Final answer:
Dividends that are owed but not paid on cumulative preferred shares are known as dividends in arrears. These unpaid dividends accumulate over time and must be paid before any dividends are given to common shareholders.
Step-by-step explanation:
When XYZ Limited does not pay dividends on its cumulative preferred shares, the dividends that are due but not paid are referred to as dividends in arrears. Cumulative preferred shares are a type of preferred stock on which dividends must be paid before any dividends can be paid on common shares. When a company does not pay the dividend on these shares, the dividends accumulate and must be paid out in full before any other types of shareholders can receive their dividend payments.
This situation can affect the attractiveness of the shares to new investors since dividends in arrears might imply financial troubles or a company's decision to prioritize other financial commitments over dividend payments. Shareholders with cumulative preferred shares hold the right to these owed dividends even if they are not declared or paid in a given financial year.