Ventura Capital GP Ltd (Acting for and on behalf of Ventura Capital LP Fund IV) v DnaNudge Ltd
| Jurisdiction | England & Wales |
| Judge | Hodge |
| Judgment Date | 08 March 2023 |
| Neutral Citation | [2023] EWHC 437 (Ch) |
| Docket Number | Case No: CR-2022-001952 |
| Court | Chancery Division |
In the Matter of Dnanudge Limited
And in the Matter of the Companies Act 2006
[2023] EWHC 437 (Ch)
HIS HONOUR JUDGE Hodge KC
(sitting as a Judge of the High Court)
Case No: CR-2022-001952
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice,
Rolls Building,
Fetter Lane,
London
EC4A 1NL
Company — Articles of Association — Whether conversion of preferred shares into ordinary shares a variation or abrogation of special rights attaching to such shares — Whether such conversion permitted by company's articles — Whether such conversion would unfairly prejudice the preferred shareholders — Whether such conversion should be set aside — Companies Act 2006, ss. 630, 633
Mr Timothy Collingwood KC (instructed by Fladgate LLP) for the Claimants
Mr Andrew Thornton KC (instructed by Dorsey & Whitney (Europe) LLP) for the Defendant
Hearing dates: 18 and 19 January 2023
Draft judgment released: 28 February 2023
Postscript added: 7 March 2023
Judgment handed down: 8 March 2023
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HIS HONOUR JUDGE Hodge KC
Remote hand-down: This judgment was handed down remotely at 10.30 am on Wednesday 8 March 2023 by circulation to the parties or their representatives by email and by release to The National Archives.
The following cases are referred to in the judgment:
Britvic Plc v Britvic Pensions Ltd [2021] EWCA Civ 867, [2022] 2 All ER 457
Re Coroin Ltd, McKillen v Misland (Cyprus) Investments Ltd [2011] EWHC 3466 (Ch)
Cosmetic Warriors v Gerrie [2017] EWCA Civ 324
Re Euro Accessories Ltd [2021] EWHC 47 (Ch)
Holmes v Keyes [1959] Ch 199
Re John Smith's Tadcaster Brewery Co Ltd [1953] Ch 308
Thompson v Goblin Hill Hotels Ltd [2011] UKPC 8
The following additional authorities were provided in response to the draft judgment and are referred to in the postscript:
House of Fraser Plc v ACGE Investments Ltd [1987] AC 387, HL (Sc)
His Honour Judge Hodge KC:
I: Introduction
This is my reserved judgment following the trial of a Part 8 claim issued on 28 June 2022. The short, but novel, question raised by this claim is whether the special rights attached to a class of preferred shares can be extinguished by the simple procedure of converting those shares into ordinary shares without the consent of the preferred shareholders, who had invested some £44 million in the company in reliance on those special rights. From the perspective of common sense and simple fairness, the answer to that question should be fairly straightforward; but the resolution of contested legal issues is seldom an easy process.
The hearing took place on Wednesday 18 and Thursday 19 January 2023, concluding shortly before 12 noon on the second day. The claimants are represented by Mr Timothy Collingwood KC and the defendant by Mr Andrew Thornton KC. In addition to their helpful and detailed written skeleton arguments, there is a written transcript of leading counsel's oral submissions (although I am informed by Mr Thornton that this was commissioned by the claimants and has not been made available to the defendant). The advocacy, both written and oral, was of an extremely high order; and I am indebted to both counsel for the clarity of their submissions, and also for their willingness to respond to, and engage with, questions from the Bench which, I fear, added to the length of the hearing (although, despite my interventions, this concluded well within its original time estimate).
