Law of Business Organisation: XYZ Ltd Preference Share Analysis

This assignment solution addresses a legal problem concerning XYZ Ltd's capital structure, focusing on the rights of preference shareholders. The analysis examines whether the issue of new preference shares constitutes a variation of class rights, as per the Corporations Act 2001. It explores the entitlement of preference shareholders to demand a 5% dividend and whether they can claim dividends from previous years. Furthermore, the solution investigates if preference shareholders can participate in dividends alongside ordinary shareholders, referencing relevant case law such as Bank of NSW v Commonwealth, Burland v Earle, and Beck v Weinstock, and statutory provisions including sections 246B, 246C, 254A, 254T, 254U, and 254W of the Corporations Act. The document concludes by summarizing the key findings regarding preference share rights and dividend entitlements, emphasizing the role of the company's constitution and director's discretion in dividend decisions.

LAW OF BUSINESS
ORGANISATION
Name of Student
Name of University
Author Note

Share-
• property of the shareholders in
the company
• consists of rights that the
shareholders are entitled to
• mentioned in the company’s
articles of association and the
memorandum of association
• Issued for confining corporate
control, raising capital and
minimising tax(Austin and Ramsay
2015).
Bank of NSW v Commonwealth [1948] HCA 7
Preference share-
• shares by which the shareholders
are entitled to fixed
dividends(Hannigan, 2018)
• prioritized over the dividends
payable over the dividends of
ordinary shares
Section 254A
Preference shares are only issued by a company if a few
matters have been set out either by way of the constitution
of the company or has been approved by way of the
company’s special resolution

section 246B (2) of the Corporations Act
2001-
• variation or cancellation of the class rights of the shareholders of a
corporation would be done by way of a special resolution if there is no
procedure set out by the constitution of the corporation
• There has been no mention XYZ Ltd’s constitution to be setting out
the procedures for the variation of the class rights of the shareholders
• Therefore the variation of the class rights of the shareholders would
be done by passing a special resolution
Section 246C (2) Corporations Act
2001-
• if only in some of the shares the class rights of the
shareholders are seen as varied then all other existing
shares of that class of the corporation would be varied
• The issue of 2000 preference shares are seen as
cumulative therefore the issue of new preference
shares would not be amounting to class right variation
for the previous shares.

Section 1.5.9 of part 1.5-
• the dividends are payments which are paid by the
company to the shareholders
• the preference shareholders are only entitled to the
5% dividend
Section 254T-
• These dividends can only be paid
if the assets are exceeding the
liabilities and the payment of
such dividend is fair to the
shareholders as a whole

Burland v Earle [1902] AC 83-
• no principles can compel any company to be
paying dividends to its shareholders.
• The company has the rights to decide what
portion of the profits earned by it is to be
divided among the shareholders
• XYZ Ltd is not required to pay dividends towards
its shareholders
• has rights to decide what portion of the profit
would it be dividing among the shareholders.

Section 254U
• if a company would be paying any amount of
dividend or whether the dividend would be fixed
or not is determined by the directors of the
company
• The directors of XYZ would determine whether
the shareholders would be entitled for claiming
dividends for the past 3 years if the dividends
were declared in the year 2018

Section 254W
• all the shares in a class of shares of a company
would have same rights for dividend unless
mentioned otherwise by the companies constitution
or by special resolution passed by the company
• the shareholders of the 2000 cumulative preference
shares have the same rights for the dividends as the
other preference shareholders

Beck v Weinstock [2013] HCA 15
• the preference shareholders of any company
are entitled to fixed dividends only towards the
shares issued towards them
• the cumulative preference shareholders would
not be entitled to participate in the payment of
dividends along with the ordinary shareholders
of the company as they had already been paid
off their share of 5% dividends

• there are no variations for class rights as per the
provisions of s246C.
• The preference shareholders would be entitled for the
demand of 5% dividend as it was mentioned in the
constitution however it is up to the discretion of the
company to pay such dividend as discussed in s254T.
• The payment of dividend and the time and the amount of
dividend paid to the preference shareholders would be
decided by the directors as provided in the section 254U.
• As mentioned in the Beck case the preference
shareholders would only be eligible for the fixed 5%
dividends.
Conclusion

Reference
• Austin, R.P. and Ramsay, I., 2015. Ford, Austin and Ramsay's
Principles of Corporations Law. FORD, AUSTIN AND
RAMSAY'S PRINCIPLES OF CORPORATIONS LAW,
LexisNexis Butterworths, Australia,.
• Bank of NSW v Commonwealth [1948] HCA 7
• Beck v Weinstock [2013] HCA 15
• Burland v Earle [1902] AC 83
• Corporations Act 2001 (Cth)
• Hannigan, B., 2018. Company law. Oxford University Press,
USA.

Thank You