Share Transfer Tripwire: Some Hidden Risks in Deed of Adherence Clauses

A recent high court judgment explores the consequences of registering a share transfer in breach of such a provision in a company’s articles of association, where the execution of a Deed of Adherence was required but not completed, with the court holding that although the directors of the company lacked the authority to register the share transfer, the company was not able to challenge the validity of such transfer.

Case Overview
Jusan Technologies Ltd v Uconinvest LLC [2025] EWHC 704 (Ch) concerned Jusan Technologies Ltd (“Company), an English private limited company.

Prior to the key events in the case, the Company had completed a share buyback, acquiring the entire shareholding of one of its three shareholders (the “Old Shareholder”), leaving two shareholders (the “Remaining Shareholders”) with the Company holding shares in treasury.

Later, the Company agreed to sell the treasury shares to another company (the “New Shareholder”), which was ultimately controlled by the Old Shareholder.

The Company’s articles of association included a typical clause requiring that any transferee not already a party to the SHA must execute a Deed of Adherence before the share transfer can be registered:

“If … the transferee is not a party to any shareholders’ agreement or similar document in force between some or all of the shareholders and the Company, then the directors shall ... require the transferee … to deliver to the Company a deed agreeing to be bound by the terms of any shareholders’ agreement … in force between some or all of the shareholders and the Company … and [the directors shall] decline to register the transfer of such share unless and until the transferee has done so … ”

At the time of the proposed transfer, the Company and Remaining Shareholders were party to an SHA, therefore, per the terms of the articles of association, requiring the New Shareholder to execute a Deed of Adherence before registration of the share transfer.

As is common, the SHA set out a prescribed form of Deed of Adherence, which was to be signed by the transferee and, less commonly, also by the Company and, even less commonly, by all existing shareholders.

The New Shareholder, the Company and one of the two Remaining Shareholders executed the Deed of Adherence; however, crucially, the other of the two Remaining Shareholders did not execute the Deed of Adherence. Despite this, the Company proceeded to update its register of members to reflect the share transfer from the Company to the New Shareholder.

Later, the Company applied to the court to reverse the transfer, claiming it was invalid due to non-compliance with the Company’s articles, as a fully executed Deed of Adherence had not been provided.

The New Shareholder objected to the requested reversal of the share transfer, arguing that it had done all that it was required to do to give effect to the share transfer and the relevant provisions could not have been intended to require a share transfer to be blocked merely because a third party (in this case, the second Remaining Shareholder) refused to sign a Deed of Adherence.

The New Shareholder also argued that, even if the share transfer was registered in breach of the Company’s articles, it should still stand due to section 40 of the Companies Act 2006 (CA 2006), which provides that, in favor of a person dealing with a company in good faith, the directors’ power to bind the company is deemed to be free of any limitation under the company’s articles of association. The Company contended that section 40 CA 2006 was not applicable because registering a share transfer was a unilateral act by the directors, not a transaction involving the Company and the New Shareholder.

Accordingly, the key questions for the court to consider were whether it was required that the Deed of Adherence be executed by all parties before the share transfer could be registered, and, if so, whether section 40 CA 2006 would nonetheless render the transfer valid.

Judgment
The court held that the Company’s articles required a legally binding Deed of Adherence. On the facts, that meant all parties listed in the prescribed form, including, in this case, the second Remaining Shareholder, had to sign. Since this did not happen, the directors lacked authority to register the transfer.

However, in this case, the court found that the New Shareholder was able to rely upon section 40 CA 2006, with Mr Justice Fancourt finding that, insofar as section 40 CA 2006 is concerned, a shareholder is in no different position from a person with no existing relationship with a company, stating that:

“Sections 39-42 of the Act of 2006 … are clearly intended to operate as a single, coherent and comprehensive code in relation to the capacity of a company and the powers of its directors to bind it, and do not leave a gap through which undefined and uncertain categories of “third party” or “insider” (neither of which terms is used in the statute) can fall … ”

The Company argued further that although the share purchase agreement may fall within the ambit of section 40 CA 2006, the subsequent registration of the transfer was a separate, unilateral act not covered by the provision. Mr Justice Fancourt rejected this view, stating:

“Under section 40, a person can be dealing with a company in good faith where the otherwise invalid act is only part of the transaction. If that were not so, any unilateral step that was part of a larger transaction could fall outside the reach of the section.”

Conclusion
The decision in Jusan Technologies Ltd v Uconinvest LLC [2025] EWHC 704 (Ch) serves as a cautionary tale for both investors and companies. It highlights the importance of scrutinizing the operational mechanics of share transfers during the drafting and negotiation of joint venture and shareholder documentation.

Here, the requirement for a Deed of Adherence to be signed by all shareholders effectively gave each existing shareholder a veto over all share transfers to new shareholders, including those share transfers expressly permitted by the joint venture and shareholder documentation.

While the New Shareholder in this case may ultimately have been saved by the fact that its purchase of shares was from the Company (and the availability of protection under section 40 CA 2006), had the shares been acquired from an existing shareholder (a much more typical scenario), the outcome seemingly would have been different with the share transfer being unwound due to the Deed of Adherence not having been signed by all of the requisite parties.

It remains to be seen whether this decision will lead to incoming investors who are purchasing shares from existing shareholders requesting that the company also be a party to the share purchase agreement so as to seek protection under section 40 CA 2006 or indeed whether the courts would consider such transaction structuring not to be acting in good faith for the purposes of section 40 CA 2006.

Accordingly, the case underscores the need for any investor acquiring shares in an English company not only to review the relevant joint venture and shareholder documentation for transfer conditions but also to ensure that all inputs, consents and signatures required for such a share purchase are secured prior to (or as part of) the investor’s purchase of shares so as to safeguard the enforceability of the transaction.