II: Background
The evidence in support of the claim is contained within the witness statement, dated 28 June 2022, of Mr John Mark Buckley, a solicitor and partner in the dispute resolution department of Fladgate LLP, which represents the claimants. Evidence in answer is contained in the witness statement, dated 12 July 2022, of Mr David Lyons, a barrister then acting as the defendant's general counsel. Evidence in reply was provided by Mr Buckley in his second witness statement dated 28 July 2022. At the beginning of the hearing, and without any objection from the defendant, I gave permission (pursuant to CPR 8.6 (1) (b)) for the claimants to rely upon a third witness statement from Mr Buckley, dated 22 December 2022. This merely brought the evidence up-to-date following the expiry of the timetable for evidence prescribed by the Civil Procedure Rules and the case management order of ICCJ Burton. It concerns discussions about a possible sale of the company and is said to be relevant to the extent, and potential imminence, of the unfair prejudice that the claimants will suffer if the conversion of their shares is allowed to stand, highlighting the significance of the relief claimed in these proceedings. It was clearly just, and in accordance with the overriding objective, to permit the claimants to update their evidence in this way; and the defendant did not seek to put in any evidence by way of rejoinder. There has been no cross-examination of either witness on their written evidence. Since the evidence stands unchallenged, I need do no more than briefly summarise the background facts.
The defendant company, DnaNudge Limited, is a medical and health technology company which was incorporated in July 2015. Towards the end of 2021 and early 2022, the company sought to raise significant funding from investors in reliance on a substantial contract for the supply of clinical products to the NHS. The claimant, Ventura Capital GP Limited (‘ Ventura’), acting as the general partner for and on behalf of two Cayman Islands exempted limited partnerships, invested £42m in acquiring a total of 24,026 Series A Preferred Shares in the company (the ‘preferred shares’). Shortly thereafter, Sumitomo Mitsui Trust Bank (‘ SMTB’), Japan's largest trust company, and part of Japan's second largest banking group, invested some £2m in acquiring a further 851 preferred shares. Together, Ventura and SMTB held all of the preferred shares in the company, and they constituted the entirety of that class of shareholder. Since the interests of all the preferred shareholders coincide, SMTB does not oppose the declaratory relief sought by the claimants as to the true meaning and effect of the articles; and SMTB has appointed the claimants to make this application pursuant to s. 633 of the Companies Act 2006 ( ‘the 2006 Act’) on its behalf. Thus, all the holders of preferred shares in the company are united in objecting to the extinguishment of their special class rights.
As Mr Buckley explains (at paragraph 20 of his first witness statement), as at about 20 May 2021 (and following the issue of the preferred shares to Ventura and to SMTB, consequent upon their respective investments in the company), the issued share capital of the defendant company was approximately £76,400,000 (including the nominal value of the shares and share premium), divided into 24,877 preferred shares and 162,561 ordinary shares each of £0.001, all of which shares were (and are) fully paid up. As can be seen, the number of ordinary shares in issue greatly exceeds the number of preferred shares.
Before investing in the company, Ventura (and later SMTB) had negotiated and acquired a number of valuable preferential rights attached to the shares they were purchasing which were additional to the rights enjoyed by the holders of ordinary shares in the company. These additional rights were ultimately recorded in amended articles of association (adopted on 21 January 2021) and an amended shareholders' agreement. Articles 5 and 6 of the amended articles provide for a preferred payment of arrears of dividends and return of capital plus a cumulative 8% preferred return (compounding annually), in priority to ordinary shareholders, in any distribution on liquidation or return of capital or sale of shares amounting to a controlling interest in the company. Clause 3.3 of the shareholders' agreement provides that if a ‘Qualifying IPO’ (a defined term but effectively a listing on an identified or recognised exchange with an offer price of at least £900m) does not occur prior to 19 November 2023, then (subject to sufficient distributable reserves) Ventura (and SMTB) have a put option to require the company to purchase all or any portion of their preferred shares for an aggregate purchase price equal to the preferred payment for each preferred share. Under clauses 10.1 and 10.4 of the shareholders' agreement, Ventura (but not SMTB because it does not hold the required threshold number of preferred shares) also has the rights to appoint a director and a representative to attend directors' meetings. Clause 12 of the shareholders' agreement provides (in fairly standard form) that:
(1) Each shareholder shall (to the extent he is able to do so) exercise his voting rights and other powers of control as a shareholder to procure that the provisions of the agreement are properly and promptly observed and given full force and effect according to the spirit and intention of the agreement;
(2) If there is any inconsistency between any of the provisions of the shareholders' agreement and the articles, then the provisions of the former shall prevail between the...
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