Interactive Investor

Trapped Woodford investors have possible date for first settlement payment

Some of the £230 million settlement agreed by the FCA from Link Group could be paid early next year, subject to a vote, writes Sam Benstead.

8th September 2023 09:00

by Sam Benstead from interactive investor

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Investors who owned Neil Woodford’s equity income fund when it was suspended in June 2019 and never reopened could receive a first settlement payment in the first three months of 2024.

The settlement agreement, paid by fund administrator Link Fund Solutions as a result of action from the Financial Conduct Authority (FCA), will be up to £230 million, with the first payment set to be between £180 million and £200 million.

This is contingent on affected investors voting to accept the offer before the 4 December deadline, with a majority needed from investors representing 75% of the fund's assets at the time of the suspension.

Investors who held units in Woodford Equity Income (WEIF) on 3 June 2023 will receive a letter notifying them of the key actions and dates.

The court convening hearing for the scheme, in which Link Fund Solutions will ask the court for permission to call a meeting for investors to consider and vote on the scheme, is listed for 10 October 2023.

The proposed settlement fund will be composed of all of Link Fund Solution’s available assets following the sale of the business, plus a voluntary contribution from Link Group of up to £60 million and insurance proceeds of up to £48 million.

Link Group, which is the parent company of Link Fund Solutions, will also voluntarily contribute up to £2.5 million towards the costs of implementing the scheme.

The FCA claims that the loss incurred by investors who held investments in WEIF on 3 June 2019 is up to £298 million.

Therefore, the proposed total amount to be paid through the settlement scheme is up to approximately 77% of the FCA’s view of total losses. 

The net asset value of WEIF on the suspension date was approximately £3.6 billion. If the settlement fund is distributed in full, then it is estimated that investors will receive about 80% of the net asset value of WEIF at the point of suspension. This takes into account what has been paid to investors to date and the most recent quarterly valuation of the remaining assets of WEIF to be sold. 

If the scheme passes, all investors, even those who voted against the scheme or who did not vote at all, will be automatically entered into it and the settlement fund will be divided between them proportionally based on the number and class of shares they directly held on the date of suspension.   

In return for that payment, affected investors will no longer be able to make any claim against Link Fund Solutions (and its parent company Link Group) and other related parties relating to the WEIF. 

The FCA has previously said that the settlement scheme offers investors substantially more than is otherwise available from Link Fund Solutions alone and more than would be achieved by any other means.

If the settlement does not pass, it could be many years before the dispute is resolved as a legal battle could take place where Link will defend itself against the claims.

If it then succeeds in the dispute it may not be required to pay anything to investors, or less than under the settlement.

Even if it was unsuccessful, the money available would be less than available under the current settlement as the voluntary contribution of up to £60 million from Link Group will not be paid, and the cost of the dispute may also be significant and further reduce the amount available to investors.   

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