BFS Investments, one of the two companies thrown out of the split-capital investment trust settlement 13 months ago, finally collapsed into liquidation yesterday, reviving customers' hopes of receiving compensation.
The move came as a series of pending legal claims from former split-cap investors threatened to bankrupt the company. Tony Reid, the founder and chief executive, said leaving the claims in the hands of the liquidator would also protect him and the other directors from liability.
Perversely, the move into liquidation increases the chances of former BFS customers receiving compensation for their losses. The Financial Services Compensation Scheme will almost certainly pick up the tab for valid claims against the group.
BFS sold its remaining funds and clients to Premier Asset Management for about £1.5m in cash and shares last year. However, these assets remain part of BFS's holding company and will be left for the remaining directors to share. Mr Reid is the majority shareholder in the holding company. The BFS directors paid themselves more than £18m from 1996 to 2003. However, investors in split-cap funds, including those run by BFS, lost millions when markets collapsed between 2000 and 2003.
The collapse was driven by the trusts' high levels of gearing and cross-investment, causing a domino effect in the sector when stock markets began to fall. Thousands of investors in so-called zero-dividend preference shares, one of several split-cap share classes, lost money in spite of being told their investments were guaranteed.
After an inquiry into alleged collusion in the sector, the Financial Services Authority gleaned almost £200m in compensation for the zero investors in 2004, from more than 20 fund managers and brokers. The deal was on a no-blame basis.
BFS was thrown out of the settlement as it claimed it had insufficient assets to contribute proportionately to the fund. The FSA is still investigating Mr Reid over the collapse of the sector. He maintains he did not act improperly.Reuse content