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LAW 610 Tutorial

The shareholders of Wireworks Engineering Sdn Bhd cannot seek a declaration from the court that the second issue of 200,000 preference shares is a variation of their class rights. This is because the new shares carry identical dividend and voting rights to the original 500,000 shares, so the legal rights of the original shareholders remain unchanged. Under company law and precedent, a variation only occurs if the strict legal rights are changed, not if the economic value is merely affected. As the rights are identical, there is no variation to challenge in court.

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354 views2 pages

LAW 610 Tutorial

The shareholders of Wireworks Engineering Sdn Bhd cannot seek a declaration from the court that the second issue of 200,000 preference shares is a variation of their class rights. This is because the new shares carry identical dividend and voting rights to the original 500,000 shares, so the legal rights of the original shareholders remain unchanged. Under company law and precedent, a variation only occurs if the strict legal rights are changed, not if the economic value is merely affected. As the rights are identical, there is no variation to challenge in court.

Uploaded by

Anis Farzana Zulkefli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1) Explain the rights of a shareholder.

 Exercise the right to vote attached to the shares


 Receives notices
 Receive a distribution in respect of the share, if any
 Exercise the other rights and powers attached to the share

2) State what is preference shares and explain the rights that can be attached to
preference shares.

 Section 2(1) of the Companies Act 2016 defines “preference shares” to mean “a
share by whatever name called, which does not entitle the holder to the right to
vote on a resolution or to any right to participate beyond a specified amount in
any distribution whether by way of dividend, or on redemption, in a winding up,
or otherwise.”
 Repayment capital : Right of the shareholders to be repaid their capital ahead of
the ordinary shareholders in a winding up of a company.
 Participation in surplus assets : Right to share in the surplus assets of the
company when the company is wound up.
 Participation in surplus profits : Right to enjoy a higher dividend in those years
where the company has made higher profits and is able to give a higher dividend
to its ordinary shareholders.
 Cumulative or non cumulative dividends : Right to receive arrears of dividends in
respect of those years where no dividends is declared.
 Voting : right to vote as per the classes of shares as stipulated in the constitution
 Priority of payment of capital and dividends in relation to other shares or other
classes of preference shares.
3) The constitution of Wireworks Engineering Sdn Bhd provides among others, that
the preference shareholders shall have the right to a fixed dividend of 4% per annum
and a voting share of one vote per share on all matters at general meetings of the
company. The company had earlier issued 500,000 preference chares. The company
proposed to make a second issue of 200,000 preference shares carrying the same
dividend and voting rights. The present shareholders are unhappy with the proposed
issue preference share and claimed that issuance is a variation of their class rights.

Advise Wireworks Engineering Sdn Bhd. on the issue whether the shareholders can
seek declaration from the court that the second issue of 200,000 is a variation of class
rights.

 Section 89 of the Companies Act 2016 provides that shares are in the same class
if the rights attached to the shares are identical in all respects. When a company
issues shares with different rights the company is said to have issued different
classes of shares.
 At a common law, a variation of class of rights occurs only when the strict legal
rights attached to a class of shares are varied and not when the economic value
attached to that class if affected, which means that there will be no variation of
class of rights if the rights attached to a class of shares remain exactly same as
they were before a corporate action was taken.
 Case : Greenhalgh v Ardene Cinemas Ltd & Anor (1946)
Before the resolution Greenhalgh had one vote per share. After the resolution he
had also one vote per share. The fact that the holder of the 10s shares had
increased their voting power five-fold did not amount in law to be a variation pf
Greenhalgh’s rights.
 Thus, under the situation of Wireworks Engineering Sdn Bhd., they cannot seek
declaration from the court that the second issue of 200,000 is a variation of class
rights as the preference shares carrying the same dividend and voting rights,
hence their rights as the shareholders are left undisturbed.
 In a simple conclusion, Wireworks Engineering Sdn Bhd. cannot seek declaration
from the court that the second issue of 200,000 is a variation of class rights.

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