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CS Executive · Company Law and Practice · Members and Shareholders

Kaveri Ltd has equity and preference classes, and its articles allow variation of class rights with three-fourths consent. Holders of 80% of the preference shares consent in writing to a variation that also adversely affects the equity shareholders. Which statement is correct under section 48?

The variation also requires consent of three-fourths of the equity shareholders. The proviso to section 48(1) provides that when variation by one class affects another class's rights, three-fourths of that other class must also consent, so preference consent alone is not enough.

  1. AThe variation is valid because three-fourths of the preference class consented
  2. BThe variation needs consent of three-fourths of the equity class as well, since it affects their rightsCorrect
  3. CThe variation needs only a simple majority of the equity class
  4. DThe variation is valid only if the Tribunal first approves it

Explanation

The proviso to section 48(1) states that if variation by one class affects the rights of another class, the consent of three-fourths of that other class must also be obtained. The 80% preference consent alone is therefore insufficient. A simple majority of equity is also inadequate.

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