Your Convertible Business Loan Has Matured: Must You Accept Shares Instead of Repayment?

If conversion was your option and you never exercised it, the borrower may still owe repayment when the loan matures. A DIFC convertible loan repayment claim starts with the actual conversion and maturity clauses, not the founder's description of your money as an investment. Automatic conversion, a binding later variation or an exercised election could produce a different answer.

Prepare a one-page decision record before responding to an offer of shares. The question is not simply whether equity was discussed, but whether the agreed debt-to-equity event occurred.

Who controls conversion under the actual loan agreement?

The word convertible tells you that a route from debt to equity exists. It does not, without the rest of the contract, tell you who controls that route. Identify whether each investor holds an individual option, whether a specified majority can act for everyone, or whether a defined event changes the position automatically. Those are drafting questions for your agreement, not interchangeable descriptions of the same arrangement.

In Reuter and others v Wellness United Inc., CFI 107/2021, decided on 27 October 2023, the investors each had a right to convert principal and accrued interest into equity. None exercised it. The Court recorded that the sums therefore became repayable on the agreed maturity date, 31 January 2019.

The non-conversion and resulting maturity were undisputed facts. The case was not a contested ruling on a founder's attempt to force an unwanted conversion. It is useful because the Court kept the unused equity option and the accrued repayment obligation distinct. Do not make it decide a different agreement containing automatic conversion or an effective conversion notice.

These were English-law agreements litigated in the DIFC Courts. The borrower was incorporated in the British Virgin Islands. This is a DIFC judgment illustrating those contractual facts, not a statement that every Dubai convertible instrument is governed by the same substantive law.

Key takeaway. Find the event that changes debt into equity. An attractive share proposal and a completed contractual conversion are different things.

How do you establish whether conversion actually happened?

Collect every communication said to exercise the option. Separate an inquiry about valuation from an instruction to convert. A message asking how many shares you would receive may be part of negotiations rather than a completed election. Conversely, do not dismiss a document as informal without checking whether it satisfies the agreed mechanism.

Read the notice against the conversion clause. Identify the sender, recipient, delivery date, amount affected and any stated conditions. If the contract requires an approval or a later corporate step, record whether that occurred. Do not assume that the absence of a share certificate answers every contractual question, or that a draft capitalisation table proves a completed conversion.

In Wellness, the Court relied on an agreed case memorandum, witness evidence, bank records and correspondence. The parties did not dispute that the agreements had been entered into, the advances made, the options left unexercised and repayment not made. Those agreed facts are stronger than simply pointing to silence in one email chain.

If your position is contested, ask the borrower to identify the specific conversion event it relies on. Preserve the whole exchange, including anything that appears to accept equity or extend time. Your adviser should not discover an inconvenient acceptance only after sending an unconditional repayment demand.

Did an extension replace the original repayment date?

The convertible loan in Wellness had a history. The February 2018 agreement consolidated earlier advances and accrued interest, and extended maturity to 31 January 2019. The Court therefore assessed the repayment obligation under the consolidated agreement, rather than treating every earlier document as an independent additional debt.

Build a short amendment chronology. For each document, record whether it changes the maturity date, replaces an earlier agreement, capitalises interest, adds funding or changes conversion rights. Keep the signed version and the evidence showing when it took effect. A spreadsheet labelled latest terms is useful working material but is not itself the amendment.

This matters when the borrower says that continued discussions amounted to more time. Identify the actual communication relied on, the proposed new date and whether the parties agreed it. Avoid treating patience, a payment reminder and a concluded extension as though they necessarily have identical legal effects.

If you are considering an extension now, ask for a written explanation of what survives. Does interest continue? Can conversion still occur? What happens to existing security? Is only the payment date changing, or is the earlier obligation being replaced? Have those effects reviewed before signing, especially if the document is described as a routine update.

Do not backdate a new agreement to make the history look simpler. Preserve the original maturity and record any later arrangement on its true terms. The adviser can then distinguish an overdue obligation from a properly rescheduled one.

Does later bridge funding change the earlier convertible debt?

A later advance does not tell you its relationship with the earlier loan without the documents. In the companion Wellness bridge-loan judgment, CFI 108/2021, the October 2018 bridge facility was a separate agreement independent of the convertible loan. Two lenders provided it, while three investors participated in the earlier arrangement.

The bridge agreement also contained an unexercised conversion right and the same maturity date. The Court used common reasons for the two consolidated cases but issued separate orders. That is a useful reminder that connected funding rounds can retain distinct creditors, balances and contractual terms.

Prepare a separate balance for each facility and each lender. Identify principal, any interest already included in a restated principal figure, later interest, repayments and the amount claimed. Do not count interest twice merely because an earlier balance was rolled into a later agreement. Nor should one lender's new contribution be silently attributed to all original investors.

The judgment enforced the loans and associated guarantees on its particular facts. It does not provide current regulatory permission for anyone to conduct lending business in Dubai. This article does not reproduce the historical statutory discussion of lending or interest as a present compliance opinion. Obtain advice on the actual parties, activity, place of performance and applicable law if legality or licensing is disputed.

Common mistake. Adding every historical funding figure together without checking which amounts were consolidated, repaid or advanced under a separate facility.

What if the borrower now offers shares instead of cash?

