Company Law

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(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 class.” (Tony & Christopher 2009)

It would seem that the Company has the special resolution about the preference shares’ rights. By reliance on the assumption in s246B (2), the Company will cannot increase the dividend rate for preference shareholders to 10% immediately without at least 75 per cent written consent of members of the votes in the class.

In conclusion, under s246B (2), it would seem most likely that the Company will not be able to increase preference shares’ dividend rate from 7 to 10 per cent immediately.

(b) The issue is can Delusions of Grandeur Ltd issues 5,000 new shares on the same terms as the existing preference shares immediately?

The argument would centre on interpretation of s246C (6) and s246B (2) of the Corporation Act 2001.

Section 246C (6) states the issue of new preference shares that rank equally with existing preference shares, which says: “the new preference issue will not amount to a variation of rights if the company’s internal rules permit the company to issue new preference shares on the same term.” (Tony & Christopher 2009) Section 246B (2) applies if a company’s constitution does not include a procedure for varying share rights (Tony & Christopher 2009). The relevant...
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