The court considered an application to reduce the capital of the company by cancelling redeemable preference shares redeemable in 1971, in exchange for unsecured loan stock, redeemable some four to nine years later. The main issue was the propriety of certain holders of both redeemable preference shares and equity stock voting for the proposal motivated by its benefits for them as ordinary stockholders, rather than considering the benefits and detriments for holders of redeemable preference shares.
Held: Megarry J referred to a contention of the company that if there were no funds available within the terms of section 58(1) of the 1948 Act, the company would not be in default under an article requiring it to redeem redeemable preference shares on a given date. He said: ‘This is a point that I do not have to decide . . but for the present I need say no more than that I share the doubts which have been expressed about the company’s contention.’
Trustees voting at a class meeting of preference shareholders to approve a reduction of capital were not entitled to take into account their interests as holders of the majority of the ordinary shares in the company: ‘That exchange of letters seems to me to make it perfectly clear that the advice sought, the advice given, and the advice acted upon, was all on the basis of what was for the benefit of the trusts as a whole, having regard to their large holdings of the equity capital. From the point of view of equity, and disregarding company law, this is a perfectly proper basis: but that is not the question before me. I have to determine whether the supporting trustees voted for the reduction in the bona fide belief that they were acting in the interests of the general body of members of that class. From first to last I can see no evidence that the trustees ever applied their minds to what under company law was the right question, or that they ever had the bona fide belief that is requisite for an effectual sanction of the reduction. Accordingly, in my judgment there has been no effectual sanction for the modification of class rights’.
Megarry J
[1971] 1 WLR 583
Companies Act 1948 58(1)
England and Wales
Cited by:
Cited – Winpar 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: 18 December 2021; Ref: scu.195958