Kofi Manu set up a company and had a scholarship to pursue his PhD in Australia. He then transferred part of his share to Abena Mansa with special rights in their agreement including rights on new shares, transfer restrictions unless with consent, and the right to appoint a Director if holding is at least 10%. Now Kofi Manu is back and wants to cancel the special rights of Abena Mansa, but Abena Mansa has argued that the special rights she had were class rights that could only be varied with her consent and she was not ready to vary it.

Required:
i) What is meant by class rights? (3 marks)
ii) Under what TWO (2) circumstances can class rights be varied? (4 marks)
iii) Advise Kofi Manu. (3 marks)

i) Class Rights:
Class rights are rights that attach to a clearly defined class of shares (e.g., preference shares) or are conferred upon a person for so long as they are a holder of a specific share. In the latter case, shareholders become a class in their own right. Typical class rights include rights related to dividends, the return of capital on winding-up, or the right to attend annual general meetings, appoint a director, etc. (3 marks)

ii) Circumstances for Variation of Class Rights:
Under the Companies Act, 2019 (Act 992), class rights can be varied under the following circumstances:

  1. Consent of Shareholders:
    Class rights can be varied with the written consent of the holders of at least three-fourths of the issued shares of that class. This means that a special resolution passed by the shareholders of that class can lead to the variation of class rights.
  2. Sanction of the Court:
    If the company’s constitution expressly forbids the variation of class rights, or if the constitution requires specific provisions regarding variation and these provisions are not met, class rights may only be varied with the sanction of the court. The court’s approval may be sought through a scheme of arrangement. (4 marks)

iii) Advice to Kofi Manu:
Kofi Manu should be aware that the special rights held by Abena Mansa, as part of their agreement, are considered class rights. These rights cannot be unilaterally canceled by Kofi without Abena’s consent or a valid resolution passed by a majority of the class shareholders as per the Companies Act, 2019. If Abena is unwilling to vary her rights, Kofi may have to seek legal advice or consider a scheme of arrangement that involves the sanction of the court. However, he should approach the situation with caution, respecting the legal protections afforded to class rights. (3 marks)