LW Furniture was an incorporated company with its articles of association providing for fourteen different classes of shares from ‘A’ to ‘N’ worth one dollar each. Classes ‘A’ to ‘D’ were described as ‘preference’ shares with ‘C’ being redeemable preference shares. The rest were classified as ordinary shares.
The ‘C’ class shares gave the holder preference to the return of capital over the holder of any ordinary shares but otherwise had no preferential rights. Eight class ‘C’ shares were issued to Mrs Hedy Weinstock with the intention of reducing death and estate duties payable on the death of Leo Weinstock.
The directors of LW Furniture were Mr and Mrs Weinstocks children, Mr Amiram Weinstock and Mrs Tamar Beck. Mrs Weinstock died in 2004 and Amiram purported to pass a resolution redeeming, for one dollar each, the eight ‘C’ class shares which his mother had held at her death. Tamar, as executor of the estate of Mrs Weinstock claimed that the ‘C’ class shares were not redeemable because they were not preference shares within the meaning of the Corporations Act 2001 (Cth) and the Companies Act 1961 (NSW).
The primary judge held that it was an essential quality of a preference share that it confer an advantage over another class of share. Subsequently, the ‘C’ class shares were not preference shares since no ordinary shares had ever been issued and thus, there were no other shares on issue over which they had preference. The Court of Appeal overturned the decision and held that the power conferred on the directors to issue new shares from available nominal capital could be exercised at all times.
The High Court held that there was nothing in the 1961 Act that required a preference share to be given preference or priority over some other issued share. The emphasis in the Act is the definition of the rights of shareholders in the memorandum and articles of association. If a company’s memorandum and articles provided a share carried rights in respect of repayment of capital, voting, priority of payment of a dividend etc then the shares would be a preference share. Therefore, they were redeemable preference shares.