Company Law

1122 Words5 Pages
(a) The legal issue is can Delusions of Grandeur Ltd increases the dividend rate for preference shareholders from 7 per cent to 10 per cent immediately?

The argument would centre on interpretation of s246B (2) of the Corporation Act 2001.

Section 246B (2) applies if a company’s constitution does not include a procedure for varying share rights (Tony & Christopher 2009). The relevant assumption in this problem is s246B (2) (d):
“those rights may be varied or cancelled only by special resolution of the company and: (c) by special resolution passed at a meeting: (i) for a company with a share capital of the class of members holding shares in the class… (d) with the written consent of members with at least 75% of the votes in the
…show more content…
Section 246C (1) states that the division of one class of shares into two or more classes of shares, where different rights attach to each class of shares after the division is taken to be variations of class rights (Tony & Christopher 2009). Part of the Corporation Act 2001 (ss246B-246G) permits companies to vary or cancel the rights attaching to a particular class of shares or members under regulated conditions (Tony & Christopher 2009). Section 250E (1) provides that each shareholder, whether preference or ordinary has equal voting rights (one vote per share on a poll) (Tony & Christopher 2009). It would seem that two votes per share in Group A is not comply with s250E (1). Apply to s246C (1), the Company varies the rights of a particular class of ordinary shares directly which is cancellation or variation of voting rights attaching to a share. By reliance on the assumption on the part of the Corporation Act 2001, the Company cannot divide the ordinary shares into two groups then give two votes each share in Group A without the regulated conditions. In conclusion, according to s246C (1) and s250E (1), it would seem most likely that the Company will not be able to divide the ordinary shares into Group A which each share has two votes and Group B that one vote per share immediately.

(d) The issue is can Delusions of Grandeur Ltd issues 25,000 new shares in Group B to new investors at $5 per share
Get Access