Shareholder storm at 'zombie' split-cap trust

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The Independent Online

The board of the St David's investment trust has been severely criticised for failing to take independent financial advice before announcing its restructuring plans, and has adjourned an extraordinary general meeting while it tries to resolve shareholder complaints.

The board of the St David's investment trust has been severely criticised for failing to take independent financial advice before announcing its restructuring plans, and has adjourned an extraordinary general meeting while it tries to resolve shareholder complaints.

St David's is a "zombie" split capital investment trust, where assets are less than its bank debt. Its geared investments, some held in other so-called "magic circle" investment trusts alleged to have colluded in maintaining each other's share prices, have proved near worthless in the light of the stock market falls since 2000, after being worth more than £237m in November 2000.

Under the company's restructuring proposal, put forward at the EGM on 14 April, four share classes would merge into one. Preferred annuity shareholders, primarily institutions often in the "magic circle", would own 67.5 per cent of the company while primarily retail shareholders would have the remainder.

This could have allowed institutions to nearly reach the 75 per cent required at an EGM to pass a resolution possibly selling St David's, without allowing for any shareholder rights to legal action against the fund manager, Aberdeen Asset Management, or past and present directors, according to Richard Moon, a financial adviser to some of St David's shareholders.

The St David's board said the proposal to simplify the shareholding structure would allow the company to gain by selling its capital losses and still keeping an equity stake. John Cousins, the chairman of the three-man board, said: "No independent advice was taken because a properly capable adviser would have charged more than we could afford."

But Mr Moon said: "It is outrageous not to get an independent view of valuations, and the long-term motivation was to get rid of the company so the directors can avoid any possible legal liability."

David Watson, of solicitors Class Law, has gathered more than seven million votes calling for an investigation into whether legal action can be taken, and wants the board to write to all nominee shareholders. Because St David's has not taken independent financial advice, the restructuring would be unfair as it has failed to take into account any possible future assets from any litigation, he said.

The adjournment is designed to sort this out by hiving off the potential litigation claims into a special-purpose vehicle but still without the need for independent financial advice.

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