House of Fraser plc v ACGE Investments Ltd [1987]

House of Fraser plc v ACGE Investments Ltd [1987] AC 387 addresses the question of whether the buyback and cancellation of shares constitute a variation of class rights, triggering the need for a separate class meeting under Section 125 of the Companies Act 1985. The central issue revolved around the contention that the buyback of preference shares without consent affected the class rights of preference shareholders.

Ordinary shareholders passed a special resolution mandating the compulsory buyback of preference shares. Preference shareholders objected, asserting that the buyback resulted in the loss of their right to future dividends. The argument was framed in terms of a variation of class rights under Section 125 of the Companies Act 1985.

The House of Lords held that the buyback and cancellation of shares did not amount to a variation of class rights within the scope of Section 125 of the Companies Act 1985. Lord Keith, in delivering the judgment, articulated a crucial distinction, stating that the proposal for the reduction of capital involves the complete cancellation of the shares.

His analysis focused on the language of Section 125, emphasising that the words "modified, commuted, affected or dealt with" imply that after the transaction, shareholders should retain some rights, albeit of a different nature. However, in a buyback leading to cancellation, the affected class loses its shares entirely, leaving no room for retained rights.

This case offers a nuanced interpretation of Section 125, emphasising the requirement for a discernible alteration or preservation of some form of rights after a transaction. The judgment clarifies that complete cancellation resulting from a buyback does not fall within the purview of a variation of class rights.

In conclusion, this case contributes to the understanding of company law regarding class rights in share transactions. The judgment underscores the distinction between modifications to existing rights and the outright extinguishment of those rights through complete cancellation, providing clarity on the application of Section 125.
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