Redeemable Preference Shareholders In An Administration Or Winding Up: Members Or Creditors?

Introduction

For companies seeking to raise funds externally, issuing redeemable preference shares may be an attractive option. However, shares of this nature usually give the shareholder rights to dividends on specific dates, and often rights of redemption at the shareholder's request. If the company is unable to meet those obligations, what rights will the shareholder hold against the company? And what obligations do directors have?

These questions were recently considered by the Supreme Court of New South Wales, in the context of redeemable preference shareholders who had acquired shares pursuant to a prospectus in York Capital Limited (York): Heesh v Baker [2008] NSWSC 711. In this case York's directors appointed administrators after the company was unable to meet dividend and redemption obligations when due. Aside from not meeting its obligations to the redeemable preference shareholders,