6.4 Share-based Mezzanine Instruments 305(HHLA). The share capital of HHLA was made up of two different classes of shares, Class
A shares (port logistics operations) and Class S shares (property operations). Only Class A
shares were later traded on a share exchange. The articles of association of HHLA identi-
fied both classes of shares and both divisions - the “S-Division” and the “A-division”.^99
The object of the company was defined differently for both divisions,^100 and the articles of
association also defined the dividend rights of each class.^101 There were also other differ-
ences.
Community law. The use of different classes of shares or preference shares can in-
crease flexibility under EU company law. This can be illustrated by four exam-
ples.
First, the Member States have an option not to apply the pre-emptive rights of
shareholders to “shares which carry a limited right to participate in distributions
... and/or in the company’s assets in the event of liquidation”.^102 It can therefore
be easier to decide on the issuing of preference shares to new investors.
Second, the issuing of non-voting shares will not dilute the voting rights of ex-
isting shareholders in normal cases.
Third, the obligation to launch a mandatory bid under the Directive on takeover
bids does not apply in the case of the acquisition of securities which do not carry
the right to vote at ordinary general meetings of shareholders. Member States are,
however, able to provide that the obligation to make a bid to all the holders of se-
curities relates not only to securities carrying voting rights but also to securities
which carry voting rights only in specific circumstances or which do not carry vot-
ing rights.^103
Fourth, non-voting shares will not count when applying the break-through rule
under the Directive on takeover bids.^104
IFRS. Share-based mezzanine instruments can be regarded as equity or as a li-
ability according to IFRS.
If an enterprise issues preference shares that pay a fixed rate of dividend and
that have a mandatory redemption feature at a future date, the substance is that
they are a contractual obligation to deliver cash and, therefore, should be recog-
(^99) Article 2(2) of the Articles of Association of HHLA: “The part of the Company which is
concerned with acquiring, maintaining, selling, leasing, managing and developing real
estate which is not specific to transhipment, particularly real estate in Hamburg’s
Speicherstadt and fish market (Real Estate subgroup), is described in Art. 31 of these
Articles of Association and named the ‘S-Division’. All other parts of the company (Port
Logistics subgroup) are collectively called the ‘A-Division’ in these Articles of Associa-
tion.”
(^100) Article 2(4) of the Articles of Association of HHLA: “The business activity of the Com-
pany and of it subsidiaries in the S-Division is performed having special regard to the in-
terests of municipal development, tourism and the preservation of historical monu-
ments.”
(^101) See Article 4 of the Articles of Association of HHLA.
(^102) Article 29(2) of Directive 77/91/EEC (Second Company Law Directive).
(^103) Recital 11, Article 2(1)(2) and Article 5(1) of Directive 2004/25/EC (Directive on take-
over bids).
(^104) Article 11 of Directive 2004/25/EC (Directive on takeover bids).