The outcome, however, is still an embarrassment to Gartmore, the fund management group that runs the fund, because it is being forced to make a substantial extraordinary payment to shareholders in return for their support.
A US arbitrage fund bought 93 per cent of the debentures, worth pounds 3m, earlier this year after spotting that a loophole in the rules meant the notes were worth more if redeemed early. The extra profit for the debenture holder would have meant pounds 9m less to pay to shareholders.
To block the loophole, Gartmore called yesterday's meeting to persuade shareholders to give up their right to wind up the fund next year as originally planned, but to extend its life indefinitely. In return for their support, however, the fund is promising to pay shareholders the amount they would have received had the fund been wound up next year. Paul Myners, head of Gartmore, refused to say how the fund would finance this payment.
The debenture holder will now have to hold the debentures until they mature in 2014 unless he can sell them earlier. He is understood to have approached Gartmore in an attempt to sell the notes back to the fund at a favourable price.
'We were not going to give in to any attempt at greenmail,' Mr Myners said.
'All those at the shareholders' meeting were in favour of our resolutions.'
Before the meeting began, 65 per cent of the votes had already been pledged in Gartmore's favour by proxy.
The affair is embarrassing because Gartmore failed to spot the flaw in the rules before the US investor. The company then came in for heavy criticism for not moving faster to sort it out. Having, in effect, changed the fund's rules, Gartmore is now waiting to see what the debenture holder will do next. Some company executives fear the next stage may be a court action in the US.Reuse content