Key Facts
- •Ventura Capital GP Limited invested £42m in DnaNudge Limited's Series A Preferred Shares, with special rights including preferential dividend payments and a put option.
- •Sumitomo Mitsui Trust Bank invested a further £2m in preferred shares.
- •An 'Investor Majority' (majority of ordinary and preferred shares) issued a conversion notice, converting all preferred shares into ordinary shares under Article 9.2(a).
- •The preferred shareholders did not consent to this conversion.
- •Article 10.1 of the company's articles stated that special rights attached to shares can only be varied or abrogated with the consent of over 75% of the shareholders of that class.
- •The claimants argued the conversion was invalid due to non-compliance with Article 10.1, or alternatively, unfairly prejudiced them under s.633 of the Companies Act 2006.
Legal Principles
Construction of articles of association: Commercial documents should be construed to give business efficacy, but plain meaning can only be displaced if it produces commercial absurdity.
Holmes v Keyes [1959] Ch 199; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38
Implication of terms: A term can be implied if it is so obvious it goes without saying, or is necessary to give business efficacy.
Extrinsic evidence in articles of association construction: Limited to publicly available information from Companies House.
Re Coroin Ltd [2011] EWHC 3466 (Ch); Re Euro Accessories Ltd [2021] EWHC 47 (Ch)
Companies Act 2006, s.630: Variation of class rights only permissible in accordance with articles or with shareholder consent.
Companies Act 2006, s.630
Companies Act 2006, s.633: Court can cancel a variation of class rights if it unfairly prejudices shareholders.
Companies Act 2006, s.633
Corrective construction: Only applicable where there is a clear error on the face of the document and a clear solution.
Britvic Plc v Britvic Pensions Ltd [2021] EWCA Civ 867
Outcomes
The conversion of preferred shares into ordinary shares was declared invalid and void.
The court found that the conversion, under Article 9.2(a), amounted to a variation or abrogation of class rights, requiring consent under Article 10.1, which was not obtained. The court implied a limitation into Article 9.2(a) to require such consent.
The claim under s.633 of the Companies Act 2006 was not addressed in detail as the declaration on article construction rendered it unnecessary.
Though the court acknowledged the potential applicability of s.633, and addressed the scope of 'unfair prejudice', it did not find unfair prejudice on the artificial basis of the share conversion being compliant with the articles.