|Show me the money!|
|I don't know the procedure for getting formal HMRC approval, but I'd be pretty certain that it too costs! Even if HMRC don't charge for it, the advisers needed to prepare the application will...
The point being that on the assumption that finishing winding up the company is only months away, waiting until then and distributing the cash under well-established rules may well be the cheapest option. If it's years away, some other plan is probably called for. And while we're very uncertain about how far away it is and the directors cannot be entirely certain either, they have to take some sort of view on the question when deciding what to do with the cash in the company...
|There's no problem with them paying it out as dividends just that large shareholders holding outside tax shelters tend to prefer capital distributions because their effective tax rate tends to be lower for capital gains. I think we are all surprised that HMRC have not given approval for an interim capital distribution here since selling businesses and property as part of a business wind up is pretty clearly not profits from normal trading but that is where we are.
I still think a tender offer would be an effective way of managing the situation.|
|That only works if the company also gets the 'B' shares listed - which is fairly expensive! Not all that significant compared with the amount of cash involved for a big company, potentially a lot more so for a small company.
Also, the attraction of the usual type of B share scheme used to be that it gave UK shareholders the choice of receiving their cash as a dividend payment (taxed by Income Tax) or a capital payment (taxed by CGT). Depending on the shareholder's tax situation, either could be better, so giving shareholders the choice rather than the company making a single decision that would apply to all shareholders was of overall benefit to the shareholders collectively - which could justify using a more expensive method of distributing the cash.
But the government stopped such schemes (IIRC when the 2015/2016 tax year started in April 2015) by adding tax rules that essentially say that if a company offers its shareholders a choice of dividend or capital payments, the payment will be taxed by Income Tax regardless. B share schemes have become a lot less popular since then!
|Some companies go for a 'B' share where the holders can then sell at their convenience.|
|Thank you guys. Really appreciate your time and wisdom.
|... One last thing that springs to mind is that even if not, would it be an issue for holdings within an ISA / SIPP. ...
Provided you're only a taxpayer in the UK and not anywhere else, only very indirectly - tax issues affect what the company does, which affects you... But there won't be any Income Tax or CGT to pay inside an ISA or SIPP, no matter what the company does.
If by any chance you're a taxpayer in some other country, either instead of or as well as the UK, holdings in an ISA almost certainly will be subject to whatever of that country's taxes apply - I don't know of any other country that regards ISAs as a shelter from its taxes. There's a better chance of a SIPP doing so - other countries have pension tax shelters and may recognise a SIPP (or other UK pension) as the equivalent of one of them.
There are however an awful lot of countries the other country could be, and my knowledge of their tax systems ranges from non-existent to minimal, so I won't be able to answer any specific questions about them - basically all I know about the issue is the above generalities and that if the issue of foreign tax were to start to apply to me, I would need to get specialist tax advice!
My impression was the board was being very cautious, sought assurances from HMRC (which weren't forthcoming). There would be no tax issues with holdings in ISA's (subject to Gengulphus clarication :-)) but I think potential issues with the family stake (54% of company) caused them to take a step back. All the work has been done regarding a distribution so it could be resurrected quickly if/when confidence on tax treatment obtained.|
|A tender offer definitely makes sense. I think they should just keep it simple. Pitch it at Net Cash + what they think is a conservative value of the remaining businesses/property. Everybody has an incentive to tender now unless it negatively impacts their tax situation, everyone is scaled back, achieves exactly the same as a capital distribution.|
Yes, a tender offer is basically a form of buying back shares - but one where the purchases are done off-market by a corporate action.
The simplest form of tender offer is a corporate action in which a company makes a general offer to all of its shareholders to buy back their shares at a given price, using up to a specified amount of cash. Each shareholder can choose to accept the offer with regard to any number of shares up to their full holding, or not to accept it (which they do basically just by not responding to the offer at all). If the company doesn't get enough acceptances to use up the cash available for the offer, or only just gets enough, it buys all the shares for which acceptances were received. If it gets more than enough, it buys as many shares as the available cash will buy, typically scaling back the number of shares it buys from each shareholder by a factor of (shares it can buy)/(shares for which acceptances were received).
