In addition to a class of common stock, Peabody Coal Company had outstanding a class of cumulative 5 percent preferred shares with a par value of $25 with the following contractual rights as stated in...

In addition to a class of common stock, Peabody Coal Company had outstanding a class of cumulative 5 percent preferred shares with a par value of $25 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 (1) entitle the preferred shareholders to a preferential liquidating dividend of $25 par value per share plus any unpaid cumulative dividends accrued and (2) 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.