WOODFORD: LINK JUDGMENT AND NEXT STEPS
Mr Justice Richards approved the Link Scheme of Arrangement (subject to appeal) without any conditions. This was expected, given the 93% vote in favour by Scheme Creditors, but it doesn’t close the door on the Woodford scandal.
In a tight and carefully worded legal judgment, the Judge explained that the “FCA Total Amount” of harm identified (£298 million) relates only to the relative loss of value incurred by those who held the fund at suspension date relative to those who sold in the period 1 Nov 2018 to 3 June 2019.
He ruled (see para 124) that he could not attach the conditions that ShareSoc had requested.
He squashed the range of arguments proposed by a myriad of objectors, including the TTF, as being incorrect on various legal grounds. He also rejected the Harcus Parker argument that approval was unfair to those Creditors who were already part of a Legal Claim against Link.
He said that the communications from Link were reasonable and were not misleading or biased. Many objectors had objected to the emphasis given by the FCA that the Scheme would give investors 77% of their losses. Justice Richards states that the table produced by Link clearly lays out the amounts investors will receive, and that these equate to 77% of the FCA Total Amount, not of all investor losses.
Subject to any appeal, investors will receive between 4p and 6.4p per unit (depending on which class they held) in April, totalling £183 million, with the possibility of up to £47.5 million to come later. The latter amount may, however, be spent defending further claims or any appeal, so investors may eventually only receive 60% of the FCA Total Amount.
Link’s lawyers, Clifford Chance, and their Counsel appear to have played a blinder and run rings around the FCA and the law firms behind the various Legal Claims. The mooted £50m fine from the FCA against Link has also evaporated. The Authorised Corporate Director (ACD) business continues to operate following its sale to the Waystone Group, and the individuals responsible have escaped sanction so far.
The role the FCA played in Woodford does not look good. Nor does the incredibly slow pace at which they investigated and attempted to enforce redress – over 4 years to date. The FCA might have found itself directly in the firing line if it didn’t benefit from legal immunity.
Though the media often reported on the Woodford debacle, their reporting and analysis often struggled to fathom the complexity of the situation and headlines were often misleading. Several recent articles failed to grasp that this Scheme is just one part of the FCA’s ongoing investigations, unsurprisingly as the FCA only confirmed that fact mid-hearing.
All parties struggled to understand the intricacies of Link’s/FCA’s choice of a wholly unsuitable and, for most lay investors, impenetrable legal mechanism – a Scheme of Arrangement. Most Creditors (investors) didn’t even vote, despite the Court referencing that ‘the majority’ did, they didn’t. Only c.54,000 (which included block votes by institutions/platforms) Of the estimated 250,000 entitled to vote did so. Link and its advisors took advantage of an opaque/complex process and investor exhaustion.
Next, ShareSoc will be exploring various options on behalf of Woodford investors:
- The embryonic RGL legal claim against Hargreaves Lansdown
- Continued ShareSoc pressure on the FCA to finalise its investigations and agree settlements with other involved parties, such as the FSCS via Woodford Investment Management
- Sanctions on responsible individuals
WEIF investors have collectively lost at least £1 BILLION from the point of suspension. The FCA’s obligations are not limited to the minor subset of losses that the Link Scheme represents.
Please note that if you are not already a Full member, we are offering a special discount to anyone signing up to support ShareSoc as a Full member: Woodford Campaign Member Special Offer – Woodford Campaign Member Special Offer – ShareSoc
Disclaimer: ShareSoc cannot and does not provide advice. Advice requires knowledge of an individual’s precise circumstances. The above should be viewed only as general guidance.
Has it occurred to anyone that the crash of the Woodford fund was engineered by the
FCA? That there was a distinctly resentful feeling in The City that the said Woodford
had taken a massive chunk of their business from them, and after a collusion with
FCA, concocted a plot to warn the big pension investors to withdraw their funds due
to – “inherent instability therein” – thereby creating the conditions allowing the said
FCA to foreclose the fund. It would be interesting to speak with the pension fund
managers to find out on what evidence, from where, motivated their actions.
The fundamental problem, though, was that Woodford went off-piste. This was supposed to be an equity income fund. What on earth was it doing investing in unlisted venture firms?
Instead of following the sound principles that served him well during his time at Invesco, his hubris led him to think that he could invest successfully in areas he was totally unqualified to analyse, such as biotech.
If he’d stuck to investing in large liquid companies, redemptions would not have posed a problem.
Open ended funds should never invest in illiquid assets. That’s why the government’s LTAF idea is so crazy. Investment trusts that don’t have redemptions are a much more suitable vehicle for holding illiquid assets.
It staggers me that this judge (Richards) ruled that the basis of 77% figure was crystal clear. Had he read the literature which the rest of us laymen were sent at the time? I did and didnt realise it was 77% of losses incurred between Nov 18 and Jun 19. Maybe those present at the court session before Christmas realised through hearing the proceedings live, but by my reading the minutes of the court sometime later where the SoA was tabled, where a lady judge (whose name escapes me) listened and eventually gave judgment for Link/FAC to proceed, I was still none the wiser on this matter, and went into the SoA vote thinking I was informed, but was in fact bamboozled. How can this be deemed fair for the average investor who is not au fait, nay highly skilled, with the intricacies of law and the terms therein used?
And today I have received an email from the financial ombudsman about my complaint against Hargreaves Lansdowns role in pushing the WEIF. They have rejected my complaint. This whole thing stinks.