In addition to a class of common stock, Peabody Coal Company had outstanding a class of cumulative

Question:

In addition to a class of common stock, Peabody Coal Company had outstanding a class of cumulative 5% preferred shares with a par value of $25.00 with the following contractual rights as stated in the corporation's articles of incorporation:

Preferences on Liquidation In the event of any liquidation, dissolution or winding up of the Company (whether voluntary or involuntary), the holders of the 5% Preferred Shares then outstanding shall, to the extent of the full par value of their shares and unpaid cumulative dividends accrued thereon be entitled to priority of payment out of the Company's assets over the holders of the Common Shares then outstanding. After such payment to the holders of the 5% Preferred Shares, the remaining assets shall be distributed pro rata to the holders of the Common Shares then outstanding.

Redemption The Company, upon the sole authority of its Board of Directors, may at any time redeem and retire all or any part of the 5% Preferred Shares at any time outstanding by paying or setting aside for payment for each share so called for redemption the sum of $26.00 plus a sum equal to the amount of all dividends accrued or in arrears thereon at the redemption date.

Peabody entered into negotiations for its sale to the Kennecott Copper Company. In order to complete the transaction, Peabody submitted to its shareholders a resolution for the approval of the sale to Kennecott and the adoption of a plan of complete liquidation. The proposed dissolution plan would

Entitle the preferred shareholders to a preferential liquidating dividend of $25 par value per share plus any unpaid cumulative dividends accrued and

Pay the remainder of the assets on a pro rata basis to the holders of the common stock of Peabody. The resolution was approved by the common and preferred shares voting as a single class. Preferred shareholders have challenged the plan of liquidation claiming that the corporation should have redeemed the preferred stock and then liquidated the corporation, thus entitling each preferred share to a $26 redemption payment along with accrued dividends. Explain whether the preferred shareholders should succeed.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due.... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...