The nature of redeemable preference shares
PDF DOWNLOADThe NSW Supreme Court, in Beck v Weinstock, recently considered the nature of redeemable preference shares. The subject matter of the proceedings related to a family dispute concerning shares in private companies held by various members of the family and the administration of certain estates. In particular, there was a dispute whether certain so called redeemable preference shares were able to be redeemed after the death of one of the family members.
In order to be redeemed, a share must be capable of being characterised as a “redeemable preference share”. The Court noted that it is not necessary for a share to have preferential rights both as to repayment of capital and as to dividends to be a preference share. One of the two would suffice.
The Court also noted that shares cannot be preference shares unless there is already another class of issued share. In this case, there were no ordinary shares on issue and so it could not be said that the issued shares were preference shares as they did not have preference over any other class of shares.
As a result, the Court found that the subject shares had not been validly issued as redeemable preference shares and so were not redeemable on the death of the shareholder.
For a full text of the judgement click here
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