Activist hedge fund Trafalgar Asset Managers is suing directors of clean-up specialist International Nuclear Solutions (INS), listed on the Alternative Investment Market, contesting they accepted too low an offer when agreeing to be taken over by support services company Babcock International.
Trafalgar, which is garnering an aggressive reputation following its interventions in companies such as Shell and Arcelor Mittal, is suing chairman Chris Brown and non-executive director John Ridings, who was for more than 20 years a senior partner with accountants KPMG.
Trafalgar's pursuit of the company's non-executives in court is a rare example of a hedge fund taking on independent directors and is likely to cause much consternation among the non-executive community.
Speaking to The Independent on Sunday, Lee Robinson, one of the founders of Trafalgar, said: "This case illustrates the need for directors to take greater care in the way they deal with minority shareholders. They should not always be swayed by the views of majority shareholders."
INS itself is also named as a defendant. Under the 2006 Companies Act, Mr Brown and Mr Ridings face possible disqualification as directors if they lose the case. Trafalgar, which owns around 16 per cent of INS's share capital, is alleging that the defendants failed to "exercise reasonable care, skill and diligence" in the management of the company, by endorsing Babcock's initial 63p net per share offer.
Trafalgar's refusal to sell its shares to Babcock eventually led the independent directors of INS to approve a scheme of arrangement that offered just 59p per share to investors – a figure that Trafalgar contests woefully underestimates the company's true value.
In his witness statement to the court, Mr Robinson says: "I do not accept that the directors of the company are acting in the best interests of shareholders (or indeed in the best interests of the company) by advocating the acceptance of an offer that equates to 4p net per share less than an offer made no more than a few weeks ago by the same offeror."
INS declined to comment. It is being advised by Herbert Smith, while its corporate broker is Collins Stewart. Trafalgar is advised by Charles Russell.
A ruling in the case is expected within the next few months.Reuse content