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Hi, pertaining to variation of class rights, the bpp textbook wasn’t exactly clear on what constitutes as and what doesn’t constitute as variation of class rights. May I know if there is a straightforward way to distinguish between the two?
Thank you so much.
This is really a tricky area!
I think if you follow this line of reasoning, you should be ok. First ask ‘Does the proposed variation directly affect the existing rights of that class of share capital?’
For example, if the shares held voting rights of 1 vote per share and the variation is suggested to reduce this right to one vote for every 5 shares, that would be a variation.
But what if there are 2 classes of share, A shares and B shares. And both classes have existing rights of 1 vote per share. There is a proposed variation to increase the voting rights of class A shares to 2 votes per share but to leave class B with just one vote per share.
This is a similar situation to the case Rights and Issues Investment Trust v Stylo Shoes. In that case, the judge said that where a person is a member of a company KNOWING that they are to be deprived of voting control, they cannot complain when that situation is continued.
In Rights and Issues case, the management shares’ voting power was to be increased by 8 fold. Can the ordinary shareholders complain? No! Their rights were not varied – they still had one vote per share.
You ask is there a straightforward way to determine whether a proposal does or does not constitute a ‘variation of class rights’ situation. I’m sorry, but I’m going to be as vague as BPP here! The simple answer is ‘No’
Each situation will be viewed by the Court on its own merits. Personally, I would have gone the other way with the Rights and Issues case … but I’m not a judge!
Does that help?
Thank you sir, that definitely clears up alot of my doubts at the start. thank you so much
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