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GAZETTE
JANUARY/FEBRUARY 1984
Companies (Amendment) Act, 1983
Part 3
by
William Earley, Solicitor
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
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.
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