House of Fraser plc v ACGE Investments Ltd [1987] AC 387

Facts

  • House of Fraser plc instituted a plan to buy back a substantial number of its own ordinary shares.
  • ACGE Investments Ltd, owner of a different share class, opposed the plan, asserting that the buyback diminished the power of its class through a reduction in share numbers.
  • The main dispute centered on whether the buyback, targeting a specific class, constituted an alteration of the rights attached to that class.
  • The case concerned the interpretation of the Companies Act 1985, which governed changes to class rights and provided safeguards for shareholders in particular classes.

Issues

  1. Whether the reduction of the number of shares in a particular class through a buyback constitutes a variation or abrogation of the rights attached to that class under the Companies Act 1985.
  2. Whether the approval of the affected class was required when only the number of shares (not the nature of rights attached) was reduced.
  3. Whether the buyback plan as implemented impacted the rights to dividends, voting, or other class-specific entitlements of ACGE Investments Ltd.

Decision

  • The House of Lords held that a reduction in the number of shares in a given class did not by itself amount to a variation of class rights.
  • The Court found that class rights refer to the rights attached to the shares (such as voting or dividend rights), not the numerical strength of the class.
  • Since the proposed buyback did not alter the substantive rights of the shares held by ACGE Investments Ltd, class approval was not required.
  • The company could proceed with the buyback plan without being obliged to obtain approval from other classes affected only in numbers, not in rights.

Legal Principles

  • Class rights under company law relate to the explicit legal rights attached to shares (including voting and dividend rights), rather than the proportion or number of shares held by a class.
  • A buyback that merely reduces the number of a class’s shares does not, without more, amount to a variation of those class rights.
  • Each buyback plan must be assessed against the company’s articles of association and the actual impact on the rights attached to the remaining shares.
  • The protection of minority or specific class shareholders centres on whether their legal entitlements per share are directly impacted by any company action.
  • Current company law—including the Companies Act 2006—continues to uphold the critical distinction between numerical reductions and variation of rights.

Conclusion

The House of Fraser decision established that a share buyback reducing the number of shares in a class does not, by itself, constitute a variation of class rights as long as the rights attached to remaining shares are unchanged, granting companies greater flexibility in capital management while maintaining protection for genuine class rights.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal