DnaNudge Ltd ' Conflicting Articles Of Association

• Published date: 12 March 2024
• Law Firm: Shepherd and Wedderburn LLP
• Author: Eva Fraser

The Court of Appeal's decision regarding conflicting provisions in DnaNudge Ltd v Ventura Capital GP Ltd highlights the importance of ensuring there's no provision clashes when drafting articles of association.

The Court of Appeal's decision in DnaNudge Ltd v Ventura Capital GP Ltd provides a stark reminder of the importance of checking for conflicting provisions when drafting articles of association.

Contested articles

The case concerned the interplay between two of DnaNudge's (the "Company") articles, namely:

• Article 9 provided for the conversion of series A shares into ordinary shares in various situations, including an automatic/ forced conversion of all series A shares into ordinary shares by written notice from an Investor Majority. An Investor Majority was defined in the articles as the holders of a majority of the ordinary and series A shares, as if they were one class of shares Due to the number of ordinary shares in issue, an Investor Majority could be formed solely by ordinary shareholders. Certainly, an interesting position for series A shareholders to find themselves in.
• Article 10 related to the variation of class rights. This article provided that if the Company's share capital is divided into different share classes, the special rights attaching to any class of shares could only be varied or abrogated with the written consent of those who hold over 75% in nominal value of the issued shares of that relevant share class.

Automatic/ forced conversion

From the competing provisions highlighted, it may come as no surprise that an Investor Majority, comprised solely of ordinary shareholders, converted the series A shares held by external investors, including Ventura Capital GP Ltd ("Ventura"), into ordinary shares pursuant to the conversion provisions in Article 9.

The impact of this conversion was to remove the preference rights attached to the series A shares (i.e. the right to a preferential return on a sale, ahead of the ordinary shareholders).

The High Court's decision

Ventura claimed in the High Court that the conversion of series A shares into ordinary shares was...