CORPORATIONS-PARTICULAR LANGUAGE AND CIRCUMSTANCES MAKING PREFERRED DIVIDENDS CUMULATIVE

The Securities and Exchange Commission filed a plan and requested an order under the Public Utilities Holding Company Act of 1935 to carry out the dissolution of the X company, a Delaware corporation, whose sole income-producing asset was the common stock of the Y company, a Kentucky corporation. The dissolution plan contemplated distributing to the shareholders of the Delaware company its holdings of the Kentucky company stock according to a pro-rata distribution ratio, based on the Class A Common and Class B Common stock of the Delaware company. Certain holders of the Class A Common shares of the Delaware company objected to the plan, contending that the commission erred in considering the Class A Common to be noncumulative. The certificate of incorporation provided that dividends should be paid, " . . . when, as, and if declared by the Board of Directors, out of the net profits or surplus of the corporation." The Delaware statute applicable provided that "preferred dividends shall be cumulative or non-cumulative as shall be so expressed [in the Certificate of Incorporation]." Held, the Class A Common shares were cumulative under Delaware law, because the dividends were chargeable against surplus generally, and not merely against the net profits of a particular year.

In re Louisville Gas and Electric Co., (D.C. Del. 1948) 77 F. Supp. 176.