The Gazette 1984

JANUARY/FEBRUARY 1984

GAZETTE

Companies (Amendment) Act, 1983

Part 3

by William Earley, Solicitor

within one month of the allotment, except where particulars of those rights have already been filed or are contained in the Memorandum or Articles. Particulars of any variation in the rights attached to any shares or the assignment of any name or new name to any class of shares must also be filed. Maintenance of Capital The new provisions relating to maintenance of capital fall into two categories; (a) those which ensure that holders are informed when there has been a serious loss of capital; (b) those which prohibit a company from having an interest in its own shares. Section 40 provides that if at any time after the appointed day it becomes known to any of the directors of any company, public or private, that its net assets represent 50% or less of its paid-up capital, the directors must convene an extraordinary general meeting to consider whether any, and if so what, measures should be taken to "deal with the situation". The meeting must be convened within twenty-eight days of the first director becoming aware of the situation and must be held within fifty-six days. Problems may well arise in the application of these provisions. For example the calling of a meeting of shareholders in these circumstances will cause adverse publicity, there could well be problems in deciding on what basis the assets should be valued and it is not clear what will be the effect of any resolution passed by the members. Further, it should be noted that paragraph 28 of the Second Schedule to the Act inserts a new Rule 5 into the Second Schedule to the 1963 Act requiring the auditors to a Company to state in their report to the Annual Accounts whether or not, in their opinion, there exists at the balance sheet date a financial situation which index Section 40(1) of the 1983 Act would require the convening of an extraordinary general meeting of the company. This provision is slightly unsatisfactory in the short term as, while the "Financial situation" might be as stated in section 40 (1), it may have become known to a director prior to the appointed day, in which case an extraordinary general meeting would not be required by the Section. Pursuant to Section 42, both public and private companies are prohibited from acquiring their own shares, and any purported acquisition is void, except by way of gift or reduction of capital. These provisions, however, do not affect the redemption of preference shares, a purchase of shares under a Court order or forfeiture or surrender of shares under the Articles. 21

Class Rights T HE Act introduces in Section 38 and 39 new rules relating to variation and registration of class rights which apply to both public and private companies. These rules apply immediately to a newly-incorporated public limited company but otherwise at the end of the transi- tional period or, if earlier, the date of re-registration as a public limited company. References to "variation", except where the context otherwise requires, now include "abrogation". The Act also lays down rules for the convening and conduct of class meetings. Class rights may now be varied in two cases where it was formerly not possible without a scheme of arrange- ment under Section 201 of the 1963 Act. First, where they are not set out in the Memorandum and there is no variation of rights clause in the Articles, when they may be varied with the written consent of the holders of 75% in nominal value of the shares of that class or by a special resolution passed at a meeting of that class. Secondly, where the class rights are set out in the Memorandum but neither the Memorandum nor the Articles contain a variation provision, then they may be varied by the unanimous consent of all members of the company. Where there is a reduction of capital or a grant, variation, revocation or renewal of an authority for the directors to allot shares, either of which involves a variation of class rights, and the Memorandum or Articles contain provisions for the variation of those rights, then not only must such provisions be complied with but it is also necessary to have the written consent of 75% of the holders of the class or the sanction of a special resolution of such holders. Where class rights are attached by the Memorandum, and the Articles contain provisions for alteration which had been included at the date of incorporation then the rights may only be altered in accordance with those provisions. Where class rights are set out otherwise than in the Memorandum, and the Articles contain provisions (wherever included) for alteration they may only be altered in accordance with those provisions. Special provisions now apply in respect of the quorum for meetings required by Section 38: (a) the quorum shall be at least two persons holding or representing at least one-third in nominal value of the issued shares of the class in question or at an adjourned meeting one person holding shares of the class in question or his proxy; (b) any holder of shares of the class in question present in person or by proxy may demand a poll. In future particulars of the rights attached to any shares allotted must be filed with the Registrar of Companies