First ask whether the borrower is asserting that conversion already occurred or proposing a new settlement. Those positions call for different responses. A proposal to issue shares may invite a commercial choice without establishing that the existing repayment obligation has disappeared.

For a proposed settlement, obtain the number and class of shares, valuation basis, rights attached, dilution assumptions and the identity of the issuing company. Ask which debt amount would be discharged and at what stage. An equity offer in an operating subsidiary is not self-explanatory where a different group company borrowed the money.

Also ask what happens if the promised issue is not completed. A document that releases the debt before the agreed shares are delivered may create a different risk from an arrangement making discharge conditional on completion. The correct wording needs advice on the actual agreement and company requirements. Wellness did not decide those hypothetical settlement arrangements.

Keep your response clear about whether you are considering the proposal or accepting it. Do not rely on a general reservation written elsewhere to cure an inconsistent acceptance. Preserve draft versions and any agreed conditions so the eventual dispute is not reduced to competing recollections of a telephone conversation.

The commercial decision should be made separately from the legal assessment of the existing claim. You may prefer a negotiated equity position, a payment schedule or repayment. The judgment supplies no investment valuation and no assurance that winning a debt claim means the borrower can immediately pay.

What proof supported the judgment, and what happened afterwards?

The trial proceeded in the defendants' absence after an adjournment request was refused. The Court still heard the claimants' witnesses, considered documents and addressed the pleaded defences. The 27 October 2023 judgments were therefore not simply the earlier default judgments, which had been set aside during 2022.

The Court found the loan and guarantee claims successful. For the convertible facility, it ordered payment of the individual judgment sums, including the specified accrued interest, to the three claimants. The bridge action had its own payment order for its two lenders. This article does not offer those historical interest rates as current default rates for another loan.

Later proceedings also need to be described accurately. The 7 February 2024 order in CFI 107/2021 refused an attempt to set aside the earlier refusal of more time to appeal. The corresponding 7 February order in CFI 108/2021 reached the same procedural result.

Those orders are not merits appellate endorsements of the conversion analysis. Official party-name and case-number searches checked on 1 October 2026 did not locate a later reversal of these repayment judgments. That is a bounded public-source check, not a payment confirmation or complete docket certificate.

For your claim, preserve evidence even where the borrower currently admits the principal facts. The admission, signed instruments and payment records should be available together. A repayment case is easier to assess when the file explains both the funding and why it remained debt at maturity.

What should your repayment instruction contain?

Give the adviser a facility-by-facility summary rather than a single figure labelled investment loss. Explain which company borrowed, which person advanced each amount, the conversion mechanism and the maturity date you rely on. Include adverse correspondence as well as demands supporting repayment.

1. Locate the operative agreement. Attach restatements and extensions, and explain which earlier balances they replaced.
2. Address conversion directly. Identify the option holder, trigger and any communication said to exercise it.
3. Reconcile the debt. Separate facilities and creditors, avoid rolled-up interest duplication, and credit actual repayments.
4. Identify the proposed response. Distinguish a debt demand from consideration of a fresh share settlement or payment schedule.
5. Review timing and forum. Obtain advice on applicable law, limitation, any notice requirements and the available proceedings without copying historical case deadlines.

A demand should answer the real disagreement. If the company admits receiving the funds but says they became equity, a longer bank-transfer bundle will not resolve the conversion issue. If conversion never happened but maturity was extended, the date needs attention. Identify that disputed step before choosing the next action.

Frequently Asked Questions

Does a convertible loan automatically become shares at maturity? Not necessarily. In Wellness, conversion was an option the investors did not exercise, and repayment became due. Your agreement may contain a different trigger or automatic mechanism.

Can the founder decide that I must take shares? Check who holds the conversion power under your contract and whether it was validly used or changed. Wellness is not a contested forced-conversion ruling, and it should not replace that document review.

Does calling me an investor mean I cannot claim repayment? The Wellness agreement called the lenders investors but still created repayment obligations when their conversion rights remained unused. The contractual rights matter more than that label alone.

Does a later bridge loan replace the original loan? Not automatically. The bridge facility in Wellness was expressly independent of the earlier convertible agreement. Check the relationship created by your own documents.

Should accrued interest be added to every historical advance? First check whether a consolidated balance already includes it. Prepare a period-by-period calculation and avoid counting the same accrued amount twice. Applicable interest terms need their own legal review.

Does the judgment approve unlicensed lending in Dubai? No such present-day assurance should be drawn from it. These were particular English-law corporate loans, with a historical legality defence considered on the evidence. Current regulatory and applicable-law questions require separate advice.

Were the 2023 judgments merely default judgments? No. Earlier default judgments had been set aside. The 2023 trial proceeded without the defendants, but the Court heard evidence and addressed their pleaded defences before deciding the claims.

Did an appellate court approve the repayment decision? The later orders discussed here refused procedural attempts to obtain more time to appeal. They are not merits appellate judgments. The bounded official searches described above found no later reversal.

This article is general information and does not constitute legal advice. Consult a qualified advocate about the agreements, applicable law, evidence and deadlines before acting.

Related guides

See the Dubai and DIFC commercial contracts section, together with guides to loan funds sent to a third-party account, a personal-guarantee demand and shares transferred without the agreed price being paid.

Related Guides

Our DIFC commercial contracts page covers payment, suspension, termination, guarantees and shareholder disputes under DIFC-law agreements.

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