Corporate and tech founders, CEOs and FDs take note: failure to issue shares may mean failure to make payment

An 'automatic' share conversion mechanic is not a safety net for a company that delays in the issue of such shares. It may mean a live debt claim has arisen where the company expected to issue shares instead of repaying the debt. Founders and finance teams should treat the obligation to issue shares as a hard deadline rather than an administrative formality that can be deferred to avoid a live debt claim. 

The Insolvency and Companies Court handed down a decision in December 2025 in Segulah Medical Acceleration AB v Signifier Medical Technologies Ltd that will concern anyone sitting on unconverted convertible loan notes whether as issuer or investor.

The decision

A medical technology company failed to issue shares to its noteholders on the maturity of its convertible loan notes. Nearly two years later, the investors declared an event of default and demanded repayment in cash. The court agreed they were entitled to do so. A belated attempt by the company to issue shares after the administration application had been filed came too late. The full debt of over $26 million remained outstanding.

What happened

The company raised around $35 million through convertible loan notes in 2021. The notes were due to convert into shares by December 2023. They did not. In September 2025, the investors declared an event of default and demanded their money back. The company's response was that no money was owed and the debt had 'automatically converted' at maturity into a right to receive shares, extinguishing any cash obligation. Shares were then belatedly issued after the administration application was filed. The investors rejected them.

The central issue: does failing to issue shares mean failing to make payment?

The notes defined an event of default to include a failure to 'make any payment … when due'. The question was whether issuing shares counted as 'payment'. The court said yes and the reasoning is worth understanding. The conversion clause required the notes to be 'converted into' shares, not into a 'right to receive' shares. That distinction mattered, the actual issuance was the operative step, not the mere passage of the maturity date. 'Automatically' simply meant the investors did not need to take any action first and did not mean the company's obligation evaporated on its own. The court also noted that the notes expressly excluded pre-payment. If 'payment' in the events of default clause did not include issuing shares, the clause would have had virtually no practical application.  This was an outcome the court found commercially implausible. Once the event of default was validly declared, the opportunity to pay in shares was gone. The debt remained outstanding in cash.

 If this raises questions for your existing or proposed structures, we would be pleased to discuss how this decision may impact your financing arrangements or documentation. Please contact the authors or your usual Withers contact.