UK – Royal Bank of Scotland has put the St David’s Investment Trust into administrative receivership after minority shareholders objected to the restructuring proposal.

It is unlikely the institutions, which make up the majority of investors in the collapsed split capital trust, will see any money returned, as St David’s assets are less than its bank debt. Shareholders' only effective chance to have their money returned is whether the regulator, the Financial Services Authority, orders compensation after it completes its investigation into alleged collusion between the so-called ‘magic circle’ of splits advisers and managers or there are other legal proceedings.

St David’s had assets of £237m in November 2000 but stockmarket falls, which were magnified by the effects of the bank gearing and cross-holdings with other splits, meant the fund was substantially underwater, ie where assets were less than bank debt. Even a year after the low point in the equity markets, by 27 February 2004, there was still a £1.8m shortfall of assets to the £57.4m debt owed to RBoS.

In April the board, chaired by John Cousins, proposed a restructuring, although without taking independent financial advice. The company’s proposal at the EGM on 14 April would have merged four share classes into one. Under the proposal, for every two Preferred Annuity Shares investors would receive 25 New Ordinary Shares; for every three 2004 Zeros they would receive 13 New Ords; for every three 2008 Zeros they would gain five New Ords; and for every seven Ordinary Share they would take one New Ord.

Preferred Annuity Shareholders, which are primarily held by institutions, would own 67.5 per cent of the company while primarily retail shareholders would have the remainder.

The St David’s board at the time said the proposal to simplify the shareholding structure would possibly allow the company to gain an interest for its tax loss and possible keep a continued equity stake in the company. But minority investors, led by solicitors Class Law, opposed the action for being potentially unfair and removing the rights to possibly take legal action against the past and present directors and/or fund manager, Aberdeen Asset Management, for the trust’s losses.

But RBoS has pulled the plug before an agreement on the restructuring could be reached and St David’s was put into administrative receivership, led by Ernst & Young, late last week.

RBoS and the board were unavailable for public comment, although a background briefing from those close to the company put the blame on the shareholder opposition to the restructuring. In a statement, the board said it was “extremely disappointed that after more than two years of trying to re-establish the long-term financial survival of the company, its efforts to recover at least some value for Shareholders have been frustrated”.

David Watson, solicitor at Class Law, said: “The restructuring was unfair to our clients and at least by putting the trust into admin receivership the clients’ potential claims from litigation or from the FSA investigation will be preserved.”


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