Skip to content

ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Harlow plc has two classes of shares. Preference shareholders have a right to priority return of capital on a winding up. The company proposes to reduce capital by repaying the preference shares in full while the ordinary shares remain unchanged. Which statement is correct?

Repaying preference shares first is generally consistent with their priority on a winding up, so it can be a valid reduction. Class consent may still be needed if their rights are varied. It is not prohibited, and preference holders' rights must still be respected.

  1. AThe reduction is valid only if the ordinary shareholders consent, because they are the owners
  2. BThe reduction is invalid, since a company may never repay one class of shares before another
  3. CThe reduction is generally consistent with class rights, as repaying preference shares first matches their priority on a winding up, though class consent may still be needed if rights are variedCorrect
  4. DPreference shareholders have no rights to be considered in the process

Explanation

Repaying capital to a class that would rank first on a winding up is generally consistent with their rights. Any variation or abrogation of class rights would still need class consent. Options saying it is never allowed or that preference holders are ignored are wrong.

Did you get it right without looking?

One question tells you little. A timed set on Capital maintenance and dividend law shows your real accuracy, how long you take and where you lose marks.

Practise Capital maintenance and dividend lawFree diagnostic mock

More Capital maintenance and dividend law questions