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In 20X5 two newspaper companies, Kudos Co and Lux Co, entered into an agreement in an attempt to
safeguard their independent positions. Under the agreement, Kudos Co purchased 20% of Lux Co’s
preference shares which carry a preferred dividend of 10%.
The board of directors of Lux Co have recently become disenchanted with their link with Kudos Co and want
encourage Kudos Co to sell its preference share in the company. To do this, the board of Lux Co proposes a
resolution to reduce the dividend on all preference shares to 5%.
Can Kudos Co prevent the reduction of the preference dividend and why?
Why the Answer given in the kit for this question is “No – because it does not have enough votes to block the resolution or apply to the court for the variation to be cancelled”
rather than “Yes – because it can demonstrate the variation is not for the benefit of the company as a whole”
They already have the 20% share of that effected class and why cant they approach court for blocking this resolution?
So in order to object to a variation of class rights you need to hold atleast 15% of that type of share being altered. In this scenario it is the Preferential Dividend shares which are being altered/varied. Kudos only hold 10% of the Preference Dividend and not 15%.
I hope that clarifies.
but in the question it mentioned ” Kudos Co purchased 20% of Lux Co’s”. how can it be 10%?
If you read the question carefully it in fact says 20 % of which 10% carries a preferred dividend!