Aviva to pay up to 14 mln stg to investors over preference shares

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* To compensate holders who sold between March 8 and 22

* Follows decision to ditch plan to cancel certain shares

* CEO calls for regulatory solution before 2026

By Simon Jessop

LONDON, April 30 (Reuters) - British insurer Aviva (Amsterdam: AW8.AS - news) said it would pay up to 14 million pounds ($19.25 million) to compensate holders of its preference shares who sold out before the company backed down on a plan to cancel them.

Aviva (Other OTC: AIVAF - news) had drawn heavy criticism from leading investors who held the high-yielding shares believing them to be 'irredeemable', a situation that prompted the regulator to issue guidance to those issuing such shares.

Aviva initially said it could cancel the shares when reporting annual results on March 8, as part of a plan to return capital to shareholders, only to drop the idea on March 23.

Given the uncertainty this caused investors and the damage the incident had on its reputation, Aviva said it would offer a discretionary goodwill payment to shareholders who sold out between March 8 and March 22.

"We recognise that whilst we were considering our options for the preference shares this caused uncertainty and led some investors to sell their shares. The Board and I want to do the right thing and make this goodwill payment," Chief Executive Mark Wilson said.

Aviva, which appointed KPMG to manage the payment process, said it estimated that fewer than 2,000 individual investors sold their shares during the period and the cost should not exceed approximately 14 million pounds.

Eligible shareholders would have up to six months to make a claim from the date the goodwill payment process opened, it said.

"It's doing the right thing now but it's been a costly mistake with damage to its reputation," Panmure Gordon analyst Barrie Cornes said in a note to clients.

While the preference shares currently count towards Aviva's regulatory capital safety buffer, this is set to change from 2026 and Aviva said it would seek approval to continue to use them, or a suitable substitute, after that.

"Preference shares remain an industry-wide issue and it is clear now that the best way forward is to seek a regulatory solution before the 2026 deadline when the shares no longer count as regulatory capital," Wilson (Oslo: WILS.OL - news) said. ($1 = 0.7272 pounds) (Reporting by Simon Jessop, editing by Louise Heavens)