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CMA Intermediate · Business Laws and Ethics · Rights of Shareholders

Zenith Ltd has 10% cumulative preference shares. Dividend on this class has been unpaid for 18 months. A resolution is proposed to appoint an auditor. Can the preference shareholders vote on it under Section 47?

They cannot vote. Preference shareholders vote only on resolutions directly affecting their rights, winding up, or repayment or reduction of capital, unless dividend on their class is unpaid for two years or more. Eighteen months of arrears falls short of that, so they cannot vote on the auditor appointment.

  1. AYes, because dividend has been unpaid for more than one year
  2. BNo, because dividend has not been unpaid for two years or more, so they vote only on resolutions directly affecting their rights, winding up, or repayment or reduction of capitalCorrect
  3. CYes, because preference shareholders may always vote on ordinary business
  4. DNo, because preference shareholders can never vote on any resolution

Explanation

Under Section 47(2) preference shareholders vote only on resolutions directly affecting their preference rights, winding up, or repayment or reduction of capital. The right to vote on all resolutions arises only if dividend on the class is unpaid for two years or more. Here 18 months is less than two years, so the auditor resolution is outside their voting right.

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