Investors win right to sue over AbPref

Court ruling clears way for potential action against former directors, auditor and broker at collapsed trust, reports James Mawson

At the eleventh hour in the High Court of Justice, angry shareholders of the collapsed Aberdeen Preferred Income Trust have won the right potentially to sue the former di- rectors, fund manager, auditor and broker for their handling of the split capital trust.

This right would have been lost without the court's intervention. The AbPref trust last month gained majority shareholder approval to be sold for its tax loss. The planned new owners, two offshore trusts run on behalf of private property company O&H Group, had promised to take no such action.

Small shareholders have attacked the way the sell-off was handled, saying they were disenfranchised.

On Thursday, Mr Justice Etherton said he was delivering a statement with his judgment as it had "wider public interest for other splits". Twenty-seven split capital investment trusts, including AbPref, have been suspended, with more struggling to continue despite having assets that do not match liabilities after billions were wiped from the value of the sector since 2000.

The judge agreed with the objectors to the sale, Class Law, a law firm representing disgruntled split shareholders, and Roger Wellings, a private investor in AbPref representing himself. The objectors had been unhappy at what they saw as an unfair voting process that approved the sale and the failure of AbPref's receiver, Ernst & Young, and directors, Robert Chase and George Moore, to apparently investigate potential litigation claims against those involved in running the split.

The objectors said the process was not fair because shareholders were not told of the existence of any possible litigation by AbPref that could recover assets or that this right would be lost under the sale. Some shareholders were also unhappy at the small number of votes cast - less than 50 per cent in most share classes - and that many of those that were were cast by or under the influence of parties with a personal interest in the outcome. One investor was also unhappy at the lack of notice provided by Brewin Dolphin, which had acted as sponsoring adviser in the formation of AbPref and, as it is a private client stockbroker, held as nominee a number of shares for customers.

This Lincolnshire man, who did not want to be named as he still holds an account with Brewin, said the firm sent out its letter to him on 12 January, which was only two days before the proxy voting form had to be lodged. The letter said the nominees would vote in favour unless it heard otherwise. He said: "People rely on me for building advice and I relied on Brewin's advice on investments and funds. But I am jaundiced now. The letter did not say when to reply by or even who to."

Charlotte Black, marketing director at Brewin, said: "I agree there was not very much time. But there was indeed time. He should have called us immediately." She added that the sending of the notification of meeting letter must have got lost during the Christmas break.

After the court's decision, an investigation is expected to be launched for potential claims against the trust's broker, Brewin, auditor KPMG, fund manager Aberdeen Asset Management and the former board directors.

Any litigation would have to recover more than £43m for most retail investors to see more compensation for their losses, lawyers acting for the trust's receivers said.

Under an agreement reached between lawyers acting for the objectors and Ernst & Young and AbPref, a special-purpose vehicle will investigate these claims. The sale of the trust's shares could then continue to the two offshore trusts, Brightstar Ventures and Chalina Holdings.