Ventura Capital GP Limited & Anor. v DnaNudge Limited

The court held that a purported conversion of all issued Series A Preferred Shares into Ordinary Shares effected by a conversion notice dated 26 May 2022 was invalid, void and of no effect. The judge construed the company’s articles, in particular the interrelationship between articles 9.2(a) and 10.1, and concluded that article 10.1 did not operate to validate the conversion. The court ordered rectification of the register of members to record the Series A Preferred Shares as at 7 June 2022 (or such earlier date as the defendant purported to record Ordinary share ownership).

As an alternative contention, the claimants had sought relief under sections 630 and 633 of the Companies Act 2006 (an application to cancel a variation of class rights). The judge held that consideration of s. 633 was unnecessary to the primary result, but expressed the view that, had it been necessary to decide, the claimants would have failed on the ground that any prejudice alleged was not unfair for the purposes of s. 633.

On consequential matters the court ordered that costs follow the event but applied a small reduction of 10 per cent to the claimants’ costs to reflect limited defendant success on discrete s. 633 issues, and refused the defendant permission to appeal for lack of a real prospect of success.

The proceedings were a first-instance claim by two investor claimants seeking declaratory relief and consequential orders arising from a disputed share conversion in the defendant company. The claimants sought a declaration that a conversion of all issued Series A Preferred Shares into Ordinary Shares (purportedly effected on or about 7 June 2022 by a conversion notice dated 26 May 2022 signed by an investor majority) was invalid, and an order rectifying the company’s register of members accordingly. As an alternative remedy, the claimants relied on the Companies Act 2006, including sections 630 and 633, seeking cancellation of any variation of class rights and the interim protection conferred by s. 633(3).

The principal issues determined were:

• the true construction of the company’s articles of association, in particular how article 9.2(a) and article 10.1 interrelate;
• whether the purported conversion was effective under the articles;
• whether, alternatively, the variation of class rights engaged sections 630 and 633 of the Companies Act 2006 and, if so, whether any prejudice to the claimants was unfair under s. 633;
• incidence of costs and whether any deduction was appropriate to reflect partial success by the defendant on the s. 633 issues; and
• whether permission to appeal should be granted.

The court concluded that, on proper construction of the articles, the conversion was ineffective and granted the requested declaratory relief and rectification of the register as from 7 June 2022 (or earlier as applicable). Although it was unnecessary for the final outcome, the judge addressed the alternative s. 633 claim and indicated that, had that scenario arisen, the claimants would not have established unfairness and so would have failed on s. 633. On costs the normal rule that costs follow the event was applied but the court exercised its discretion to reduce the award to the claimants by 10 per cent to reflect the defendant’s limited success on discrete s. 633 matters. Finally, permission to appeal was refused on the basis that there was no real prospect of the Court of Appeal taking a different view on construction of the articles.

This first-instance claim succeeded. The court declared the purported conversion of Series A Preferred Shares into Ordinary Shares invalid, void and of no effect and ordered rectification of the register of members to reinstate the claimants’ Preferred Share holdings as at 7 June 2022 (or earlier as applicable). The judge observed that an alternative claim under s. 633 of the Companies Act 2006, had it been necessary to decide, would have failed for lack of unfairness. Costs were awarded to the claimants on the usual basis but reduced by 10 per cent to reflect limited defendant success on s. 633 issues. Permission to appeal was refused for lack of a real prospect of success.