There was an interesting RNS out yesterday for Thalassa (THAL). Following an amendment to the Company’s Memorandum and Articles of Association, and without a shareholder vote, each shareholder was issued with one Preference Share for each Ordinary Share held. Each Preference Share carries 10 votes, and given that they were given out on a one for one basis to Ord holders, it seems fair and simply multiplies the total voting rights by 11. (1 plus the 10 new votes per old share).
Or is something else at play here? One possible answer emerges when you read the RNS more thoroughly. The new Preference Shares are unquoted, uncertificated, and non-transferable. What’s more, if the related Ordinary Share is sold, the Preference Share doesn’t go with it, and is cancelled. Now the light comes on. Look at the following example: 100 Ord Shares, plus 100 Preference Shares gives 100 + 100*10 = 1100 total voting rights. Investor X holds 20 Ords and therefore has 20 + 20*10 = 220 votes, or 20% of the outstanding votes, same as before the issuance. Now say 10% of the shares held by others are traded. We now have a total of 100 + 90*10 = 1000 total voting rights, as the Preference shares (10 in this case, each carrying 10 votes) relating to the sold Ordinary shares are cancelled. So Investor X has increased his voting power from 20% to 220/1000, or 22%, without investing any further money. Keep repeating this process (possibly accelerated by frustrated shareholders), and the voting power of Investor X keeps rising.
Duncan Soukup (Executive Chairman) owns 19.2% of the shares, and the Thalassa Discretionary Trust owns a further 16.6%. It doesn’t take too much trading in the shares to increase their voting power significantly from the 35.8% they already speak for. The Board clearly voted for this, but why would they think disenfranchising smaller shareholders over time is a good idea?
Once again, this illustrates the perils of investing in companies registered in territories like the BVI. Such a scheme would not be allowed for a UK registered company, and changes to the articles require shareholder approval. These protections do not apply in the BVI. AIM too should look again at rules that allow this to happen at a company quoted on their market.
The author currently has no financial interest in Thalassa.