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CMA Intermediate · Business Laws and Ethics · Rights of Shareholders

Sunrise Textiles Ltd has cumulative preference shares on which no dividend has been paid for the last three years. A resolution to appoint a new statutory auditor is placed before the general meeting. What is the voting position of these preference shareholders?

The preference shareholders can vote on all resolutions, including the auditor appointment. Under the second proviso to Section 47(2), a class of preference shareholders whose dividend has remained unpaid for two years or more gains voting rights on every resolution placed before the company.

  1. AThey can vote only on resolutions directly affecting their preference rights
  2. BThey can vote on all resolutions, since the dividend on their class is unpaid for two years or moreCorrect
  3. CThey cannot vote on any resolution until the dividend is paid in full
  4. DThey can vote only on the winding up resolution

Explanation

Under the second proviso to Section 47(2), where the dividend on a class of preference shares has not been paid for two years or more, that class has the right to vote on all resolutions placed before the company. Three years of non-payment satisfies this, so the usual restriction does not apply.

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