Preference shares -- keeping it simple

[johnhemming]

There is always investment law as well as referred to by the FCA.

[stockton]

Still interested in your summary of those sections of the Companies Act. Maybe to summarise first what you call " the common understanding of the situation" e.g. the common understanding of "Redemption" in a sentence or two would be nice, as so far no poster has attempted this AFAICS, and you find it at least as credible as my statement that "Redemption and Reduction of Capital are distinct in company law".GS

I am not sure that a summary has much relevance; it might have if something clearly defined “redemption”, but otherwise I am happy with the common dictionary definition. In the context of securities that might be interpreted to mean “the reversal of the initial issue process” or something similar.
It appears to me that you are overly concentrating on the Companies acts, when the issue of an irredeemable share creates a contract which resolves that the relevant section or sections will not be used.
Irredeemable obviously has to mean something, and that something will not happen. If one looks at the Companies act in the way in which you appear to be doing, the only section to which it can apply in the case of shares, is to a return of capital.

[GoSeigen]

Still interested in your summary of those sections of the Companies Act. Maybe to summarise first what you call " the common understanding of the situation" e.g. the common understanding of "Redemption" in a sentence or two would be nice, as so far no poster has attempted this AFAICS, and you find it at least as credible as my statement that "Redemption and Reduction of Capital are distinct in company law".GS

I am not sure that a summary has much relevance; it might have if something clearly defined “redemption”, but otherwise I am happy with the common dictionary definition. In the context of securities that might be interpreted to mean “the reversal of the initial issue process” or something similar.
It appears to me that you are overly concentrating on the Companies acts, when the issue of an irredeemable share creates a contract which resolves that the relevant section or sections will not be used.
Irredeemable obviously has to mean something, and that something will not happen. If one looks at the Companies act in the way in which you appear to be doing, the only section to which it can apply in the case of shares, is to a return of capital.

Which dictionary and which definition stockton? Are you trying to hide it from us?

Here's a common dictionary definition: "the action of saving or being saved from sin, error, or evil". Coming from a Christian family that is the first definition I learned. Is that what you mean?

GS
EDIT: "It appears to me that you are overly concentrating on the Companies acts" Could I just say you accepted this earlier and criticised my interpretation of the Acts, not the use of them. I'm looking for the other equally credible interpretation.

[GoSeigen]

There is always investment law as well as referred to by the FCA.

John, if you are referring to the FCA's requirement that issuers clarify their own understanding of the terms and their intentions, then I agree it is a very helpful step -- but I suspect many doubters will still not accept that it confirms legality of the process: they are convinced that these businesses simply want to pull a fast one.

The meaning of redemption etc is something that can be deduced by any reasonably intelligent investor after a bit of reading. It is not rocket science. The issuer statements probably will not address the rationale for legality and even if they did, waiting for them is not a strong argument against trying to ascertain the facts now.

Quite apart from that, pref prices will move in the interim and also immediately on any announcement and so it is sensible for investors to try to come to their own conclusions in advance.


GS

[johnhemming]

The point is, however, that investors are able to sue companies for damages if they say anything that is intentionally misleading.

[Alaric]

but I suspect many doubters will still not accept that it confirms legality of the process: they are convinced that these businesses simply want to pull a fast one.

Offering 100 for a stream of cash flows worth 160 is trying to pull a fast one, particularly when it's based on a legal interpretation seemingly plucked out of thin air in the last couple of months.

[stockton]

Which dictionary and which definition stockton? Are you trying to hide it from us?
Here's a common dictionary definition: "the action of saving or being saved from sin, error, or evil". Coming from a Christian family that is the first definition I learned. Is that what you mean?

Isnt this the other part of the definition which you have quoted ?
"the action of regaining or gaining possession of something in exchange for payment, or clearing a debt. synonyms: retrieval, recovery, reclamation, repossession, return, ... more"

[GoSeigen]

The point is, however, that investors are able to sue companies for damages if they say anything that is intentionally misleading.

Required qualifer: "rich investors are able to sue companies"

If you don't have exceptionally deep pockets, read the terms NOW and trade accordingly. IMO.

but I suspect many doubters will still not accept that it confirms legality of the process: they are convinced that these businesses simply want to pull a fast one.

Offering 100 for a stream of cash flows worth 160 is trying to pull a fast one, particularly when it's based on a legal interpretation seemingly plucked out of thin air in the last couple of months.

QED


GS

[johnhemming]

The point is, however, that investors are able to sue companies for damages if they say anything that is intentionally misleading.

Required qualifer: "rich investors are able to sue companies"

If you don't have exceptionally deep pockets, read the terms NOW and trade accordingly. IMO.

https://uk.reuters.com/article/uk-bank- ... 0P20110627

An exceptional case in many ways, but there are routes towards holding large corporates to account through the judicial system.

[GoSeigen]

Which dictionary and which definition stockton? Are you trying to hide it from us?
Here's a common dictionary definition: "the action of saving or being saved from sin, error, or evil". Coming from a Christian family that is the first definition I learned. Is that what you mean?

Isnt this the other part of the definition which you have quoted ?
"the action of regaining or gaining possession of something in exchange for payment, or clearing a debt. synonyms: retrieval, recovery, reclamation, repossession, return, ... more"

Ha ha, would love to see Aviva putting that in their terms. Especially the "...more" bit. I guess it's all just too much effort eh! Reminds me of my teenage son preparing for his careers interview

Well, I've taken enough of your time already stockton. Good luck with the upcoming announcements.

