5. Discuss effectively the meaning of the term variation of class right.

Illustrate your answer with the relevant cases. Variation of class rights can be defined as modification or cancellation of a class rights. In regarding to shares, there are instances where the company AOA( Articles of association) gives power to the company directors to issued shares which carry different rights. Thus, the rights that attached to the shares will be different in regards to the entitlement to dividends, priority in regarding to the payments of dividends, the voting rights, priority in the repayment of the capital and rights to surplus assets upon winding up. In the common law, the variation of class rights only occurs when the strict legal rights attached to that class of shares is affected. Therefore, there will be no variation of class rights if a rights attached to a class of shares remain exactly the same as they were before a corporate action was taken. The principle of the VOCR was illustrated in the case of Greenhalgh v Aderne Cinemas Ltd (1946) 1 AER 512 where in this case, Mr Greenhalgh was a minority shareholder in Arderne Cinemas and was in a protracted battle to prevent the majority shareholder, Mr Mallard selling control. The company had two classes of shares; one class was worth ten shilling a share and the other class worth two shilling a share. The ten shillings were divided into two shilling shares, and all carried one vote. Mr Greenhalgh had the previous two shilling shares, and lost control of the company. The articles of association provided by cl. 10 (a): "No shares in the company shall be transferred to a person not a member of the company so long as a member of the company may be willing to purchase such shares at a fair value to be ascertained in accordance with sub-clause (b) hereof". The company changed its articles by special resolution in general meeting allowing existing shareholders to offer any shares to person/members outside the company. Mr Mallard, the majority shareholder, wished to transfer his shares for 6s each to Mr Sol Sheckman in return for 5000 and his resignation from the board. Mr Greenhalgh wished to prevent control of the company going away, and argued that the article change was invalid, a fraud on him and the other minority shareholders, and asked for compensation. Here we can see that Mr.Greeenhalgh argued that the corporate action cause him no longer to held sufficient shares to block the passing resolution, as his voting rights attached to his shares were varied without his consent as required by the AOA. However the court held that his voting rights attached to the shares were not varied as he had the same voting rights as he had beforea right to have one vote per share parri passu with the ordinary shares for the time being issued which include the new 2s ordinary shares resulting from the subdivision. In Malaysia, S65 (6) of Company Act 1965 laid down the general rule, the later allotment of preference shares ranking equally with existing preference shares to be variation of class rights of the existing preference shareholder, a different approach from common law, where in common law the variation of class rights only occurred when the strict legal rights attached to the class have been varied. However, the act also stated that there will be no variation of class rights if at the time the existing shares were allotted, the companys MOA and AOA authorized a later issue of equally ranking shares. Table A article 5 also adopted the same approach. Due to the danger of variation of class rights that affects the shareholders right, the act also laid down several protection to protect the shareholders interest. In S66, provides that the preference shareholders rights to be set out in the companys constitution, and affected members can proceed against the company with personal action in virtue of s33 of Contract Act and petition for remedy under s181.

7 . Discuss what you understand as transfer of shares. Transfer of shares is an act of parties of the parties (transferor and transferee) by which the title to share is transferred to one person to another. The right of a shareholder to make and have a registered a bona fide transfer is unrestricted, unless the articles or statute prohibit or regulate the that transfer as laid down in s98 of Company act 1965,which provides that shares are transferable. However, there are many companies in their AOA that gives power to the directors the right to refuse to approve a transfer either generally or on specific grounds. Most of AOA of Private Company gives the power to refuse the transfers of shares. This is because S15 of the act requires that there should be some kind of restrictions on transferability of shares in a private company. Restrictions are rarely found in the articles of public companies because a company cannot have a stock exchange listing if such restrictions are there. Upon refusal to transfer the shares, under s105, the company must give a notice of refusal within one month after the date which the transfer was lodged. Failing to do this, the company and the officer of the company who is in default shall be guilty of an offence against the act. Even though the directors are given right to refuse registration, he must exercise the power in good faith in the interest of the company and with due regard to the shareholders right to transfer his shares. There are instances where the director may refuse transfer when he deemed the transferee is a trade rival, or if he allowed the transfer, the transferee will gain great control in the affairs of the company as in Re Smith &Fawcett Ltd where in this case, Smiths father owned 400 units of shares died in an event. Smith want to sought to be registered as member of the company as an executor to his father assets. The Df refused to register except Smith transfer unless 200 units of the shares sold to certain director at a stated price, in which case they would register a transfer of the remaining shares. The court held that the Df only act bona fide on the interest of the company as seen by the court. The applicant failed to show that D act mala fide or bad faith. The D has right to refuse new membership. The director also may refuse when the transferee is an infant. S181 enables the members to apply for a remedy if failures to register constitute oppression or conduct which is unfairly discriminatory against or otherwise prejudicial to the members and enables members to obtain a remedy in cases such as Re Smith V Fawcett.

