Four years ago ShareSoc ran a campaign to shake up the Rensburg AIM VCT which historically had given a dire investment performance and had very high management fees. These things were changed but it still has the same Chairman, Richard Battersby, and other directors. We did question at the time what the future of the company might be because the company tended to return any cash from investment realisations to shareholders thus effectively gradually winding down the size of the company.
The company has now announced that it proposes to formally wind up via a members voluntary liquidation and the listing of the company’s shares will be cancelled. It would thereafter have 3 years to dispose of its assets under the VCT regulations during which it would not need to make further investments.
This could have major tax consequences for some investors, particularly those who claimed capital gains roll-over relief during the early years of the company’s existence. In effect the relief could be rolled back out with a large capital gains tax bill then being demanded by HMRC, with the only saving grace being that current capital gains tax rates are lower than at the time the original investments were made. VCTs no longer provide capital gains roll-over relief although EIS companies do but those are substantially more risky.
It is odd that the board of the company have decided to do this as they admit that a survey of shareholders last year indicated that the largest proportion of investors wished the company to continue. Would it not be better to arrange a merger with another VCT so the tax liabilities were avoided?
If you have an interest in this matter please contact Roger Lawson at firstname.lastname@example.org . ShareSoc is likely to be making representations on this matter. You may also wish to take some professional advice on your tax position when the details of the process are published, which you will get a vote on.
Note that the winding-up of Venture Capital Trusts (VCTs) is exceedingly unusual partly because of the tax implications mentioned above but also because of the difficulty of disposing of the investments in small private companies. It has however been suggested by a few investors in some of the Foresight VCTs as something they would like to have considered (see previous blog entry on the problems of Foresight 2 but Foresight 3 and 4 are also in some difficulties – similar in fact to the original problems at Rensburg AIM VCT).
Roger, very unusual for the reasons you describe. Investors won’t have the CGT brought back into charge for 3y during the sell down period, but there’s no reason why the company couldn’t be taken over at that time for a nominal amount by another VCT (eg for the cash balance?) on a shares for shares basis thus saving investors from the CGT revival.
For some people an exit from a failing VCT may be desirable – the remaining holding may be too small to be useful, but selling a small holding will be expensive and the discount will usually be large. However I’m surprised it isn’t possible to come up with a merger which would offer an option for exit close to NAV. A windup is also likely to be quite a long-drawn-out process with proceeds coming back gradually over several years, and presumably with some level of management costs applied to a very small asset base towards the end.