Able Co. Ltd (Able), a private company established in Hong Kong, has issued two classes of shares, namely ordinary shares and preference shares, whereby the preference shareholders are entitled to a right to receive a fixed rate of dividend of 8% per annum before the declaration of a dividend payable to ordinary shareholders.

In order to raise more capital, Able proposes to issue another class of preference shares whereby the preference shareholders will be entitled to a right to receive a fixed rate of dividend of 3% per annum before the declaration of a dividend payable to ordinary shareholders. Meanwhile, the existing preference shareholders rights to receive the fixed rate of dividend will be reduced from 8% to 6% per annum. As a result of the issue of another class of preference shares, the potential amount of dividends to be declared in favour of the ordinary shareholders will also be reduced, taking into account the fixed rate of dividend of 3% per annum payable to the new class of preference shares.

The existing shareholders are not too happy with the proposal.

Advise Able.