There are more complex forms - e.g. a company like Ensor might offer to buy at any whole number of pence from 70p to 80p, giving shareholders the choice of which price they're willing to sell at (or even multiple prices - e.g. a shareholder who is inclined to hold out for 80p but wants to hedge their bets might choose to accept with regard to half their shareholding at 75p and the other half at 80p). That one would be processed by first looking to see whether it has received enough acceptances at 70p to spend all the money buying shares at 70p - if so, it does that (scaling back if necessary), so some or all of the shares tendered at 70p are bought at 70p and none of the shares tendered at 71p or above are bought. If not, the company then looks to see whether it has received enough acceptances at 70p or 71p to spend all the money buying shares at 71p - if so, it buys all the shares tendered at 70p and some or all of the shares tendered at 71p, in both cases at 71p/share (all shares bought are bought at the same price, regardless of what price they were tendered at), and shares tendered at 72p or above are not bought. If not, the same process is done for acceptances at 70-72p; if that still doesn't allow the company to spend all the available cash, then acceptances at 70-73p are looked at, and so on. Finally, if it gets up to looking at acceptances at the full range of 70-80p and there still aren't enough acceptances to spend all the available cash buying them all at 80p/share, then the company buys all the shares that it had any sort of acceptance for at 80p each, and is left holding the remaining cash.
As with many other types of corporate action, there are doubtless many minor variations on the theme. For instance, I think I remember seeing one in the past where the scaling-back provisions said the company would favour fully purchasing small shareholdings that had been fully tendered, presumably in the hope of reducing their number of shareholders and thus their shareholder communication costs.
Tender offers are IMHO a very fair way of distributing surplus cash to shareholders, as they treat all shareholders as equally as possible without compelling any of them to sell if they don't want to. But they are unfortunately also one of the more expensive forms of doing so, due to the need to inform all the shareholders and get individual responses from them - at a guess, costs are likely to be of the same order of magnitude as those for a rights issue, excluding underwriting costs in the case of an underwritten rights issue.
|Clearly if potential buyers know you are desperate to sell then offers are more than likely to be lowball.......|
I decided to head across to the Agm today (pretty much at the last minute), I was treated very well especially considering I was 10 minutes late due to a accident on the M60.
I can confirm the issue with the interim distribution relates to HMRC failing to give assurances that the tender offer arranged would be treated as a capital return rather than a dividend. It was pulled at the very last minute which is why the paragraph in the interim statement doesn't read to well (imo). The company were taken by surprise by the HMRC lack of assurance which conflicted with there own advisors.
The impression I got chatting after the formal business over tea and biscuits was that the 2 remaining divisions are performing well currently, parties are interested in them but aren't yet willing to pay what Ensor consider a decent price. The Brackley land I think is closer to being sold.
If a sale isn't forthcoming in the short term the company would be comfortable operating Ellards and Woods until a suitable offer materialises.
My understanding was that David had arranged to speak to Roger this afternoon so he may well be able to add some further detail.|
|Purpose of exercise was to return cash to shareholders. Not yet done and it seems they do not know when and how they are going to do it. ...
Agreed about "when", but "how" seems clear from what they say: a capital distribution.
... I would say that is a pretty strong grievance actually whether it be against the directors or advisers, it is called poor planning! Even if the relevant legislation only came in to place in April the discussion process would probably have been going on for years beforehand and they should have been aware.
The quality of planning needs to be judged against what planning is actually possible. If the legislation produces tax problems with making the capital distribution before everything has been sold, then the best plan available for returning the cash is to wait until everything has been sold, then make the capital distribution. What has been done so far is entirely consistent with that plan, so no, your grievance about returning the cash is weak.
Assuming that's the case, the fact that the best plan available for returning the cash is an unsatisfactory one is of course caused by the slowness of the sale process. That slowness is your strong grievance - don't dilute it with accusations of poor planning of the cash return when what they're doing may well be the best available way to plan it!
