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

Sable Co has ordinary shares and 8% preference shares in issue. Its constitution provides that class rights may be varied only with the consent of three-quarters of the holders of the class. The directors propose an amendment that would reduce the preference dividend to 5%. The ordinary shareholders, who hold all the voting power in general meeting, approve the amendment. Holders of 40% of the preference shares object. What is the legal position?

The amendment is invalid without the preference class's own consent. Cutting the preference dividend varies class rights, so the constitution's three-quarters class approval is needed. Only 60% of the class could consent, which falls short, and ordinary shareholders' approval cannot substitute for it.

1. AThe amendment is valid because the ordinary shareholders have approved it by the required majority
2. BThe amendment is invalid unless the preference class also consents by the required three-quarters majorityCorrect
3. CThe amendment is valid because only holders of the majority of the preference shares may object