8. Compare the following cases: a) Re Bahia & Sans Francisco Railway (1868) b) Yeung Kai Yung V HSBC c) Sheffield Corp v Barclay (1905) The general rule that can be found through all 3 cases is regarding the forged transfer of shares where when the claimant is in the position of relying on shares certificate, the company is stopped from denying the truth of its contents. This is because the share certificate constituted as a prima facie evidence of the title of the person named to the shares specified; and the company, therefore, by granting the certificate, do make a statement that they have transferred the shares specified to the person to whom it is given, and that he is the holder of the shares. In the case of Re Bahia & Sans Francisco Railway (1868) where in this case Miss Trittin left her share certificates with a broker. A forged transfer together with the certificates, was lodged with and with registered by the company. The new certificates certified that the named person as registered holder. He then sold them to innocent purchasers who in turn lodged transfers and certificates and obtained certificates in their own names. The company had become obliged to restore Miss Trittin's name to the register but refused to recognise the innocent purchasers as shareholders. A special case was stated for the opinion of the Court between the innocent purchasers as claimants and the company for the purpose of determining the amount of damages (if any) which the company was liable to pay them respectively. The claimant succeeded. In this case Lord Cockburn CJ states that this power of granting certificates is to give the shareholders the opportunity of more easily dealing with their shares in the market, and to afford facilities to them of selling their shares by at once showing a marketable title, and the effect of this facility is to make the shares of greater value. The power of giving certificates is, therefore, for the benefit of the company in general; and it is a declaration by the company to all the world that the person in whose name the certificate is made out, and to whom it is given, is a shareholder in the company, and it is given by the company with the intention that it shall be so used by the person to whom it is given, and acted upon in the sale and transfer of shares. It is stated in this case that the claimants acted bona fide, and did all that is required of purchasers of shares; they paid the value of the shares in money on having a transfer of the shares executed to them, and on the production of the certificates which were handed to them. It turned out that the transferors had in fact no shares, and that the company ought not to have registered them as shareholders or given them certificates, the transfer to them being a forgery. In the case of Sheffield Corp v Barclay (1905), the stock of Sheffield Corporation which was transferable in the same way of the shares of the companies like was standing in the names of the two trustees, named Timbrell and Honnywill. In 1983, under the instructions of Timbrell, some stockbrokers sold it, and at the request of the purchasers a transfer to E.E. Barclay as representative of Barclay & Co purporting to be executed by Timbrell and Honnywill, was delivered to Barclay & Co who made advances to the purchasers on the security of the stock. Barclay & co, sent the transfer to the registrar of corporation with a letter of requesting him to register it in the corporations books in the name of E.E Barclay and to send them new certificates. Notice of proposed transfer was delivered to Timbrell and Honnywill by the corporation, but no reply was received from either of them. Accordingly E.E Barclay was registered as the holder of the stock and a new certificate was issued. E.E Barclay afterwards executed transfers on the sale of the stock and the new purchases were registered as holders. Timbrell died a few years later and in 1901 it having discovered that Honnywills signature was a forgery, the corporation was obliged to replace the stock. The corporation then brought an action against E.E Barclay and Barclay & Co for indemnity against the loss it had suffered. Lord Alverstone stated that the defendants were liable when the act has been done by the pf under the express direction of the defendant ; which occasion an injury to the rights of the third person yet if such act is not apparently illegal but is done honestly and bona fide in

compliance with the defendants direction, he shall be bound to indemnify the pf against the consequences thereof. Thus, after we gone through all three cases, we can conclude that the company cannot deny the truth of the information contained in its valid share certificate. Since the share certificate is a prima facie evidence as to ascertain the members title to the shares, the company is therefore liable for any loss that arising from an error in the share certificate, and in circumstances where after the issuance of share certificate and someone changed his position in reliance to it, as what happen in three case above, the company is stopped from denying the truth.