Link Fund Solutions expands on proposed scheme of arrangement
08 September 2023 UK
Image: Nomad_Soul/stock.adobe.com
Link Fund Solutions Limited (LFSL) has disclosed details of the proposed scheme of arrangement to investors involved in the LF Equity Income Fund in a practice statement letter.
This letter is the first stage of the proposed scheme, and forms part of the wider settlement agreement between LFSL, parent company Link Administration Holdings Limited (Link Group) and the Financial Conduct Authority (FCA).
A settlement agreement was reached in April 2023, with LFSL agreeing to pay investors in the LF Equity Income Fund, called the LF Woodford Equity Income Fund (WEIF) at the time of its suspension. The settlement is subject to the completion of the Link Group Fund Solutions business’ sale to the Waystone Group, and approval of the scheme from the court and the majority of investors.
If the scheme is approved, LFSL estimates that the settlement fund could be up to £230 million. The proposed fund will consist of LFSL’s total assets after the sale of its business, a voluntary contribution of up to £60 million from Link Group and insurance proceeds of up to £48 million. Link Group is also voluntarily contributing up to £2.5 million towards the scheme’s implementation.
The first distribution is expected to be between £180 and £200 million, and to take place as soon as Q1 2024.
The FCA states that those with investments in WEIF on 3 June 2019, when the fund’s net asset value was approximately £3.6 billion, lost up to £298 million. The proposed scheme is expected to pay back approximately 77 per cent of this.
If the scheme is not approved, the settlement fund will be distributed among investors based on the number and class of shares they held on the date of suspension. Following payment, scheme creditors will be unable to make claims against LFSL, Link Group or any other WEIF-related parties. Claims against any third parties would be limited if action would result in LFSL becoming liable for a contribution.
LFSL has established a reserve of £50 million from the settlement figure to cover certain cost contingencies, allowing investors to be paid more quickly. If cost contingencies are released, further distributions will be made to investors.
LFSL believes that the proposed scheme will provide the best outcome for investors, with the opportunity for larger and faster payments. The FCA and LFSL agree that if the terms of the settlement become unconditional, investors will have access to greater redress from LFSL than if a settlement was not reached.
LFSL does not admit liability to the WEIF collapse. If the company succeeds in its dispute, it may be obligated to pay less than the scheme states, or nothing, to investors. If the company is unsuccessful, without the scheme in place, Link Group’s voluntary contribution will not be paid and investors may have access to less compensation due to costs of the dispute.
A court convening hearing for the scheme is scheduled for 10 October 2023, in which LFSL will ask the court for permission to call a meeting for investors to consider and vote on the scheme.
Independently to the company, an investors’ committee has been established consisting of nine individuals and a chair, who will report the group’s views before the hearing.
The FCA has previously commented on the proposed scheme, stating that: “The scheme offers investors substantially more than is otherwise available from LFSL alone and more than would be achieved by any other means, given the contribution by Link Group.”
A spokesperson for LFSL says: “Launching the scheme is a positive step forward in settling claims and reaching a position where investors in the fund at the point of suspension can receive payments. The purpose of the settlement with the FCA is to draw the matter to a close for these investors as efficiently as possible, and we believe the scheme is the best outcome available.
“As we move through the process, we have requested brokers and platforms pass on updates to investors, and updates will also be provided on our website. Our focus will be on providing investors with access to information to help them understand the scheme details and form their view ahead of a vote.”
This letter is the first stage of the proposed scheme, and forms part of the wider settlement agreement between LFSL, parent company Link Administration Holdings Limited (Link Group) and the Financial Conduct Authority (FCA).
A settlement agreement was reached in April 2023, with LFSL agreeing to pay investors in the LF Equity Income Fund, called the LF Woodford Equity Income Fund (WEIF) at the time of its suspension. The settlement is subject to the completion of the Link Group Fund Solutions business’ sale to the Waystone Group, and approval of the scheme from the court and the majority of investors.
If the scheme is approved, LFSL estimates that the settlement fund could be up to £230 million. The proposed fund will consist of LFSL’s total assets after the sale of its business, a voluntary contribution of up to £60 million from Link Group and insurance proceeds of up to £48 million. Link Group is also voluntarily contributing up to £2.5 million towards the scheme’s implementation.
The first distribution is expected to be between £180 and £200 million, and to take place as soon as Q1 2024.
The FCA states that those with investments in WEIF on 3 June 2019, when the fund’s net asset value was approximately £3.6 billion, lost up to £298 million. The proposed scheme is expected to pay back approximately 77 per cent of this.
If the scheme is not approved, the settlement fund will be distributed among investors based on the number and class of shares they held on the date of suspension. Following payment, scheme creditors will be unable to make claims against LFSL, Link Group or any other WEIF-related parties. Claims against any third parties would be limited if action would result in LFSL becoming liable for a contribution.
LFSL has established a reserve of £50 million from the settlement figure to cover certain cost contingencies, allowing investors to be paid more quickly. If cost contingencies are released, further distributions will be made to investors.
LFSL believes that the proposed scheme will provide the best outcome for investors, with the opportunity for larger and faster payments. The FCA and LFSL agree that if the terms of the settlement become unconditional, investors will have access to greater redress from LFSL than if a settlement was not reached.
LFSL does not admit liability to the WEIF collapse. If the company succeeds in its dispute, it may be obligated to pay less than the scheme states, or nothing, to investors. If the company is unsuccessful, without the scheme in place, Link Group’s voluntary contribution will not be paid and investors may have access to less compensation due to costs of the dispute.
A court convening hearing for the scheme is scheduled for 10 October 2023, in which LFSL will ask the court for permission to call a meeting for investors to consider and vote on the scheme.
Independently to the company, an investors’ committee has been established consisting of nine individuals and a chair, who will report the group’s views before the hearing.
The FCA has previously commented on the proposed scheme, stating that: “The scheme offers investors substantially more than is otherwise available from LFSL alone and more than would be achieved by any other means, given the contribution by Link Group.”
A spokesperson for LFSL says: “Launching the scheme is a positive step forward in settling claims and reaching a position where investors in the fund at the point of suspension can receive payments. The purpose of the settlement with the FCA is to draw the matter to a close for these investors as efficiently as possible, and we believe the scheme is the best outcome available.
“As we move through the process, we have requested brokers and platforms pass on updates to investors, and updates will also be provided on our website. Our focus will be on providing investors with access to information to help them understand the scheme details and form their view ahead of a vote.”
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