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Entrenchment Co Law AoA
Entrenchment Co Law AoA
Under section 22 of the Companies Act 2006, members can entrench certain
provisions in a company’s articles of association. This means that a higher
threshold is set to amend, remove or alter a provision in the articles. Examples of
entrenched provisions in a company’s articles include a provision that requires
third-party consent to be amended or that requires a specific type or class
of shareholder to approve.
Section 22 (2) of the Companies Act 2006 requires that a provision for
entrenchment may only be made upon the formation of a company or if an
amendment to the articles of a company is made by agreement of all its members.
However, section 22 (2) is not yet in force and is currently under review, with an
update said to follow in due course. This means that a provision for entrenchment
can be created by a special resolution of members.
The procedure to vary a class of rights is, in some cases, contained within a
company’s articles of association and may require additional thresholds, meaning it
is an entrenched provision. An example of an entrenched provision relating to
variation of class rights is that members can provide for a variation of class rights
to require the consent of 75% of the shareholders of the related class to approve.
Therefore, on the surface, the provision could be considered an entrenched
provision, as it requires a company’s members to satisfy a further requirement of
procuring 75% of the share class holders to amend, alter or remove.