I don't see that what I wrote emphasises the other matters that you mention, which I agree with. But I'll certainly agree that it doesn't make them any better!
The main point of writing it is just that there's a tendency when one doesn't like what is being done to go looking for anything and everything that one thinks might be bad about it, producing a long list of grievances - some much better founded than others. That actually tends to let those one has the grievances against off the hook - they can focus their attention on the less-well-founded ones and downplay the better-founded ones, making it appear that there isn't really all that much to be upset about.
Because of that, it's a very good idea to be self-critical when one has grievances against someone, concentrating on one's strong points and ruthlessly chopping out the weak ones. In this case, their decision not to make an interim capital distribution right now due to tax uncertainties strikes me as at best a weak grievance, and the comparison with Soco an extremely weak argument, for the reasons I stated - and so IMHO they ought to get the axe!
|I agree. I sold out for a modest loss. Management clueless. There is something called 'opportunity cost'.|
Thanks for the comprehensive response. I accept everything that you write but sadly it just goes to emphasise what a pig's ear the directors have made of this entire process.
A sales process that has lasted more than 15 months with two core businesses still not sold.
A share price below where it was when they started to out shareholder value.
No apparent plan as to how they are going to distribute the cash received to date to shareholders in a tax efficient manner. (Not a problem to those of us with smaller shareholdings within an ISA)
So, anyone care to guess how long N months is?|
Secondly, isn't that exactly what Soco did when they returned cash through "A" or "B" shares so that shareholders could chose income or capital?
Firstly, "B share schemes" that offered shareholders the choice of income or capital treatment became ineffective on 6 April 2015, a change that was announced in the 2014 Autumn Statement ( https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/382327/44695_Accessible.pdf ):
"2.152 Special purpose share schemes – The government will legislate to remove the unfair tax advantage provided by special purpose share schemes, commonly known as ‘B share schemes’. From 6 April 2015 all returns made to shareholders through such a scheme will be taxed in the same way as dividends. (Finance Bill 2015) (39)"
Soco stopped using them then, as did all other companies that I am aware of, for the very good reason that they're now just a way of pouring their admin costs down the drain.
So while I don't know exactly what change davidosh is talking about when he says "revised "transactions in securities" rules which came into force in April this year", it's not that one: the dates don't match.
Secondly, davidosh says "new rules make it very difficult for a continuing business" (my bold). Soco definitely intends to remain a continuing business for the foreseeable future, so basically for them it's a choice between making a payment that will be treated as a dividend now or deferring any payment indefinitely.
Ensor intends to go out of business when they've disposed of the remaining two subsidiaries, which means that they might or might not be treated as a continuing business now, but pretty definitely won't be once they've done that. So for them, it's a choice between making a payment now that runs a risk of being treated as a dividend, or making one in N months' time that doesn't. Not at all the same choice as the one facing Soco.
And as regards Ensor taking tax advice on the point, rules that are only a few months old (and sometimes ones that are quite a lot older!) often have unresolved questions that will only be resolved in real-life cases, which is an expensive business! So it may very well be that Ensor have taken advice on the point, and the advice they have received is essentially "Don't risk it - the cost to your shareholders of deferring the payment until the situation clarifies isn't big enough to justify you taking the risk. Let someone else with more at stake be the guinea pig!"
|P.S. Happy to participate in a dial-in if that's the only way we can be kept up to date.|
If any information were material and definite, an RNS would be necessary.
If its useful background information, along the lines you suggest, I would suggest the directors just write it down on a piece of paper, get it approved by the NOMAD, and issue it as a non-material RNS (or whatever they are called).
If its neither of these situations, and given we know the directors feel very constrained by the NOMAD in what they are able to say currently, we probably don't need to make life even more difficult for them by interrogating them over the phone to no good purpose.
Firstly the advisers should have been aware of that rule coming in and advised esr accordingly.
Secondly, isn't that exactly what Soco did when they returned cash through "A" or "B" shares so that shareholders could chose income or capital?
Garbet raises a point, is the empty shell and listing worth anything?
PS Yes, a dial in would be welcomed|