Re Northern Engineering Industries Plc [1994]

Re Northern Engineering Industries Plc [1994] 2 BCLC 704 revolved around whether the repurchase of preference shares through a reduction of capital constituted a variation of class rights, necessitating approval through a separate class meeting. The crucial factor was the presence of an express provision in the company's constitution addressing the impact of a reduction of capital on class rights.

Article 7(B) of the Articles of Association explicitly stated that the rights attached to any shares would be deemed varied by the reduction of the capital paid up on those shares. Despite this provision, a pay off of preference shareholders at par occurred, leading to a dispute over whether a separate class meeting was required for their approval.

The Court of Appeal held that the preference shareholders were entitled to a separate class meeting. The express provision in Article 7(B) acknowledging the variation of class rights due to a reduction of capital had a decisive impact on the determination.

This case highlights the significance of explicit provisions in a company's constitution governing the variation of class rights during a reduction of capital. The presence of Article 7(B) emphasising the deemed variation played a crucial role in affirming the entitlement of preference shareholders to a separate class meeting.

In summary, this case exemplifies the importance of clear and unambiguous provisions in a company's articles of association. In situations where the constitution expressly addresses the impact of specific actions on class rights, such provisions shall prevail and guide the requisite procedures, ensuring transparency and adherence to the agreed-upon terms.