Oxford Technology VCTs and Baronsmead VCT 3

ShareSoc has organised a meeting for those investors in the two Oxford Technology VCTs who are affected by the withdrawal of VCT status. It is scheduled for the 20th May in the City of London. Although the companies have submitted an appeal letter to HMRC, there is some doubt as to whether the appeal will be successful. See this web page for more details of the issues, and how to register for the meeting if you wish to attend:  www.sharesoc.org/campaigns/oxford-technology-vcts/. The AIC have published a very good document that explains the tax implications of the loss of VCT status to investors that is available from a link on that web page. If you read it, you can see why investors in these companies are dismayed.

This issue was raised at the Baronsmead VCT 3 Annual General Meeting on Monday (14th April) by an investor who was worried that other VCTs could be affected by the same problem. I spoke to reassure the audience that this was exceedingly unlikely. The Oxford Technology VCTs are all very small and do not employ the same professional resources as most VCTs. Certainly the Baronsmead VCTs are run in a very different way, and it would seem unlikely to me that the Baronsmead VCTs would make a similar error. Another question that arose was supervision by the board of the fund manager, and one problem at the Oxford Technology VCTs was that there were only two directors, and one of those was the fund manager (Lucius Cary) who was responsible for the mistake (in essence the breach of the “no more than 15% in any one investment” VCT rule by making a new investment that took the companies over that limit). Clearly corporate governance at the Oxford Technology VCTs needs to be examined.

But Baronsmead VCT 3 is not exactly whiter than white in that respect. As I pointed out in the meeting, two of the directors have served more than 9 years (contrary to the UK Corporate Governance guidance for listed companies with no adequate justification provided). Both Gillian Nott and Andrew Karney have been on the board since 2001 and that effectively means they can no longer be considered independent.  In addition Gillian Nott serves on two other Baronsmead VCT boards, which also makes her non independent. So two of the four directors are not independent. Plus Mrs Nott has 7 other directorships which is excessive and contrary to ShareSoc guidelines. As I said to the Chairman, Anthony Townsend, I have seen other investment trusts where the board ends up being too sympathetic to the needs and desires of the fund manager as a result of having a too long and close association with them. That is why it is important to have a truly independent board in investment trusts. But it seems Mr Townsend does not intend to do anything about this situation so I voted against his reappointment.

A full report on the Baronsmead VCT 3 AGM is available to ShareSoc Members here.

Roger Lawson