ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law
Falmer Ltd's directors plan a reduction of capital by repaying $2 per share to holders of its preference shares. Which statement about the effect on class rights is correct?
When a reduction changes the rights of a particular class, such as preference shareholders, the class variation procedure must also be satisfied alongside the special resolution. A general meeting resolution alone does not override entrenched class rights.
- AIf the reduction varies the preference shareholders' class rights, the class consent procedure must also be followedCorrect
- BClass rights are irrelevant because a special resolution of all members overrides them
- CThe preference shareholders can never be repaid before ordinary shareholders
Explanation
A reduction that affects the rights attached to a class of shares may need the separate approval of that class in addition to the general special resolution. The general resolution does not automatically override class rights. Priority on repayment depends on the terms of issue, not an absolute rule.
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