Ventura Capital Gp Ltd & Ors v DnaNudge Ltd (Re Company - Articles of Association - Whether conversion of preferred shares into ordinary shares a variation or abrogation of special rights attaching to such shares - Whether such conversion permitted by company's articles - Whether such conversion would unfairly prejudice the preferred shareholders - Whether such conversion should be set aside - Companies Act 2006, ss. 630, 633) [2023] EWHC 437 (Ch) (08 March 2023)

Ventura Capital Gp Ltd & Ors v DnaNudge Ltd (Re Company - Articles of Association - Whether conversion of preferred shares into ordinary shares a variation or abrogation of special rights attaching to such shares - Whether such conversion permitted by company's articles - Whether such conversion would unfairly prejudice the preferred shareholders - Whether such conversion should be set aside - Companies Act 2006, ss. 630, 633) [2023] EWHC 437 (Ch) (08 March 2023)

The conversion of the preferred shares into ordinary shares, purportedly effected under article 9.2(a) of the articles of association, amounted to an abrogation of the special rights attached to those shares. Article 9.2 must be read subject to article 10.1, which requires the consent of 75% of the class for any variation or abrogation of special rights. As such consent was not obtained, the conversion was invalid. Even if the conversion were effective, it would constitute unfair prejudice to the preferred shareholders under s. 633 Companies Act 2006, given the loss of valuable negotiated rights for which a substantial premium was paid.

Citation
[2023] EWHC 437 (Ch)
Parties
Claimant: Ventura Capital GP Limited (Acting for and on behalf of Ventura Capital LP Fund IV); Claimant: Ventura Capital GP Limited (Acting for and on behalf of Ventura Capital MG1 LP Fund); Defendant: DnaNudge Limited
Jurisdiction
England and Wales
Judgment Date
08 March 2023
Procedural Posture
Part 8 Claim (companies Act 2006, S. 633) / Trial Judgment
Outcome
Claim allowed
Legal Topics
Variation of Class Rights, Conversion of Shares, Shareholder Protection, Interpretation of Articles of Association, Unfair Prejudice, Companies Act 2006 Ss. 630, 633
Company Law Equity Variation of Class Rights Conversion of Shares Shareholder Protection Interpretation of Articles of Association Unfair Prejudice Companies Act 2006 Ss. 630, 633

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Parties

Ventura Capital GP Limited (Acting for and on behalf of Ventura Capital LP Fund IV)

Claimant

Ventura Capital GP Limited (Acting for and on behalf of Ventura Capital MG1 LP Fund)

Claimant

DnaNudge Limited

Defendant

Procedural Posture

Part 8 Claim (companies Act 2006, S. 633) / Trial Judgment

Legal Issues

  1. 1 Whether conversion of preferred shares into ordinary shares constitutes a variation or abrogation of special rights attached to such shares
  2. 2 Whether such conversion is permitted by the company's articles without consent of preferred shareholders
  3. 3 Whether the conversion unfairly prejudices the preferred shareholders under s. 633 Companies Act 2006

Ratio Decidendi

The conversion of the preferred shares into ordinary shares, purportedly effected under article 9.2(a) of the articles of association, amounted to an abrogation of the special rights attached to those shares. Article 9.2 must be read subject to article 10.1, which requires the consent of 75% of the class for any variation or abrogation of special rights. As such consent was not obtained, the conversion was invalid. Even if the conversion were effective, it would constitute unfair prejudice to the preferred shareholders under s. 633 Companies Act 2006, given the loss of valuable negotiated rights for which a substantial premium was paid.

Court Disposition

Claim allowed

Orders

  • Declaration that the purported conversion of the preferred shares is invalid, void and of no effect
  • Order for rectification of the company's register of members to restore the preferred shares and their rights