House of Fraser plc v ACGE Investments Limited: HL 1987

Preference shareholders objected to the compulsory payment-off of their shares at par, effecting a reduction of capital by means of the paying off and cancelling of the company’s preference shares. No meeting of preference shareholders had been held to approve the reduction, despite an article which called for such a meeting if the rights attached to the preference shares were ‘modified, commuted, affected or dealt with’.
Held: The proposed cancellation of preference shares did not attract the protection of that article, because the cancellation of the shares was in accordance with the rights originally attached to those shares, specifically, the right to a return of capital in priority to other shareholders where any capital was in excess of the company’s needs. The cancellation of the shares did not constitute a modification, commutation, affecting or dealing with rights attached to them.
Lord Keith of Kinkel stated: ‘The reduction of capital now proposed to be made gives effect to that right [that the second preference shareholders were entitled to priority of repayment after certain preferences shares and before any other shareholders on a reduction of capital]. This necessarily involves, of course, that all other rights attached to the shares will come to an end, but that is something to which the holders of the shares must be taken to have agreed as a necessary consequence of their right to prior repayment receiving effect. Upon no view of the matter can it be said that as a result any of the special rights attached to the shares has been ‘modified, commuted, affected or dealt with’ within the meaning of article 12. These words all contemplate that after the relevant transaction the shareholders in question will continue to possess some rights, albeit of a different nature from those which they possessed before the transaction. The proposal for reduction of capital involves complete cancellation of the shares.’

Lord Keith of Kinkel
[1987] AC 387
Scotland
Cited by:
CitedWinpar Holdings Ltd v Ransomes Plc CA 1-Jul-1999
The company had been given permission to cancel a share premium account. Changes in circumstances brought the matter back for reconsideration. . .

Lists of cited by and citing cases may be incomplete.

Company

Updated: 14 November 2021; Ref: scu.195959