Regulations on the Registration of Modified Class Rights and Voting on Resolutions for amending Class Rights in an Ltd Company Formation UK with relevant Case Study


04 Jan

The shares of a company are a key part of any company progress once it is done with the process of company registration United Kingdom. Companies allot shares and the shareholders play a key role in the voting process required for passage of any resolution. Resolutions directly impact the actions of a company. The shares may be divided into classes and the classes may be given special rights. This article discusses about how to register these class rights if they are subjected to any change and later the article presents a case study to illustrate the use of power of altering the class rights in best interests of that class.

Class Rights

Any company whose share capital has been divided into classes, may also confer certain rights specific to that class. These rights can be subjected to alteration. However, there are certain requirements of the statute for this purpose. Section 630 of Companies Act 2006 states that:

  • The rights attached to any class can be subjected to variation following the relevant clauses given in the articles of association of a company.
  • And, if there is an absence of any such clause, then if the holders of 3/4th shares of that class give a written consent or via passing a special resolution at a meeting conducted solely for the holders of shares of that class, the rights can be varied.

Special Class Rights and their Registration

Section 128 of Companies Act 1985 states that:

  • If the memorandum, company’s articles, or some resolution or contract does not mention the rights belonging to shares that have been allotted by the company, which should be submitted to the registrar after companies house set up a new company as a requirement of Section 380, then the company is obliged to submit to the registrar a statement in the required form, in at most one month’s time after the allotment is done.
  • If the shares allotted have a uniformity in every aspect with the previously allotted shares, then the previous provision will not be imposed. Moreover, the shares should not be given a different treatment as compared to the old shares on the mere basis that the newly allotted shares do not have rights of dividends same like the rights of the previously allotted shares, within the twelve months of allotment of the new shares.
  • When any variation is brought in the class rights by any method excluding the alteration of company’s articles or memorandum, or via passing a resolution or via any agreement following section 380, then the company has to submit to the registrar a statement in the required form, which mentions the minutes about the variation made, in a duration of at most 1 month after the variation was made.
  • In situations where a company after register company online UK by any method except via any alteration, resolution or any agreement as specified in the previous clause, entitles any shares’ class with a name, new name or a designation, then that register company online UK is obliged to share with the registrar in 1 month after the assignment, a notice as required, mentioning about the minutes of the assigned name or designation.
  • When the company fails to obey this section, the company and each of its officer responsible for the default, has to pay fine. If the disobedience continues then a fine should be imposed on a daily basis.

Registering Newly Devised Class Rights

Section 129 of Companies Act 1985 states that:

  • When companies house set up a new company that does not own a share capital, arranges its members into a class having rights that neither the memorandum nor the articles, resolution or contract subjected to section 380, specifies, then the company has to send to the registrar, in a time of maximum 1 month after the creation of new class, a statement, in the required manner, stating the minutes about the class rights.
  • When any variation is brought in the class rights by any method excluding the alteration of company’s articles or memorandum, or via passing a resolution or via any agreement following section 380, then the company has to submit to the registrar, a statement in the required form, which mentions the minutes about the variation made, in a duration of at most 1 month after the variation was made.
  • In situations where a company, by any method except via any alteration, resolution or any agreement as specified in the previous clause, entitles any shares’ class with a name, new name or a designation, then the company is obliged to share with the registrar in 1 month after the assignment, a notice as required, mentioning about the minutes of the assigned name or designation.
  • When the company fails to obey this section, the company and each of its officer responsible for the default, has to pay fine. If the disobedience continues then a fine should be imposed on a daily basis.

Voting on a Resolution for the Alteration of Class Right

After an ltd company formation UK when a member has to vote on a resolution that proposes any modification in the current rights of the member’s class, then he has to utilise his right of voting in the best interests of the overall class. For further elaboration, consider the case of British American Nickel Corporation in the text that follows.

