Chrysalis – Vote NO at 26 November General Meeting

Shareholders are excluded from this GM and there is no pre-meeting webinar to discuss these highly contentious proposals to wind up the VCT and distribute any monies raised (less administration fees, including payments to the failing fund manager and some directors).

Several members of the ShareSoc VCT Investor Group (including Tim Grattan, Mark Lauber, Roger Lawson and myself) met on 10 Nov to discuss Chrysalis’ plans. Our conclusion was that shareholders should vote against these proposals for the following reasons:

1. Chrysalis is shrinking. NAV is £13m and 29% of that is Coolabi.
2. Chrysalis fees are high in comparison to other similar VCTs.
3. Chrysalis is sub scale. The directors should have seen this coming and done a better deal than the one they are proposing.
4. Fee Proposal of 1.65% and 2% of amounts distributed in respect of the Coolabi sale is egregious. The fund manager cannot affect the sale process, so should only be paid a token amount in respect of its administrative role.
5. Announcing a firesafe of illiquid assets is unlikely to get the best price. The horrible example of Woodford shows what awful prices a forced seller has to take.
6. We do not believe that no other VCT or fund manager would like to manage these assets. A merger should have been pursued. And it should have been done earlier, before the negotiating power decreased. There are a number of sub scale VCTs who we think would be willing to manage these assets.
7. The NAV change was not announced in an RNS. This is one of a number of concerns we have on transparency.
8. A key fact of the total costs of the wind up of £978,000 (3.4p per share) does not appear until page 13 of the circular. Transparency requires the key facts to be clearly visible – preferably this should be on the front page of the circular, not half hidden on page 13. We should not have to read 13 pages to find out key facts!
9. We estimate 10 to 20% of investors will have a large capital gains tax liability and will be very upset by this proposal. The Companies Act and companies’ articles of association have laws/provisions to protect minority shareholders and there is a duty of directors to act fairly between members. The bland, boilerplate statements in the circular lack detail, they are not transparent and give no comfort that the directors have taken due consideration of the concerns of this important group of shareholders.
10. If the proposals are voted down, it will not be the end of the world. The directors will have to sit down and work out a better deal.

Resolutions 1 to 3 are Special Resolutions requiring a 75% majority and 4 to 6 are ordinary resolutions but are subject to the passing of 1 to 3. If shareholders are mobilised there is a strong chance these proposals will not pass. However, the nominee system and the lack of email addresses on the shareholder register make it very difficult for ShareSoc to communicate with shareholders in the short time before votes have to be cast. You can help by emailing or tweeting to all those who might be shareholders.

Cliff Weight, Director, ShareSoc

Cliff Weight/Tim Grattan and their partners are shareholders in Chrysalis.