Holiday Coast Credit Union has had to abandon a planned issue of preference shares to members that would have raised A$1.8 million in capital, with the proposal falling foul of the prudential regulator.The credit union, based on what is often called the mid north coast of New South Wales, planned to use the share issue (which would pay franked dividends) to lift its capital base, which stood at $29.2 million at June 2011. HCCU made two similar issues of preference shares (sold only to its members) in 2000 and 2004. These comprise $3.8 million, or 13 per cent of its tier one capital. Members of Holiday Coast in 2000 first approved the sale of up to $5 million in preference shares and this latest sale would have taken the level of hybrid capital up to that cap.The structure of these two earlier issues, and the proposed new issue, no longer conform to the Australian Prudential Regulation Authority's view of the appropriate form of hybrid forms of capital.To meet APRA's current requirements, Holiday Coast would have to restructure the latest issue of preference shares in a manner that would conflict with the rights of investors in the two earlier issues.APRA has proposed changes to the constitution of the credit union to make a further issue of preference shares acceptable.Jeffrey Pattinson, chair of Holiday Coast, wrote in a covering letter to a supplementary prospectus three weeks ago (which withdrew the offer) that any variation of existing rights would "trigger the demutualisation procedures" in the Corporations Act."Holiday Coast has no intention of demutualising," Pattinson wrote.The credit union still hopes to raise tier one capital from its own members once it can work through the regulatory and legal issues.