Preference shares

1. Redeemable means when company repays owed money back to the shareholders while irredeemable means when company cannot repay owed money back to the shareholders. Does that means that in liquidation situation redeemable shareholders will get their money back to them and company is obliged to return the money back, but irredeemable shareholders do not get their money back even in the liquidation situation?

The first point, Hamza, is that the holders of preference shares are INVESTORS in a company. The company does not OWE these investors the amount of their investment. They are not like creditors or trade payables.

Secondly, the expression ‘redeem’ means that the company is able to buy back the shares (and, typically, cancel them) at a time that would normally be pre-established in the issue document applicable to the shares.

Therefore, if shares are issued as ‘redeemable preference shares’, the company is able to pay back those investors and (as stated above) will likely cancel the shares (thus preventing a subsequent re-issue)

In a liquidation situation, both classes of preference share will rank for payment AFTER ALL other liabilities have been settled in full but BEFORE ANY MONEY is distributed to the ordinary / equity shareholders. As to a question of which class of preference share ranks ahead of any other class of preference share, this pecking order would be established by the document behind the issue of the second class of preference share. (In the same way that the English Queen Elizabeth, daughter of Henry VIII was never known as Elizabeth the First until 1952 following the accession of the late Queen Elizabeth. Only then was it necessary to distinguish by regnal number which Queen Elizabeth one was referring to. Similarly our historical Kings John and Stephen are not referred to as John I nor Stephen I)

2. Redeemable preference shares are those shares that are repayable after the agreed period. This means that company can buy back the shares and return all the owed money back to the shareholders?

Essentially correct – I still don’t like the use of ‘owed’

3. Irredeemable preference shares are those share that are not repayable and there is no specific period. This means that company has no option to buy back the shares and return all the owed money back to the shareholders?

Same comment as previous point

4. Irredeemable preference shares are never repayable and so are just like ordinary shares
(which are also never repayable) BUT preference shares pay a fixed dividend?

Hmmm. Ordinary shares / equity shares can be redeemed! You are correct in saying that preference shares pay a fixed dividend

5. Preference shareholders do not have voting rights
but they receive fixed dividends each year in preference to ordinary shareholders while ordinary shareholders do have voting rights and they receive variable dividends if company has enough profits?

Correct

6. Dividend is calculated by multiplying the nominal value of the shares with the dividend percentage that was proposed by the directors in the AGM?

No, not really. On the issue of preference shares, the issue document will specify the rate of dividend to be paid on those shares. So the holders of the issue of £100,000 4% (ir)redeemable preference shares will be paid £4,000 dividend each year (so long as there are sufficient distributable reserves available to finance that amount)

Is that OK?