Voting Guidance : Meeting on 12 September

Posted on August 30, 2012

We hear on the grapevine that our trusted friends at Connaught are lobbying investors and IFAs to vote on 12 September for the Fund to continue to be wound down informally. They claim to be motivated by a desire to save investors money.

But when did Connaught, whose chairman Mike Davies admitted at the 13 August shindig that ‘the Fund has never operated as it ought to have done’, was until recently continuing to draw £80,000 a month for its ‘services’ and even now is making almost half a million pounds a year out of us, care about protecting investors’ capital?

Moreover, we hear that one of the Connaught team described Duff and Phelps as ‘rapists’ for the fees they’re drawing. We agree its fees are monumentally high – we understand, for instance, that the hourly charge-out rate for partners is typically £545 – but they’re no more rapacious than other major insolvency firms. Indeed the report to creditors issued by BDO to investors last week confirms that its partners rake in £658 or £530 per hour, depending on seniority. And of course, BDO was appointed by Connaught…

So if our pals in Wimbledon aren’t motivated by a desire to save us money or moral outrage at insolvency practitioners’ fees, we wonder what’s really behind their fear of the Fund going into liquidation. Could it be the Court-given investigative powers of insolvency practitioners? Or perhaps the requirement to file confidential reports on the conduct of directors? Either way, it leaves us more determined than ever to ensure that a formal insolvency process is approved as soon as possible.

That said, we’re keen to get the best possible deal for investors, and a group of investors known to and trusted by the Action Group are in discussions with Duff and Phelps and with a possible alternative or additional IP, with a view to establishing which is likely to be able to offer the best combination of the three things we think investors care about:

1. Realising as much money as possible, including pursuing claims against the various professional services firms that could and should have spotted and stopped the alleged frauds, their insurers, and their directors where they can be shown to have benefited from what occurred;

2. Charging fees that represent the best possible value (which may not necessarily mean the lowest headline rates) taking into account likely realisations and wherever possible linked to the level of eventual recovery;

3. Putting in place the best systems and processes to ensure that investors are able to control or influence the recovery process and fees charged.

Voting recommendations

We understand that some investors may not be able to attend the meeting on 12 September. Some may leave their proxies to decide how to vote on the day, but others may prefer to direct them to vote in particular ways. There’s also an investor consent form which those who favour a formal termination of the Fund should complete in advance.

The voting process is complex: a cynic might say deliberately so, especially with regard to Section B, which deals with Tiuta International Limited. So we’ve compiled what we hope will be a helpful summary of the motions to be voted on, with our recommendations on how to vote, with reasons.

A                                             Next steps for the Fund

Resolution 1

Summary:                           Do you want the informal wind-down of the Fund to continue?

Recommendation:          Vote NO

Rationale:                            (i) There are grounds for suspecting wrongful and/or fraudulent trading and the statutory powers of an insolvency practitioner could be helpful in securing evidence, tracking down and recovering monies and reversing transactions; (ii) The Connaught directors are not people that we trust to have any continuing involvement

Resolution 2

Summary:                           Do you want the Fund to be formally terminated, again without the appointment of an insolvency practitioner?

Recommendation:          Vote NO

Rationale:                            See Resolution 1

Resolution 3(a)

Summary:                           Do you want the Fund to be liquidated and the cost of the winding-up petition to be met by the Fund?

Recommendation:          Vote YES

Rationale:                            We believe this is the best option for establishing the truth about what happened to investors’ money and trying to recover as much of it as possible

Resolution 3(b)

Summary:                           That partners from Duff and Phelps or another firm nominated at the meeting be appointed as liquidators

Recommendation:          Vote YES*

Rationale:                            * By the time the meeting takes place we expect to have negotiated terms with both Duff and Phelps and another firm and to be able to present a recommendation as to which one we believe offers the best overall package for investors

B                                             TIUTA INTERNATIONAL LIMITED

Resolution 4

Summary:                           Do you want Danny Dartnaill and Malcolm Cohen of BDO to continue as TIL’s administrators?

Recommendation:          Vote NO

Rationale:                            We are concerned that Dartnaill and Cohen were presented with evidence of the recycled and NPW loans and of the Group being under financial pressure, in January 2011, that they conducted their own investigations which substantiated these allegations but, for reasons as yet unknown, failed to persuade the directors to put the Group into an insolvency process or the FSA or Police to intervene; moreover, BDO continued to advise the group and monitor its finances for an extended period prior to its eventual demise. We consider that Tiuta plc and its subsidiaries may in due course wish to consider making claims against a number of professional advisors, including BDO, and therefore that the continuing appointment of partners from BDO as Joint Administrators represents an unacceptable conflict of interest

Resolution 5a

Summary:                           Do you want Dartnaill and Cohen to continue, but with an additional administrator (or several) appointed to keep an eye on them?

Recommendation:          Vote NO

Rationale:                            Why should we, the creditors, pay for an additional IP? It’s a poor work-around compared with removing BDO and appointing a firm that is independent

Resolution 5b

Summary:                           Do you want Dartnaill and Cohen removed?

Recommendation:          Vote YES

Rationale:                            They’re conflicted

Resolution 6

Summary:                           Do you want partners from Duff and Phelps, or another firm nominated at the meeting, to be appointed as administrators of TIL, instead of or in addition to BDO?

Recommendation:          Vote YES*

Rationale:                            There are likely to be cost efficiencies if the same IP is appointed over both the Fund and TIL. *As per Resolution 3(b), we hope to be able to firm up on whether we recommend voting for Duff and Phelps or another insolvency firm, in advance of or at the meeting


We strongly recommend voting on ALL of the resolutions. For instance, it is necessary for resolutions 4 and 5(a) to be rejected for a vote for 5(b) to be valid; likewise, 5(b) must be passed for 6 to have the effect of appointing our chosen IPs instead of Dartnaill and Cohen, rather than in addition to them.

Law firm

A number of investors have contacted the Action Group to express reservations about the performance of the SJ Berwin representatives who presented to the 13 August meeting. While allowances should be made for the fact that the lead solicitor was unable to attend the event, we are concerned that the presentation overlooked possible claims by the Fund against BDO and Mazars and by Tiuta plc and its subsidiaries against Rawlinson and Hunter.

We are talking to a solicitor with an excellent reputation for pursuing such matters, as well as an insolvency practitioner who could be put forward for the liquidation of Tiuta. More news as we have it. However if anyone has any recommendations based on personal experience, please email

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