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Hello Sir,
I have a doubt in “Not a variation of class rights” section of BPP text(Chapter 12)It says that “To subdivide shares of another class with the incidental effect of increasing the voting strength of that other class” is “Not a variation of class rights”.
Case mentioned in BPP is below
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.My question is why this is not a variation of class rights, because by subdividing 50p to 10p would give particular shareholders extra 4 votes than before without buying or paying for any new share? It would simply increase their voting strength which would be beneficial for them in passing any resolution?
Thanks
Think solely about the 10p shares. They had one vote per share and they have finished up with ….? One vote per share
So where’s the variation?
See also the case Rights and Issues Investment Trust v Stylo Shoes
OK?
Suppose there are Class A and class B variants of shares. Class A of 50p and Class B of 10p. Now Class A 50p share is split into 5 shares of 10p each. So isn’t this variation of class rights of class A share? Moreover their right to vote would carry more weight too?
Yes, it IS a variation of the class A shares rights – but it isn’t a variation of the class B shares rights. So the class B shareholders have no claim because their rights are unaffected
That was the scenario in the Stylo Shoes case
OK?
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