Student’s Name: Sofia Adani binti Azhar

Student ID: 2017806964

Group: LWBO6L

Tutorial 1

Question 1

The courts have confined the concept of variation of class rights by drawing a
distinction between class rights and the enjoyment of class rights. This has
resulted in it being possible to adversely affect the financial position of
holders of a class of shares in a number of ways without the company having
to go through the variation procedures because the change is merely a change
in the enjoyment of class rights. In the light of decided cases, explain the
above statement.

(10 marks)

Shares with the same rights in all aspects is considered as shares of the
same class. According to the case of Birch v Cropper, it is stated that all shares
having the same par value or shares of the same amount enjoy the same rights
irrespective of the amounts paid up either fully paid or partly paid on them. However,
a company should state clearly in the Constitution to accommodate different classes
of shares and their voting rights. Generally, a company may issue two types of
shares which are ordinary shares and preference shares as provided in s.71 and
s.72 of the Companies Act 2016 respectively.
Ordinary shares or sometimes referred to as equity shares are shares which
are not given any special rights, it carries all the rights of the ordinary member. On
the other hand, preference shares is defined in s.2 as a share by whatever name
called, which does not entitle the holder to the right to vote on resolutions or any right
to participate beyond a specified amount in any distribution whether by way of
dividend, or on redemption, in winding up or otherwise.
 The distinction between ordinary shares and preferences shares can be seen
first in their voting rights and second regarding their rights to dividends. Firstly,
ordinary shares have the right to vote on a show of hands on any resolution of the
company which provides ordinary shareholders the power to influence the policies of
the company, but preference shares only have the right to vote pertaining to their
own class of shares. Furthermore, an ordinary shareholder does not carry the right to
fixed dividends, or cumulative dividends. Dividends are only to be paid to an ordinary
shareholder after preference shareholders have been paid. However, if the company
suffers from a poor financial year, the ordinary shareholders may receive little to
nothing. Meanwhile, preference shareholders receive their dividends first in priority to
ordinary shareholders. They have cumulative right to dividends which entitles the
preferential shareholder to accumulate unpaid dividends of the previous years.
Moreover, preference shareholders are entitled to receive repayment of capital after
creditors of the company have been paid, and in priority to ordinary shareholders.
Furthermore, variation of class rights includes changing the rights attached to
shares in a class of shares, abrogation of any rights attached to the shares, and
issuance of preference shares ranking in parri passu. In the case of Re Northern
Engineering Industries Pls, states that variation of class rights is any changes or
alteration to any existing rights as stated in the articles of terms of issue of the
shares. To illustrate, preference shares has the right to cumulative dividend and the
company proposes to cancel this right.
However, no variation would have occurred as long as the right to exercise
votes is not abolished. This can be seen is the case of White v Bristol Aeroplane
Co, a bonus issue of shares by the company only to its ordinary shareholders which
greatly diluted the voting rights of the preference shareholders was held not to
amount to a variation of class rights attached to its preference shareholders. The
rights of classes of shares in the AOA did not embrace the need to preserve balance
between ordinary shareholders and preference shareholders, nor the weight to the
voting power.
Moreover, in the case of Greenhalgh v Ardene Cinemas, a company had
issued 21000 preference shares and 31000 ordinary shares each carrying one vote.
It then issued ordinary shares to Greenhalgh that carried sufficient votes for him to
block a special resolution. The other members then proposed to the company to
subdivide their shares excluding Greenhalgh’s, in order to increase the number of
votes that they held. This was done so that the proportion of shares held by
Greenhalgh could be diminished. He argued that the voting rights attached to his
shares were varied without his consent. It was held that the voting rights attached to
his shares were not varied as they remained what they always were, that is a right to
have one vote per share. Therefore, there was no variation even though
Greenhalgh’s voting power was swarmed by the issuance of new shares because
his right to have one vote per share was left undisturbed.

Thus, variation of class rights of a class of shares does not amount to

Question 2
With reference to the Companies Act 2016, explain the legal procedure which is
imposed by law on a company in cases of variation of the shareholders' class rights.
(10 marks)

The legal procedure to make variation of the shareholder’s class rights depends
on whether the procedure is provided in the company’s constitution. If the company’s
constitution sets out the procedure for variation of class rights, such rights may be
varied in accordance with the procedure. However, if the company’s constitution
does not set out the procedure for variation of class rights, such rights may be varied
depending on where the class rights are stated.

By virtue of s.91 of the Companies Act 2016, variation of class rights must be
made in accordance with the constitution of the company, or with the consent of the
shareholders in that particular class by written consent of not less than 75% or
special resolution if the procedure is not provided for in the company’s constitution.

Furthermore, to vary the class rights the company shall give notice to
shareholders within 14 days from the date of variation is made and failure to notify
will be given penalty of RM500,000 as provided in s.92.
 It is necessary to protect the rights of the holders of particular class of shares
against any attempt by other classes to vary or change those rights. However, if
members of the company are aggrieved by the variation, s.93 provides that holders
of not less than 10% of the issued shares of the class whose rights have been
varied, may within one month after the variation, apply to court to set aside the
variation. The court may make the order if it is satisfied that the variation would
unfairly prejudice the members of the class.