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Trouble Brewing at Hargreave Hale AIM VCT?

The views expressed in this article are those of its author and not necessarily those of ShareSoc.

I have been a shareholder in Hargreave Hale AIM VCT (HHV) for quite some time and have been happy with the tax free dividend stream they have sent me over the years. As usual, I recently received the AGM proxy form for the 3rd February AGM and was reviewing the annual report when something caught my attention. An investee company called Honest Brew (HB), which is one of HHV’s more costly investments at a cumulative total of £2.8m, has been having a difficult time over the last couple of years and HHV’s share is now valued on the books at £277k representing a paper loss of circa £2.5m – the largest loss in HHV’s portfolio. On further reading, I discovered that HB is chaired by David Brock (DB) – the same David Brock that is Chair of HHV. My antennae started to twitch more rapidly at this point – further investigation was warranted.

It turns out that DB and his family own more than 20% of HB whilst HHV now own 37% – far in excess of their share of any other investee company in their portfolio. To add to the mix, I also noted that, last year, HHV stumped up an extra £300k in the form of HB loan notes to add to the £2.8m they have already spent on HB shares.

It is also interesting to note the auditor’s comments in HB’s annual report for 2020:-

“We draw attention to the fact that the company has recorded a loss for the year ended 31 December 2020 of £953,215 (2019: £1,013,965) and, as at that date, the company had net liabilities of £441,791 (2019: £355 net assets). As stated on page 4 these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern.”

HB’s accounts for the year ended 31st December 2020 were only filed today (25th January 2022), over one year after the end of their financial year, so I was quite fortunate to be able to see them before completing my proxy form. I would imagine that very few HHV shareholders will have time to read the HB accounts before they submit their proxies.

So, what’s going on here? Was this all done in an objective manner consistent with the approach to all other HHV investments and in the best interests of HHV shareholders? How were the negotiations on the HHV investments and loan notes conducted when the chair of both companies is the same person. HHV’s annual report does offer some comfort by stating that :-

“David Brock is chairman of and an investor in Honest Brew in which the Company has an investment and so absents himself from Board decisions relating to that investment.”

Its not clear what involvement DB had on the HB side in both the decisions and the negotiations – I could not find any references to this in the HB documentation. On balance, there is clearly a possible conflict of interest here so it would be wise for Brock to depart from the board.

To add to my concerns, I further note that DB has been on the HHV board for 12 years which is well beyond the recommended maximum period for good corporate governance. So, in conclusion, it is for these reasons that I have chosen to vote against David Brock’s re-election to the board.

In addition to this, I have also voted against the re-election of Oliver Bedford to the board because I don’t believe it is good practice for VCT investment managers to be members of the board who’s duty it is to oversee the investment company’s performance.

The ShareSoc VCT Investor Group, of which I am member, is also concerned about the issues of tenure and Director independence, see https://www.sharesoc.org/campaigns/vct-investors-group/ for further details. All those members with an interest in VCTs are encouraged to join the VCT group.

Mike Dennis, Director, ShareSoc

Please note these are my personal views and do not necessarily reflect the views of ShareSoc. I cannot give financial advice and nothing in the above should be construed as advice.

7 Comments
  1. Roger Lawson says:

    Can’t say I am familiar with this VCT but I would also question why the company, which labels itself as an “AIM VCT” has such a large holding in an unlisted company.

  2. Colm Patrick Maguire says:

    Very interesting. I had sold my holding in this VCT last year having held it for 5 years. Glad I did.
    .

  3. Barry Collins says:

    Certainly well worth being a member of Sharesoc as without it I would have been blissfully unaware, despite having been a holder for quite a few years & consider myself quite diligent with my holdings, but the % size of this holding had slipped past me. When I looked on the Brew website I became even more disenchanted.

  4. Chris Spencer-Phillips says:

    Interesting Mike – well done for your diligence and keen eye, it seems very poor Governance on behalf of Hargreave Hale and David Brock should come off the Board. .

  5. Barry Collins says:

    I note the HHV agm is at 41 Lothbury on Feb 3 at 10.30, is anyone planning to attend ?

  6. Mark Lauber says:

    Good spot Mike. The 37% ownership of HB makes them a key shareholder. But HHV would be very unlikely to vote against their own chairman on his second chairmanship in the portfolio company, so even if Mr Brock recuses himself, a very clear and dangerous conflict remains.

  7. Graham Corrighan says:

    Very interesting comment, I will take note of the points raised when/if I receive my proxy form!

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