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CS Executive · Company Law and Practice · Share and Share Capital - Concepts

Kaveri Foods Ltd has issued cumulative redeemable preference shares. The company has not paid the dividend on this class for the last two financial years. A resolution on approving a related business matter, which does not affect preference rights, is placed before a general meeting. What is the voting position of this class of preference shareholders under Section 47?

Preference shareholders of a class whose dividend has remained unpaid for two years or more gain the right to vote on all resolutions placed before the company. The usual restriction to resolutions affecting their own rights, winding up or capital repayment or reduction no longer applies to them.

  1. AThey have no right to vote because the resolution does not directly affect their rights
  2. BThey can vote only on the resolution to wind up the company
  3. CThey can vote only if the dividend arrears exceed three years
  4. DThey have a right to vote on all resolutions placed before the companyCorrect

Explanation

Section 47(2) normally limits preference voting to resolutions directly affecting their rights, winding up, or repayment or reduction of capital. The second proviso says that where dividend on a class has not been paid for two years or more, that class has the right to vote on all resolutions. Option A states the general rule, which is displaced here.

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