Preference shares can be constructed in many different ways and are normally similar to interest-bearing instruments such as bonds in, for example, their right to dividends. A common construction of preference shares in Sweden is that they are issued with a quarterly dividend to theirowners at the same time as the issuing company is given the right to redeem the shares. When preference shares are redeemable by a company at the same time as the shareholder’s dividends are predetermined on certain days in the future, called record dates, it raises the question of what happens to dividends that have not yet been paid when the shares are redeemed. This question arose in a case at a district court in 2019 after a former preference shareholder turned to the court after a central securities depository (CSD) company had redeemed his preference shares before a already resolved dividend had been paid out. The court did not grant the shareholder’s right to the accrued dividend and ruled, summarily, that the shareholder’s rights in the company expire when the company redeems the shares. Two years later, the same question was revived in another district court after a company redeemed preference shares and thus withheld the, already decided, dividend to the shareholders. This dispute is ongoing at the time of writing. Hence the question for this thesis is what a resolution of a dividend means for a shareholder and whether or not the right to a dividend is lost when the redemption of the share takes place after the dividend has been resolved, but the record date for payment has not yet come, in a CSD company. This question is important both for shareholders who need predictability to be able to take a position on the ownership of redeemable shares with future dividends and the risk it entails. At the same time, above all, public companies on the stock market need to know under what conditions shares can be redeemed and how the dividend is affected by the redemption of the shares. Predictability is a key part for the confidence in the stock market and the ambiguity in this matter could damage this important confidence. The thesis finds that there is support that the shareholder’s claim on the dividend in a CSD company is conditional on the shareholder being enlisted in the share- and CSD register on the record date of each paymentof the dividend. This is, partly, because the law sets a requirement for this for the shareholder to be considered duly qualified to receive the dividend in CSD companies. When the articles of association enable the redemption of shares, a CSD company could thus hold future, since previously decided, dividends by redeeming the shares as the shareholder is thereby removed from the share- and CSD register. In the case of preference shares designed like interest-bearing instruments such as bonds, this appears reasonable. But even if it is bond-like preference shares that have been disputed in the cases discussed in the thesis and that prompted this discussion, it seems too far-reaching to give CSD companies the right to withhold already decided dividends by redeeming shares of all classes, which would have been a consequence of the dividend being conditional in this way. The Supreme Court should now take the opportunity and clarify what happens to future dividends upon redemption of preference shares in CSD companies, as a lack of clarity in the matter may damage the important confidence in the stock market.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:su-201773 |
| Date | January 2022 |
| Creators | Flodin, David |
| Publisher | Stockholms universitet, Juridiska institutionen |
| Source Sets | DiVA Archive at Upsalla University |
| Language | Swedish |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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