House of Fraser Plc v A.C.G.E. Investments Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Keith of Kinkel,Lord Fraser of Tullybelton,Lord Brandon of Oakbrook,Lord Griffiths,Lord Ackner |
| Judgment Date | 08 April 1987 |
| Judgment citation (vLex) | [1987] UKHL J0408-5 |
| Court | House of Lords |
| Docket Number | No. 4. |
| Date | 08 April 1987 |
[1987] UKHL J0408-5
House of Lords
Lord Keith of Kinkel
Lord Fraser of Tullybelton
Lord Brandon of Oakbrook
Lord Griffiths
Lord Ackner
My Lords,
This appeal from an interlocutor of the Second Division of the Inner House of the Court of Session is concerned with the proper interpretation of certain provisions of the articles of association of the respondent company ("House of Fraser"), in which the appellants are holders of a particular class of preference shares.
The matter arises in connection with a petition for confirmation of reduction of capital presented by House of Fraser. The reduction, which involves the paying off of the whole preference share capital of the company as being in excess of the wants of the company, was accomplished by special resolution passed at an extraordinary general meeting attended by ordinary shareholders only. No class meetings of preference shareholders were held to approve or disapprove the reduction. The appellants maintain that this failure was in contravention of their rights under the articles of association of the company, and that confirmation of the reduction of capital should therefore be refused. Before the Inner House it was also contended by them that the reduction of capital constituted a variation of their class rights within the meaning of section 125 of the Companies Act 1985, which had not been consented to by the requisite majorities at separate class meetings of preference shareholders, and that it was therefore ineffective. The Second Division (The Lord Justice-Clerk, Lord Ross, Lord Kincraig and Lord Wylie) 1987 S.L.T. 273 by the interlocutor appealed from rejected both contentions for the appellants and confirmed the reduction of capital. Before your Lordships' House counsel for the appellants abandoned the second contention and submitted argument in support only of the first.
At the material time the share capital of House of Fraser was £50m. divided into (i) 350,000 3.15 per cent. cumulative preference shares of £1 each, (ii) 42,639 3.85 per cent. cumulative preference shares of £1 each, (iii) 365,328 5.25 per cent. cumulative preference shares of £1 each, (iv) 985,752,975 ordinary shares of lp. each, (v) 153,679,045 deferred shares of 25p. each, and (vi) 964,742 unclassified shares of £1 each. All the preference shares were issued and fully paid. 153,679,045 of each of the ordinary shares and the deferred shares were issued and fully paid. The remaining shares were unissued.
The appellants are holders of 97,953 of the 5.25 per cent. cumulative preference shares. All the issued ordinary and deferred shares are held by House of Fraser Holdings Plc. It is to be observed that in the articles of association of House of Fraser the 3.15 per cent., 3.85 per cent. and 5.25 per cent. cumulative preference shares are referred to respectively as 4 1/2 per cent., 5 1/2 per cent. and 71/2 per cent. cumultative preference shares, and that the two latter classes are there referred to collectively as "the second preference shares." The reason for the difference in the stated rates of interest is to be found in paragraph 18 of Schedule 23 to the Finance Act 1972.
Article 4 of the company's articles of association provides that the 4 1/2 per cent. preference shares and the second preference shares shall respectively carry certain rights and privileges, and be subject to certain restrictions and limitations. Those relating to the second preference shares are set out as follows:
"(B)
( a) The second preference shares shall, except as regards rate of dividend, rank pari passu in all respects as if they were a single class.
( b) The second preference shares shall entitle the holders to receive out of the profits of the company available for distribution and resolved to be distributed (after payment of the 4 1/2 per cent. cumulative preferential dividend on the 4 1/2 per cent. Preference Shares but in priority to the payment of dividend on any other class of shares or stock of the company) a fixed cumulative preferential dividend on the capital for the time being paid up thereon (i) at the rate of 7 1/2 per cent. per annum in the case of the 7 1/2 per cent. cumulative preference shares and (ii) at the rate of 5 1/2 per cent. per annum in the case of the 5 1/2 per cent. cumulative preference shares.
( c) On a return of capital on a winding-up or otherwise, the assets of the company available for distribution amongst the members (after satisfaction of the relevant rights of the holders of the 4 1/2 per cent. preference shares) shall be applied in priority to any payment in respect of any other class of shares or stock of the company in paying to the holders of the second preference shares the appropriate sum per share mentioned in sub-paragraph ( d) below, together with a sum equal to any arrears or accruals of the fixed dividend to which such shares are entitled under the provisions of subparagraph ( b) above (less an amount equal to income tax thereon at the standard rate in force on the date of payment) to be calculated down to the date of the return of capital and to be payable irrespective of whether or not such dividend has been declared or earned.
( d) The said sum per share payable in respect of the second preference shares on a return of capital on a winding-up or otherwise shall be the greater of (i) a sum per share as certified by the company's auditors equal to the average of the means of the daily quotations at which the 7 1/2 per cent. cumulative preference shares or as the case may be the 5 1/2 per cent. cumulative preference shares shall have been quoted on the Stock Exchange, London, during the six months immediately preceding the relevant date (as hereinafter defined) after first deducting from the mean on each day an amount equal to all arrears and accruals of the fixed dividend (whether or not declared or earned) on such share up to that day less an amount equal to income tax on such arrears and accruals at the standard rate in force on that day, and (ii) a sum per share equal to the nominal amount for the time being paid up thereon. Provided that, if on a return of capital a part only of the amount for the time being paid up on the second preference shares is to be repaid, then a proportionate part of the said sum per share shall be payable.
The relevant date for the foregoing purposes shall be thirty days before the date of the notice convening the meeting to pass the resolution for the winding-up of the company or the return of capital or in the case of a compulsory winding-up thirty days before its commencement.
( e) The second preference shares shall not confer the right to any further or other participation in the profits or assets of the company.
( f) The holders of the second preference shares shall be entitled to receive notice of any general meeting of the Company but shall not by virtue of or in respect of their holdings of such preference shares be entitled to attend or vote thereat unless (i) their fixed preferential dividend or any part thereof shall at the date when the notice convening the meeting is sent out be six months in arrear, for which purpose such dividend shall be deemed to be payable half-yearly on the thirty-first day of January and the thirty-first day of July in each year, or (ii) the business of the meeting includes the consideration of a resolution (a) pursuant to article 105 hereof [relating to borrowing powers] or for the amendment of that article, in which event the holders of the second preference shares shall have the right to vote only on...
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