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ACCA Applied Skills · Corporate and Business Law (Global) · Share capital

Orsino Co has ordinary shares and preference shares. The company issues further ordinary shares ranking equally with existing ordinary shares, and the preference shareholders complain that the value of their rights has been affected. Under the usual rule, how is the issue treated?

It is not a variation. Class rights are varied only when the legal rights attached to the shares change. Issuing new ordinary shares may reduce the practical value or influence of the preference shares, but their rights are unchanged, so no class consent is needed.

  1. AIt is a variation of preference class rights, so preference shareholders must consent
  2. BIt is not a variation of the preference rights, because their rights as attached to the shares are unchanged, even if their practical value is affectedCorrect
  3. CIt is a variation only if the preference shareholders hold more than 25% of the preference shares

Explanation

A variation arises only where the legal rights attached to the class are altered. A new issue that dilutes practical influence or value leaves those rights intact, so no class consent is needed. The 25% test relates to objecting to an approved variation, not to defining one.

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