Chapter 6Companiesclass rights of shareholders, which may not be alterable
or alterable only with the consent of a 75 per cent vote
in agreement by the class concerned.
Provision for entrenchment may be made:
■on formation; or
■subsequently but only with the unanimous consent of
all members.
Notice to the Registrar of entrenchment
The Registrar must be notified when a company entren-
ches a provision either on formation or subsequently.
Entrenchment by subsequent alteration requires a not-
ice of compliance (s 23).
Notice to Registrar of removal of entrenched
provisions
The notice must be accompanied by a notice of
compliance.
The purpose of the entrenched provisions rule is to
put people searching the register on notice that there are
entrenched provisions and as to whether they have been
removed. The notice of compliance is to the effect that
the alteration has been made in accordance with the
company’s articles. The Registrar may rely on this as
evidence of procedural correctness.
Existing companies: provisions of
memorandum transferred to articles
Under s 28, those provisions of existing companies not
required in the new memorandum are to be regarded as
in the articles and alterable as such, i.e. special or written
special resolution.
Electronic communication
It should be noted that the CA 2006, in Schs 4 and 5,
allows the electronic appointment of proxies and the
sending of notices. Further detail as to method could be
contained in the articles.
Legal effect of the articles
Section 33 provides that the provisions of the company’s
constitution constitute a special kind of contract whose
terms bind the company and its members from time
to time.
It follows from this that:
1 The members are bound to the company by the
provisions of the articles. This is illustrated by the fol-
lowing case.159
Hickman v Kent or Romney Marsh Sheep
Breeders’ Association (1915)
The articles of the association provided that any dispute
between a member and the company must be taken first
to arbitration. H, a shareholder, who was complaining
that he had been wrongfully expelled from the company,
took his case first to the High Court. The court decided
that the action could not continue in the High Court. H
was contractually bound by the articles to take the dis-
pute to arbitration first.2 The company is also bound to the members in
respect of their rights as members. Again, the following
case is an illustration of this point.Pender vLushington (1877)The articles of the Direct United States Cable Co gave its
members voting rights but fixed a maximum amount of
votes (100) which each member could cast no matter
how many shares he held. The Globe Telegraph and
Trust Co held a large number of shares in Direct United
and to evade the 100 votes rule and increase its voting
power it transferred some of its shares to P who agreed
to be a nominee of Globe and vote with it. L, who was
the chairman of Direct United, refused to allow P to cast
his votes and a resolution supported by Globe and P
was lost. P asked the court for an injunction to restrain
the company and L from declaring that P’s votes were
bad. The court granted the injunction. P had a contrac-
tual right to vote given to him by the articles and he
could enforce this right. His votes must be accepted.3 Each member is bound to the other members.This
is illustrated by the following case.Rayfield vHands (1958)A clause in the articles of a company provided that: ‘Every
member who intends to transfer shares shall inform the
directors who will take the said shares equally between
them at a fair value.’ Rayfield, a member, told the defend-
ant directors that he wanted to transfer his shares. The