Case Study: British American Nickel Corporation

An issuance was done for mortgage bonds that were under the protection of trust deed, by the company. The trust deed stated that a 3/4th majority of the persons holding bonds are allowed to approve any change that is proposed in bondholders’ rights. The required majority gave approval to an arrangement for reconstructing the company, which also indulged an alteration to the rights of bondholders. But, an objection was made that one of the bondholders, whose vote was mandatory for carrying out the proposal, had been pursued to support the proposal via his vote by promising him a large block in the ordinary stock. It was held by the Privy Council that such a vote was invalid.

Viscount Haldane stated that:

  • It is a common practice to authorise for the alteration of any condition which secures company’s debenture. Such an authority may be given in the interests of the company, that may be advantageous for the overall interests of any class of holders of debentures. This is usually provided as an authority bestowed upon most of the holders of class, by the instrument that constitutes the protection of debenture. Thus, frequently enabling the holders to bring an alteration in the protection or security itself via passing a resolution in an appropriate manner.
  • This power of altering the security given to the members is analogous to the power given to the members for altering company’s articles via the passage of a special resolution. However, such powers are subjected to limitation, when a special class’s majority is granted these powers, for allowing the majority to apply binding on the minority. This limitation is a general rule that is imposed on all the powers given to the majority for allowing them to subject the minority to a binding. This general rule states that the power given to the majority should be made use of in the best interests of the whole class and not only for the advantage of any individual member.
  • In relation to this, there may be no restrictions on the power. It may also be independent of this general rule if the power does not relate to any particular class and it merely be entitled generally as granting the vote in the form of a property right linked with a share. This distinction cannot be applied to the case under consideration. The question that is raised by the current case is that is the voting right granted to a creditor or any member belonging to an analogous class, to whom the authority is granted of voting in regards to the change of minority’s title, belonging to his class, is subjected to any such restriction?
  • According to their Lordships, it is not difficult to gather the principle that when at the time of voting, the holder of shares or debenture, may consider his best interests and simultaneously he may be subjected to another restriction, that in situations where the vote is bestowed on him because he has membership of a particular class of shares, he has to bring his vote in to conformity with the interests of the class, when he makes use of his voting authority as a member. However, the 2nd principle is rather negative because it restricts the completeness of independence given by the 1st principle, without the complete exclusion of such an independence.
  • The verdict given by Parker J in the case of Goodfellow v Nelson, provides an illustration of the distinction. He held that: With the authority bestowed by a trust deed upon a major number of holders of debenture for imposing a binding on the minority and this authority should be used bona fide and with the fact that court is allowed to intervene for prevention of some kind of oppressive or unjust acts, a holder of debenture is allowed to use this power according to his best interests as well. This feature may be for him and may not be offered to any other member of that class.
  • It is a genuine fact that whenever he was pursued for getting his vote by giving him some special bounties, the case may be termed as bribery. However, in cases just like that case, where there is an open permission given by the scheme for which the voting is being done, to give a special treatment to any holder of debenture having a special interest, he may cast his vote, as the rest of the members of that class knew themselves by the first of the plan or scheme. In the views of their Lordships, the verdict given by Parker J was applying the law in an accurate manner.
  • Their Lordships believe that the verdict given for this appeal’s respondents was fair. Simply, from the letters of Mr JR Booth as well, the vote of Mr JR Booth had to be secured by promising him 2,000,000 dollars’ ordinary stock belonging to the Nickel Corporation, before he gave his assent to 1921’s scheme. 
  • Undoubtedly, he was given the authority to vote while considering his own interests. However, as the power of that vote had been conferred upon him by the membership of that class, there was a binding on him to make use of that voting power in the benefit of the overall class. As Ferguson JA believed, it was probable that Mr JR Booth and the party with whom he led negotiations, were thinking the best solution to get the company out of the difficult situation in which it was beset.
  • But, before this, they had to give consideration to something else. They were obliged to consider the problems of the persons holding bonds in a class. Moreover, it was required to not to advantage a particular bondholder by granting him special treatment, which was not included in the scheme for which the voting had to be done, to secure his vote.
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