ACCA F4 - Corp and Business Law (ENG)

234 15: Share capital  Part E Capital and the financing of companies

(b) To subdivide shares of another class with the incidental effect of increasing the voting strength

of that other class

Greenhalgh v Arderne Cinemas Ltd 1946

The facts: The company had two classes of ordinary shares, 50p shares and 10p shares. Every

share carried one vote. A resolution was passed to subdivide each 50p share into five 10p shares,

thus multiplying the votes of that class by five.

Decision: The rights of the original 10p shares had not been varied since they still had one vote per

share as before.

(c) To return capital to the holders of preference shares

(d) To create and issue a new class of preference shares with priority over an existing class of

ordinary shares

The cases cited in the preceding paragraph illustrate the principle that without a 'literal variation' of class

rights there is no alteration of rights to which the safeguards of proper procedure and appeal to the court

apply. The fact that the value of existing rights may be affected will not concern the court if the rights are

unchanged.

Knowledge of what does not constitute a variation of class rights is vital in this area.

3.5.4 Special situations

To deal with unusual situations which in the past caused some difficulty, the following rules apply.

(a) If the class rights are set by the articles and they provide a variation procedure, that procedure

must be followed for any variation even if it is less onerous than the statutory procedure.

(b) If class rights are defined otherwise than by the articles and there is no variation procedure,

consent of a three quarters majority of the class is both necessary and sufficient.

The rules on notice, voting, polls, circulation of resolutions and quorum relating to general meetings

relate also to class meetings when voting on alteration of class rights.

3.5.5 Minority appeals to the court for unfair prejudice

A dissenting minority holding 15% or more of the issued shares may apply to the court within 21 days of

class consent to have the variation cancelled as 'unfairly prejudicial'.

Whenever class rights are varied under a procedure contained in the constitution, a minority of holders of

shares of the class may apply to the court to have the variation cancelled.

The objectors together must:

 Hold not less than 15 % of the issued shares of the class in question

 Not themselves have consented to or voted in favour of the variation

 Apply to the court within 21 days of the consent being given by the class

The court can either approve the variation as made or cancel it as 'unfairly prejudicial'. It cannot,

however, modify the terms of the variation. To establish that a variation is 'unfairly prejudicial' to the class,

the minority must show that the majority was seeking some advantage to themselves as members of a

different class instead of considering the interests of the class in which they were then voting.

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