How to think about "deferred shares"? (DDD Group)

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I'm looking at DDD Group (listed in London on the AIM).

 

The company has 134m in ordinary shares with a par value of 1p and 74m in "deferred shares" with a par value of 9p. Originally they had 74m shares with par of 10p which they split into 74m ordinary and 74m deferred (since then they've issued a bunch so now they're at 134m ordinary shares).

 

As per their annual report, the deferred shares have no vote, are not registered with the exchange, won't get a dividend and will be paid out in case of a liquidation or takeover at their par value if ordinary shareholders get GBP100m+. Am I reading that correctly?

 

"Deferred Shares:

On 5 July 2008 the share capital of the Company was split so that a total of 74,416,547 ordinary shares of par

value 10 pence became 74,416,547 deferred shares of par value 9 pence plus 74,416,547 new ordinary shares of

par value 1 penny.

The holders of the deferred shares shall not be entitled to receive any dividend out of the profits of the Company

available for distribution. On a distribution of assets on a winding-up or other return of capital (otherwise than on

conversion or redemption or purchase by the Company of any of its shares) the holders of the deferred shares shall

be entitled to receive the amount paid up on their shares after distribution (in cash or in specie) to the holders of the

new ordinary shares the amount of £100,000,000 in respect of each new ordinary share held by them. The deferred

shares shall not entitle their holders to any further or other right of participation in the assets of the Company. The

holders of deferred shares shall not be entitled to receive notice of or to attend (either personally or by proxy) any

general meeting of the Company or to vote (either personally or by proxy) on any resolution to be proposed. No

certificates will be issued in respect of the deferred shares. The diluted loss per share does not differ from the basic

loss per share as these shares are anti-dilutive."

http://www.ddd.com/investors/company-reports-presentations/

 

 

The articles of association read similarly plus it seems like the company can cancel/repurchase these shares:

https://ddd.com/files/Articles-of-Association-100604.pdf

The following rights and restrictions shall be attached to the Deferred Shares:

5.3.1 As regards income

The holders of the Deferred Shares shall not be entitled to receive any dividend out of the profits

of the Company available for distribution and resolved to be distributed in respect of any financial

year or any other income or right to participate therein.

5.3.2 As regards capital

On a distribution of assets on a winding-up or other return of capital (otherwise than on

conversion or redemption or purchase by the Company of any of its shares) the holders of the

Deferred Shares shall be entitled to receive the amount paid up on their shares after there shall

have been distributed (in cash or in specie) to the holders of the Ordinary Shares the amount of

£100,000,000 in respect of each Ordinary Share held by them respectively. For this purpose

distributions in currency other than sterling shall be treated as converted into sterling, and the

value for any distribution in specie shall be ascertained in sterling, in each case in such manner

as the Directors or the Company in general meeting may approve. The Deferred Shares shall not

entitle the holders thereof to any further or other right of participation in the assets of the

Company.

5.3.3 As regards voting

The holders of Deferred Shares shall not be entitled to receive notice of or to attend (either

personally or by proxy) any general meeting of the Company or to vote (either personally or by

proxy) on any resolution to be proposed thereat.

5.3.4 Variation

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The rights attached to the Deferred Shares shall not be deemed to be varied or abrogated by the

creation or issue of any new shares ranking in priority to or pari passu with or subsequent to such

shares. In addition neither the passing by the Company of any resolution for the cancellation of

the Deferred Shares for no consideration by means of a reduction of capital requiring the

confirmation of the Court nor the obtaining by the Company nor the making by the Court of any

order confirming any such reduction of capital nor the becoming effective of any such order shall

constitute a variation, modification or abrogation of the rights attaching to the Deferred Shares

and accordingly the Deferred Shares may at any time be cancelled for no consideration by

means of a reduction of capital effected in accordance with applicable legislation without sanction

on the part of the holders of the Deferred Shares.

5.3.5 Repurchase

Notwithstanding any other provision of these Articles, the Company shall have the power and

authority at any time to purchase all or any of the Deferred Shares for an aggregate consideration

of £1.

5.3.6 Transfer

The Company shall have irrevocable authority to appoint any person to execute on behalf of the

holders of the Deferred Shares a transfer/ cancellation of the Deferred Shares and/or an

agreement to transfer/cancel the same, without making any payment to the holders of the

Deferred Shares to such person or persons as the Company may determine as custodian thereof

and, pending such transfer and/or cancellation and/or purchase, to retain the certificate(s) if any,

for such shares.

5.3.7 Cancellation

The Company may, at its option and subject to compliance with the provisions of applicable

legislation, at any time after the adoption of this Article, cancel such shares by way of reduction of

capital for no consideration.

 

 

My question is: what could possibly be the rationale for this and is there any way that it is a way for insiders to rip off public shareholders? I have not found anything about a conversion mechanism but my fear is that ie. these deferred shares at 9p par could be converted into ordinary shares at some ratio and massively dilute the equity.