries.com/defin ... redeemable

[Alaric]

Because it states the right is to purchase at par at any time

You are ignoring that it is subject to the provisions of the Companies Act. Provided that is interpreted to mean that a vote is held of the Preference Class holders, that rules it out as Pref Shareholders can be presumed not to vote against their economic interest. For that matter it requires a vote of the Ordinary shareholders, who aren't going to set the process in motion if the Prefs stand below par.

That is where the dispute comes as it would appear there is doubt as to whether the 2006 Act makes it crystal clear that separate votes are required. Any other interpretation gives no protection to minority shareholders, those in the GA Prefs being a case in point. It's supposedly an implementation of EU Law, the Directives stating separate votes clearly enough.

For avoidance of doubt, a fixed rate loan which offers the borrower protection against both an interest rate rise and an interest rate fall would be a holy grail for borrowers, which is why they don't exist except on a very limited or very expensive basis.

[johnhemming]

Read the GA prospectus using the following dictionary. It may explain where Aviva are coming from, although it does not explain the origin of the definition.

The point, however, is that it is normal use of the english language to describe payment for shares consequent to a capital reduction as redemption. That is the use of ACCA and HMRC. Obviously such a process would make the shares redeemable. Hence a class vote is required to change the terms and conditions to redeemable.

In the end the contract law issue comes down to how the contract would be interpreted. Company reports in the 1990s are relevant to this (particularly 92 and 93, but those in the 2010s are not really relevant).

[stockton]

In the end the contract law issue comes down to how the contract would be interpreted.

And the interpretation of the parties to a contract tends to take precedence over any interpretation by third parties.

[GoSeigen]

There has been discussion of Aviva's disclosures in their annual reports here:

https://www.fixedincomeinvestments.co.u ... #post-2495

Mark Taber says:

The par bit likely refers to the minimum price at which purchase would be allowed under the Companies Act.


Mark has seemingly sucked this right out of his finger. Can anyone enlighten me as to where the Companies Act imposes a minimum price on market purchases of shares?



TIA


GS

[Wizard]

My suggestion was to Dod, not you and I was merely trying to be helpful; I do not understand why you felt the need to respond to my post. Why would you suggest, based on this post, that I would ask for the other thread to be closed? I made no such request, indeed I hold GACA and I was therefore interested in any posts on that thread which provided insight into the situation, your posts included. Frankly I find the tone of your post to me rather unpleasant.

Terry.

Sorry Wizard, it wasn't meant to be unpleasant. It was rushed off before going out for the day, now I'm just back and catching up at almost 3am, so likely to sound offish again. I perhaps wrongly inferred from your post that you had been in favour of closing the thread because it had turned nasty or for some other reason and was inquiring whether that was the case -- but in a rush as I say so it came out wrong.

Hope that explains.


GS

No worries, I was probably being a bit overly sensitive anyway.

Terry.

[Wizard]

I have avoided getting involved in this, instead reading the excellent analysis of many other posters. However, I do wonder if the crux of this for me is whether, post Aviva backing down, is there scope for other preference issuers to seek to take the same approach as Aviva considered?

If I understand correctly the UK company's act is based on European legislation and while the European legislation makes clear that a capital return requires a vote by the class whose capital is being returned, the UK version seems to have landed on a form of words that makes that unclear. From a post on Mark Taber's forum I understand the same lack of clarity existed in the equivalent Australian legislation, when this was identified the legislation was quickly and simply changed to make it clear that it is the affected class that has to vote in favour. A similar swift and simple response in the UK would make the situation unambiguous going forward. Such a change would lift the risk of capital returns at par pushed through by ordinary shareholders against the wishes of the preference share holders.

Surely it can not be this easy, so what am I missing?

Regards,
Terry.

[GoSeigen]

while the European legislation makes clear that a capital return requires a vote by the class whose capital is being returned, the UK version seems to have landed on a form of words that makes that unclear.

I'm not sure that it does, Terry. My understanding is that UK law and European law match pretty well on this class vote issue. Are you able to quote the relevant EU law?


GS

[Wizard]

while the European legislation makes clear that a capital return requires a vote by the class whose capital is being returned, the UK version seems to have landed on a form of words that makes that unclear.

I'm not sure that it does, Terry. My understanding is that UK law and European law match pretty well on this class vote issue. Are you able to quote the relevant EU law?


GS

I am basing this on a post by John Hemming on Mark's board...

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.

Obviously this contemplates the possibility that capital is reduced and that this has an impact on each class of shareholders.

Terry.

[Alaric]

My understanding is that UK law and European law match pretty well on this class vote issue.

I thought it was clear that EU law requires a separate vote for each class. Anything else allows the majority class of shareholders to profit at the expense of the minority.

Let's not forget that Aviva threatened the GA Pref holders with being outvoted.