Variation of class rights of the preference shareholders, Business Law and Ethics

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Variation of class rights of the preference shareholders:

This was not a variation of class rights of the preference shareholders.  The company could resolve to go keen on liquidation at any time and the preference shareholders would then only receive a return of capital and this they had been given.

(a)   to create and issue a new class of preference shares with priority over an existing class of preference shares:

                            UNDERWOOD v. LONDON MUSIC HALL.

By analogy an improvement in the rights of existing preference shares, e.g. by raising the rate of preference dividend from, say, 6% to 8%, is not a variation of the rights of ordinary shareholders although it diminishes the residual profits available for distribution to the latter as ordinary dividends.

               The cases cited in (a) to (d) illustrate the principle that without a "literal variation" of a class right (as defined by the memorandum or articles) there is no alteration of rights to which the safeguards of the variation of rights clause (e.g. Table A, Article 4) apply.  Dr. Rice contends that the instances constitute a variation of the enjoyment of the class rights rather than a variation of class right itself.


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