Court Of Appeal Upholds Decision That Exercise Of Conversion Rights In Articles Was A Variation Of Class Rights

• Published date: 23 October 2023
• Law Firm: Herbert Smith Freehills
• Author: Joseph Dennis, Sarah Hawes and John Taylor

The Court of Appeal has upheld a High Court decision that exercising a right in a company's articles of association to convert preference shares to ordinary shares by notice required preference shareholder consent. The decision in Ventura Capital GP Ltd v DnaNudge Ltd [2023] EWCA Civ 1142 could impact the mechanics of 'conversion by notice' rights contained in companies' articles of association.

DnaNudge's articles of association contained:

• a provision allowing for the automatic conversion of the preference shares upon notice by a majority of the combined ordinary and preferred shareholders (Article 9.2(a)); and
• a separate provision which stated that the special rights attaching to a class of shares could only be varied with the consent in writing of the holders of more than 75% of the relevant class of shares (Article 10.1).

When the ordinary shareholders (who held around 87% of the total issued share capital) sought to exercise the conversion right in Article 9, Ventura (a holder of the preference shares) argued that the purported conversion involved a variation or abrogation of the rights attached to the preference shares and was accordingly void because of a failure to comply with Article 10.1.

The High Court agreed with Ventura's...