Aberdeen split cap trust sold as a tax loss

Investors in collapsed Preferred Income Trust vote for sale to property firm for 1p a share. James Mawson reports
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The Independent Online

Shareholders in the suspended Aberdeen Preferred Income Trust have agreed to sell the collapsed, split capital trust to a property group hoping to use it to offset its capital gains in return for a penny a share after costs.

The move is another twist in the split capital scandal but holds little hope that investors who have lost millions of pounds will recover much.

Of the £3.76m offered by the buyer, £1.159m is being spent on costs, including those of Ernst & Young, AbPref's receivers. After costs, the return to shareholders is about 1p per zero dividend preference share, 0.3p per stepped preference share, 0.2p per ordinary share and 0.3p for each unit of loan stock. Another £1.3m is going to secured creditors. The trust at one time had assets worth £400m.

At an extraordinary general meeting, more than 90 per cent of shareholders voted in favour of the proposal, which is to go to the courts in the spring.

The buyers are Brightstar Ventures and Chalina Holdings, two Gibraltar-based trust firms whose beneficial owners are the directors and owners of O&H Group, a private, UK-registered property development and investment firm.

The purchaser wants to buy the split capital trust and, if possible, offset up to £150m in capital losses that might arise in the trust against its profits.

Lough Callaghan, a consultant at Ernst & Young, said the deal might be appropriate for other suspended trusts, although there were many more sellers than buyers of capital losses because Inland Revenue has specific rules that must be complied with.

In all, 26 trusts collapsed between 2001 and 2003 in the split capital scandal.

E&Y also helped Aberdeen Asset Management - the leading manager of split capital trusts, including AbPref - acquire Edinburgh Fund Managers last year, although Aberdeen and E&Y said there was no conflict as the AbPref appointment was made by the lenders to the trust.

The trust's two remaining directors, Robert Chase and George Moore, who replaced the previous board only in November, are on an incentive fee of £10,000 each if the sale is completed.

Some shareholder nominees raised the issue of this payment among other concerns about the proposed deal. These worries will be voiced again at the court hearing to approve the deal.

Richard Moon, a financial adviser who acts as nominee for some of AbPref's 7,000 shareholders, said he had voted against the trust's sale.

"Now it is worth less than 1p in the pound, I question why there is no action against the directors and/or Aberdeen for incompetence or negligence and whether the board directors who recommend this sale are impartial if they are being paid a £10,000 incentive fee each. The two directors did not look at the legal alternatives to this sale as they said there is no money to investigate the chances of suing Aberdeen or the previous board, even though lawyers can work on a contingency basis."

The board of another trust managed by Aberdeen, the Real Estate Opportunities trust, had said it would sue Aberdeen, although no writ has been issued yet.

The directors of AbPref told the EGM that there was no alternative to the proposed sale but could not be contacted through the receivers after the EGM. E&Y said in a statement: "The receivers consider every potential recovery and seek to recover any asset if economic to do so."

AbTrust's buyers have said they will not take any steps to recover such compensation if the sale goes through.

The FSA said last year that it was investigating 21 firms closely involved in split capital trusts. Aberdeen has been widely rumoured as being involved in that investigation of possible fund manager collusion in split capital trust pricing and potentially misleading marketing material.