GS

[stockton]

Isnt this the other part of the definition which you have quoted ?
"the action of regaining or gaining possession of something in exchange for payment, or clearing a debt. synonyms: retrieval, recovery, reclamation, repossession, return, ... more"

Ha ha, would love to see Aviva putting that in their terms. Especially the "...more" bit. I guess it's all just too much effort eh! Reminds me of my teenage son preparing for his careers interview

You appear to have missed the point. I have done no more than provide the missing part of the definition which you provided. It is surprising what you can do with search engines and the quote marks are correctly placed.

[GoSeigen]

It would not be a new Act as all that is needed is a single clause. That could be added to lots of relevant bills. We need to see what the response is to the FCA’s letter first (which Lloyds have not responded to yet).

John, in the other place you wrote the above.

What do you propose the wording of this clause would be and its placement in the Act?

GS

[johnhemming]

It is about the scope of acts. That describes what is in order and what is not in order for any particular act. Hence anything that talks about investment or finance could include such a clause. Even regulatory reform procedures would do. Possibly the Brexit powers could do this as well.

What I would do is to clarify that EU law applies and a class vote is required for a reduction of capital that results in the redemption of the preference shares.

However, there may be other proposals that do the job.

[GoSeigen]

It is about the scope of acts. That describes what is in order and what is not in order for any particular act. Hence anything that talks about investment or finance could include such a clause. Even regulatory reform procedures would do. Possibly the Brexit powers could do this as well.

What I would do is to clarify that EU law applies and a class vote is required for a reduction of capital that results in the redemption of the preference shares.

However, there may be other proposals that do the job.

With what wording John, that is what I am interested in? As you said, it would take just one clause, so to make that assertion you must have thought about what that clause would be. How would you word it?

I'm assuming what is passed would amend the CA2006, so no need to deal with the meta-detail of how it's amended, just the actual text that achieves what you wish to achieve in relation to CA2006.

GS

[johnhemming]

I have drafted legislation. If you can explain why you need this in the form of a clause then I can do that. It will take me a bit of time so I would like a good reason for doing it that way.

However, the objective should be:

That a reduction in capital to affect any one class of shareholders should, unless explicitly stated in the prospectus as otherwise, require a vote of the shareholders in that class.

The objective should be sufficient for the purposes of debate.

[Alaric]

However, the objective should be:

That a reduction in capital to affect any one class of shareholders should, unless explicitly stated in the prospectus as otherwise, require a vote of the shareholders in that class.

Those who drafted the clauses in the Aviva and General Accident prospectuses seemed to want it so that the Prefs had an effective veto over a return to the Ords. You can see why, as the Ords could walk off with the capital leaving the Prefs with an unsustainable business. By nature of the right to propose things in the first place, Ords always have a veto over returns to Prefs.

[GoSeigen]

I have drafted legislation. If you can explain why you need this in the form of a clause then I can do that. It will take me a bit of time so I would like a good reason for doing it that way.

However, the objective should be:

That a reduction in capital to affect any one class of shareholders should, unless explicitly stated in the prospectus as otherwise, require a vote of the shareholders in that class.

The objective should be sufficient for the purposes of debate.

Thanks, very helpful and really is detailed enough.


However that wording is already in law in the reverse form, so the proposed change would alter nothing.

GS

[johnhemming]

However that wording is already in law in the reverse form, so the proposed change would alter nothing.

GS

a) European Law says otherwise.

b) We can argue about the various listing particulars, but there as far as I can tell are none that actually explicitly state that the prefs are not irredeemable and no class vote is required to redeem them in a reduction of capital.

Hence it would make a difference.

[GoSeigen]

However that wording is already in law in the reverse form, so the proposed change would alter nothing.

GS

a) European Law says otherwise.

What does this mean?

b) We can argue about the various listing particulars, but there as far as I can tell are none that actually explicitly state that the prefs are not irredeemable and no class vote is required to redeem them in a reduction of capital.

Hence it would make a difference.

There is no such thing as "redemption in a reduction of capital". According to UK Company law:

1. EVERY and ANY share class may be repaid in a reduction of capital subject to restrictions in their Articles and the law.
2. ONLY redeemable shares may be repaid by redemption. The fact they are redeemable is clear at their issue.

We cannot use "redeem" in its folksy meaning and expect to have any sensible discussion about the law. Redeem means what happens to redeemable shares.

GS

[GoSeigen]

However that wording is already in law in the reverse form, so the proposed change would alter nothing.

GS

a) European Law says otherwise.

b) We can argue about the various listing particulars, but there as far as I can tell are none that actually explicitly state that the prefs are not irredeemable and no class vote is required to redeem them in a reduction of capital.

Hence it would make a difference.

There's an easy solution here, which I didn't suggest in my earlier reply, i..e. restate b) thus:

b) We can argue about the various listing particulars, but there as far as I can tell are none that actually explicitly state that the prefs are not irredeemable and no class vote is required to repay them in a reduction of capital.


I'm happy that substituting the word "repay" or similar makes enough sense to move on from language and debate the statement. Do you agree to the change?


GS