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Review Your SQE 1 Practice Records

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GreenLeaf Ltd, a private limited company, was incorporated with the model articles as its articles of association. Following further investment from some new shareholders, GreenLeaf Ltd recently passed a resolution to adopt amended articles of association. These amended articles are based on the model articles but include special provisions related to the pre-emptive rights of the shareholders. One of the provisions ("the provision") in the amended articles stipulates that these pre-emptive provisions can never be changed by any majority whatsoever. 


What is the effect of that provision?

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Under section 22 of the Companies Act 2006, companies may include provisions for entrenchment in their articles, which means certain provisions can only be amended or repealed under more restrictive conditions than those required for a special resolution. However, the Act also stipulates that entrenchment provisions cannot prevent the articles from being amended by the unanimous agreement of all the members of the company. Therefore, while the provision aims to make the pre-emptive rights unchangeable by any majority, it does not preclude amendment or repeal if all the members of GreenLeaf Ltd agree. This aligns with Option D. 


Key Point: Section 22 of the Companies Act 2006 allows for entrenchment provisions in a company's articles, but these provisions cannot prevent unanimous member agreement from amending or repealing the entrenched articles.

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