Absolute Capital Management Holdings Limited has set out the final terms for approval of its fund restructuring this Saturday 27 October following protests from the Absolute Investors Action Group represented by law firm Simmons & Simmons, along with other major investors in the funds represented by Walkers, the offshore law firm (together, the Investor Group).
The Investor Group has urged Absolute Capital Management to agree amendments to their planned restructuring proposals or risk blocking votes on a number of the funds at the forthcoming extraordinary general meetings.
Although both investor groups have made separate written requests to the funds' directors, they stated that they 'substantially support each other's concerns and share a desire for constructive discussions prior to the EGMs on 27 October 2007. Failure to agree amendments prior to the EGMs may result in blocking votes in one or more of the four funds as well as votes being cast against the planned restructuring proposals for the remaining funds.'
William Rodger, financial litigation partner at international law firm Simmons & Simmons, commenting on behalf of the Absolute Investors Action Group, says:, "Both the Absolute Investors Action Group and the investors represented by Walkers have significant concerns over the current restructuring proposals. As both groups represent a very significant body of shareholders in the funds, we urge the directors to give prompt consideration and meet to discuss these concerns prior to the EGMs.'
The restructuring proposals follow a review instigated after the suspension of five of the funds' shares on 19 September, which were suspended after investors representing nearly a third of the funds submitted redemption requests. These redemption requests were in response to the resignation of Florian Homm, the co-chief investment officer of Absolute Capital Management Holdings on 18 September 2007.
The Investor Group, which represents investors owning substantial minority holdings in the four affected funds, is presently engaged in discussions with Absolute Capital Management as to various alternatives to the existing proposals which may include the possibility of appointing a replacement investment manager to the funds.
Guy Locke, Global Head of Insolvency and Corporate Recovery at Walkers, commenting on behalf of the group of investors represented by Walkers, says: "Whilst I am somewhat surprised that Absolute Capital Management and the Directors have not taken a more pro-active role in working with investors on an appropriately amended proposal, I remain confident that all parties will be able to work together to achieve a mutually satisfactory outcome which is in the best interests of the respective funds."
The Investor Group believes the appointment of an independent, expert Investment Manager who is experienced in the restructuring of both liquid and illiquid portfolios (and who could work together and complement existing Absolute Capital Management personnel) represents a significantly better alternative to the funds as a whole than what is presently proposed by Absolute Capital Management.
Accordingly, the Investor Group presently plans to vote against the existing restructuring proposals at the EGMs unless Absolute Capital Management agrees to adjourn those meetings or substantially amends the proposals to take into account the concerns of the Investor Group.
The Investor Group believes that further discussions with Absolute Capital Management are prudent and appropriate and that liquidation is not presently necessary, nor desirable.
The Investor Group has asked interested investors to contact William Rodger of Simmons & Simmons or Mark Holligon of Walkers to discuss their options.
Investors should note that completed Proxy Forms are due by 26 October 2007 (9.30 am Cayman time, 4.30pm Central European time).
The Investor Group stated: ' If investors have already submitted Proxy Forms but are now interested in re-considering their vote, they should be aware that Proxy Forms may be subsequently revoked under Cayman Islands law.'
Absolute Capital Management Holdings Limited ('The Company') has set out the terms for approval of its fund restructuring as follows:
The Company has sent each investor in the Absolute Return Europe Fund Limited, Absolute European Catalyst Fund Limited, Absolute Octane Fund Limited and Absolute East West Fund Limited an urgent letter requesting them to complete and return their proxy forms in order to vote in favour of the restructuring proposals at the extraordinary general meetings of these funds to be held on 27 October 2007.
