IA publishes new guidance on “irredeemable” preference shares

The Investment Association (IA) has published new guidelines for listed companies (or issuers) that are looking to redeem or cancel their own “irredeemable preference shares”.

Irredeemable preference shares (also called “perpetual preference shares”) are not necessarily irredeemable in the true sense. An issuer may be able to redeem perpetual preference shares if those shares were originally issued as redeemable and the issuer’s articles allow redemption. Alternatively, an issuer may be able to buy its redeemable shares back on the market and cancel them or carry out a capital reduction.

Rather, irredeemable preference shares are so called because, unlike most “regular” listed preference shares, they have no fixed redemption or “maturity” date. This means that, unless the issuer takes active steps to redeem them, they will exist indefinitely, much like regular equity.

The new IA guidelines state the following:

  • Issuers should follow a fair process and have regard to a fair market price when redeeming or cancelling irredeemable preference shares.
  • Issuers should consult with irredeemable preference shareholders to ensure those shareholders have enough time and information to allow them to make an informed decision on any proposed redemption or cancellation.
  • This consultation should then inform the issuer’s decision as to the fair market price of the irredeemable preference shares.
  • When following any process, issuers should consider the position of their ordinary shareholders and involve them in the consultation.