Well, I was curious enough about this situation to do a little digging. Here is what I found:
1. The return of capital consists of an issue of redeemable preference shares ("B shares") to ordinary shareholders financed by a capitalisation of the company's merger reserve and presumably ranking
pari passu with existing preference shares.
2. The redemption occurs almost immediately with proceeds being paid to the owners of the B shares.
3. I examined the terms for AV.A preference shares, issued in 1992 by Aviva PLC previously known as CU. I think the share offer is permitted by particular exceptions/wording in the following clauses of
that document:
-Clause 4(iii) On a return of capital (otherwise than a winding up or on a redemption or purchase by the Company of shares of any class), the shareholders shall be entitled to receive [...] the nominal amount [...]-and probably the exclusions in
Clause 8 ("Further Issues and Variation of Rights") which I shall not reproduce here as it is rather long-winded but in short it places limits on how many new
pari passu preference shares may be issued such that all issues do not exceed 25% of the value of the Company's Share Capital and Reserves.
and
-Clause 9 Restrictions on the Company. Save with [...] consent [of the holders], the Directors shall not capitalise any part of the profits of the Company available for distribution or purchase or redeem any shares of the Company if [...] (ii) after such capitalisation, purchase or redemption the amount of the profits of the Company available for distribution would be less than ten times the aggregate amount of the annual dividends payable on [any] preference shares then in issue ranking as regards dividends pari passu with or in priority to the New Preference Shares.Would welcome views of others on whether I am on the right track and whether Aviva have set the size of the return of capital to comply with these clauses. I have not checked the values myself.
GS