Issue of additional preference shares:
In the Bristol Aeroplane Case it was said of the issue of additional preference shares that:
"the existing preference shareholders will be in a less advantageous position on such occasions as entitle them to register their votes whether at a general meeting of the company or at separate meetings of their own class. But there is to my mind a sensible distinction or a distinction, between an affecting of the rights and an affecting of ... the capacity to turn them to account".
It is a sensible or practical distinction because many decisions taken in the course of the company's business might affect the value of the shareholders' rights. For example, suppose that a company has two businesses: one is a dependable source of profits sufficient to provide for the preference dividend but those profits are a poor return on capital employed. The directors then decide to sell that business at a high price in order to reinvest the proceeds in expanding the company's other business which offers prospects of long-term capital growth but very little immediate profit. The position of preference shareholders would be affected since there may no longer be sufficient profits to cover their dividend. But it would not be appropriate that they should have a veto (under variation of rights procedure) or an opportunity to apply to the court for a veto on what is essentially a question of commercial strategy. It would probably be better to limit the constraint of variation of rights procedure to clear-cut and direct alteration of class rights, e.g. a reduction in the rate of preference dividend from, say, 8% to 6%.