liquidation is the best result, page-2

If I held the ords, Id agree with you PP23, but the poor suckers like me who bought preference shares on float at $2.40 in April 2007 would feel really done over, as their prefs would only attract the price of one ordinary share on wind-up.

Even though there was a substantial premium built into the issue price of the converting preference shares, I was swayed to invest by the upbeat statements in the prospectus, particularly the comments in s.2.1 (that dividends would be topped up to the pre-tax equivalent if insufficient franking credits were available) and s.2.5 (which indicated that the Directors may pay shortfall dividends if they consider it appropriate and there are sufficient funds to do so). The managing director at the time publically spruiked the benefits of directing CAM's fully franked dividends to those who wanted them (such as super funds), noting that the ordinary shareholders had consistently told him they were less interested in dividends as opposed to capital growth.

As things turned out, only 3 of the expected 8 dividend distributions due to the prefs were made during the first 2 years that the converting preference shares were on issue - a poor record by any measure. On each occasion when a dividend was missed, a pompous notice was issued advising the converting preference shareholders that Clime was legally prevented from making dividend distributions as there were insufficient current year or retained profits.

When profitability returned, I was disappointed to see that the Directors failed to pay any reasonable shortfall dividend to the preference shareholders. I would have thought, from the tone and balance of the prospectus, that when the company was able to pay dividends again, priority would be given to paying shortfall dividends to the preference shareholders - to the full amount of the defaulted dividend payments.

In my mind it is grossly unfair to the preference shareholders, who paid a hefty premium for their preference status, for any dividends to be paid out to ordinary shareholders, prior to the very least of there being a substantial buffer of retained earnings built up (to give comfort to the preference shareholders that future dividend commitments will be met and the track record of inconsistent dividend payments is behind them).

I concede that when the Directors of Clime Capital made the last so-called bonus share issue earlier this year, they also made a notional shortfall dividend payment to the preference shareholders by squeaking up the quarterly dividend payable to the prefs by a measly 0.25c per share (compared to the 25.5c of defaulted dividend payments). This however was a charade by my thinking. All it serves to do is detract from the future build-up of retained earnings within the company (thus keeping a lid on the share price for the ords), to the detriment to the preference shareholders when they finally convert. It also increases the likelihood that theyll default on future dividend payments to the prefs through increasing the dividend payout to the ords via the dilutionary bonus issue.

I guess at the end of the day, directors are no better than pollies: when there is a changeover, the replacement team doesnt feel obligated to honour the commitments of the previous lot.