In a recent case decided by the Court of Appeal (DnaNudge Limited v Ventura Capital GP Limited), the importance of good, commercially-focused drafting of a company’s articles of association was brought into sharp focus. This is particularly important in the absence of a shareholders’ agreement.


Ventura Capital GP Limited (“Ventura”) invested £40 million to acquire 24,026 Series A shares in DnaNudge Limited (“DnaNudge”) during early 2021. This was shortly followed by the acquisition of the remaining 851 Series A shares in issue by Sumitomo Mitsui Trust Bank Limited (“SMTB”) for £2 million. Otherwise, DnaNudge only had Ordinary shares in issue. At the time of Ventura’s investment, DnaNudge adopted new articles of association (the “Articles”), the most important of which to this case provided:

  • Article 9.1: “Any holder of Series A Shares shall be entitled, by notice in writing to the Company, to require conversion into Ordinary Shares of all of the Series A Shares held by such holder at any time and those Series A Shares shall convert automatically on the date of such notice (the “Conversion Date”).”
  • Article 9.2: “All Series A Shares shall automatically convert into Ordinary Shares:
  • upon notice in writing from an Investor Majority at the date of such notice (the “Conversion Date”); (emphasis added)
  • immediately upon the occurrence of a Qualifying IPO.”
  • Article 10.1: “Whenever the share capital of the Company is divided into different classes of shares, the special rights attached to any such class may only be varied or abrogated…with the consent in writing of the holders of more than 75 per cent in nominal value of the issued shares of that class.”

An “Investor Majority” was defined as “the holders of a majority of the Ordinary Shares and the Series A Shares in aggregate as if such Shares constituted one class of share”.

On 26 May 2022, various Ordinary shareholders – purportedly an “Investor Majority” – furnished DnaNudge with signed written notice that all Series A shares were to be converted into Ordinary shares (the “Conversion Notice”). The Conversion Notice was served on Ventura and SMTB by DnaNudge’s solicitors, who alleged that the status of Ventura and SMTB had changed to that of Ordinary shareholders in DnaNudge’s register of members.

Ventura’s solicitors responded, arguing that the Conversion Notice was invalid for lack of compliance with Article 10.1 because the consent of shareholders who held over 75% in nominal value of the Series A shares had not be obtained. DnaNudge subsequently disputed the application of Article 10.1. Ventura issued proceedings for declaratory relief as to the invalidity of the Conversion Notice for failure to adhere to Article 10.1.

Judgment at First Instance

In January 2023, the Trial Judge awarded judgment for Ventura, acknowledging the tension between Articles 9.2(a) and 10.1. Such tension arose, of course, because Article 9.2(a) provided for the conversion of Series A into Ordinary shares, which, when prefixed by the word “automatically”, would extinguish the valuable preferential rights attached to the Series A Shares by effectively removing their existence.

Simultaneously, though, this would have constituted a detrimental change to the Series A shares’ special rights under Article 10.1, which, in itself, would only be lawful with the consent of over 75% of the Series A shareholders. The Trial Judge, therefore, perceived this as bad drafting, and construed the operation of Article 9.2(a) as subject to Article 10.1.

Judgment on Appeal

The Court of Appeal upheld the High Court’s decision and favoured a holistic reading of the Articles. Articles which operated inconsistently with one another were to be read in conjunction – if not with respect to the entire set of articles – to discern their most appropriate and practical meaning in commercial terms.

The Court of Appeal decided that over 75% in nominal value of the Series A shareholders were required to consent to the effect of the Conversion Notice, and that the conversion to Ordinary shares could neither be unilaterally, nor so easily, authorised by the Ordinary shareholders, even if they did form an “Investor Majority”.

This case is a stark reminder of the importance of clear and commercially-sensible drafting in documents which are central to corporate governance matters. At Edwin Coe, our Corporate team regularly advise on incorporation and corporate governance matters, including the drafting of bespoke articles of association and shareholders’ agreements. If you or your business require any such advice, please contact Russel Shear or another member of the Corporate team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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