The letter clarifies the following two points:
- Contrary to the belief/statements of some investors and intermediaries, a failure to vote WILL NOT be taken as a yes vote for the proposals. Receipt of completed proxy forms or attendance in person at the fund shareholder meetings are the only actions that can be taken to approve the proposals
- If the proposals are not approved at the funds' shareholders' meetings, it is likely that the funds will very soon thereafter begin liquidation, either voluntarily by action of the Company, or in respect of the Absolute Octane Fund Limited and the Absolute European Catalyst Fund Limited, by order of the Cayman Islands courts following the hearing of Mr John Bruhl's petitions requesting the appointment of an interim liquidator
Implementation of the restructuring proposals requires, on a fund by fund basis, a positive vote of shareholders holding not less than 75% of a fund's shares represented at its extraordinary general meeting, in person or by proxy. The quorum requirement for the meetings is 50% of a fund's shares represented in person or by proxy. If a meeting's quorum requirement is not met, or if the resolutions to approve the restructuring fail to secure the support of shareholders holding 75% of the fund's shares represented at its meeting, the fund cannot implement its restructuring proposal.
The Company believes that nearly all investors with whom it has discussed the restructuring proposals would prefer to avoid liquidation of the funds as in such case the funds would be forced sellers of their assets and realisation values are likely to be significantly reduced. However, the Company is stressing that unless enough fund investors complete the voting procedures and vote in favour of the restructuring proposals, immediate liquidation of one or more of the funds is the likely result.
Whilst the overall framework and principal terms of the restructuring proposals have not changed from those set out in the Company's circulars sent to investors on 27 September 2007, in response to investor feedback the Company is giving certain undertakings regarding the fund restructuring process. The Company believes that investors will find that these undertakings reflect significant incremental improvements to the restructuring proposals. The undertakings are that:
- The reset of the funds' liquid portfolios' high water marks will be based on the HIGHER of the funds' liquid portfolios' net asset values on 1 November 2007, 1 December 2007 and 1 January 2008. This undertaking is being given in response to investor concerns that the Company should not receive a performance fee for the expected rebound in the funds' portfolio values following the implementation of the restructuring proposals;
- The Company shall rebate to the Absolute Octane Fund Limited and the Absolute European Catalyst Fund Limited on a monthly basis the portion of any performance fees attributable to an increase in value of the ACMH shares held by such funds;
- The Company will, within 30 days of the approval of the restructuring proposals, engage on an independent basis three investment professionals it has identified as having expertise in private equity and related valuation matters to produce an initial report on the status of the illiquid assets and recommend options for their realisation. Such report will be made available to investors on a confidential basis (and may be redacted or summarised in part to the extent its contents could adversely affect the market for these assets), and is expected to form the basis of the Company's plan for working out of such assets;
- In addition to the regular monthly NAV reports, the Company will issue quarterly status reports to fund investors setting out the progress of the realisation of the illiquid assets, and should such process proceed ahead of schedule, the Company will give due consideration to providing investors with further liquidity from the funds' liquid portfolios prior to November 2008;
- The Company will, within 30 days of the approval of the restructuring proposals, engage a third party portfolio risk monitoring firm to produce a report on the funds' portfolios, which report will be made available to investors on a confidential basis;
- The Company will establish an investors' committee to provide a confidential forum for representatives of fund investors to monitor and discuss the progress of the workout of the funds' illiquid assets. The composition, appointment process and terms of reference for the committee shall be adopted by the Company within 30 days of the implementation of the fund restructuring proposals;
- The Company shall ensure that no fund will implement the 'redemption gate' provision present or proposed to be included in the funds' Articles of Association when the funds resume monthly liquidity in November 2008, and that no Fund will extend the lock-up period on redemptions beyond November 2008; and
- The Company shall ensure that no fund will make redemptions in kind of shares of its side pocket portfolio.
Jonathan Treacher, Chief Executive Officer of ACMH, says: 'We are confident that the large majority of investors are broadly supportive of the restructuring proposals and nearly all are against a liquidation of the funds. We believe that the undertakings we're giving in respect of the restructuring proposals will go a long way to allaying any residual concerns investors may have with the proposed restructuring, and that those investors which have remained undecided thus far will now support our proposals. Most importantly, we need to ensure that the funds are not put into liquidation due to investors failing to participate in the upcoming EGMs, and for this reason we urge all fund investors to complete and return their proxy forms in advance of the 27 October 2007 meetings.'