A former member of the receivership committee of the Axiom Legal Financing Fund which is the subject of legal action over allegations of fraud, has admitted that progress has been slow in trying to acquire shares from other investors.
In February 2013, Grant Thornton was appointed as the fund’s receiver after its suspension in 2012, following the resignation of the director of the Cayman Islands-based investment manager, Tangerine Investment Management.
The fund remains in receivership amid legal action against various parties, but in March it became possible to transfer shares offering an opportunity for investors to exit via secondary sales.
Venture capital investor Rob Merriman gave up his membership of the Axiom fund’s receivership committee - to avoid any possible conflicts of interest - and sent correspondence to investors stating he was interested in buying shares.
He told FTAdviser that offers flooded in to begin with, including from investors, funds and advisers representing in excess of half the fund, but that this has fallen away as many continue to harber “unrealistic expectations” on the likely recovery value.
“The pace has fallen in the last few weeks, but the enquiries do keep coming and I continue to find investors who are keen to sell.
“Some investors still have completely unrealistic expectations about the likely recovery rate, possibly because their advisors either don’t understand how weak the assets are or because they are reluctant to break the bad news.
“Many are, however, realistic and want closure or else have some other motivation for selling like realising capital losses or liquidating a portfolio bond; so I have had many takers.”
Mr Merriman added that there has been no news from the receivers since March, admitting that “progress continues to be very slow”. He stated limited recoveries are dependent on cases that are “not only weak but which will, in most cases, take several years to play out”.
Receivers from Grant Thornton announced in February of this year they have agreed a settlement with Tim Schools, the former manager of the fund and one of the parties included in the fraud action, along with “other defendants associated with him”.
A spokesperson for Grant Thornton said details of the settlement are confidential. The notice stated that Mr Schools had “vigorously” defended the allegations and that both sides had “continuing confidence in their respective positions”.
In January 2014, FTAdviser revealed that the receivers of the troubled legal fund had brought claims against several parties in London’s High Court, which were “considered to have acted fraudulently” in relation to “sums up to £110m”.
Proceedings against the remaining parties continue and are expected to come to trial in October.
In a message to an investor, seen by FTAdviser, Mr Merriman explained the price offered is roughly equal to the share of current cash reserves held by the fund. He is offering investors 4.75p per share, with a transfer fee levied by JP Fund Administration and Grant Thornton.
He said cash reserves may be increased by asset realisations, but will also be reduced by fees charged by receivers and lawyers, including contingent fees of almost £1m already accrued and unpaid. The cost of the receivership over the first two years was £4m, excluding the contingent fees.
In terms of the underlying portfolio, Mr Merriman said 92 per cent of loans by value were related to law firms now in receivership. Realisations are dependent on selling cases into a weak market, which has been affected by law firm defaults linked to the collapse of Axiom.
The fund lent money to ‘no win, no fee’ lawyers and was marketed to UK investors and advisers.
In September, the Serious Fraud Office stated a formal investigation into the suspended Axiom fund could be launched as it was “in receipt of information” and was “making enquiries”.
This came in the aftermath of a decision by the Solicitors Regulation Authority to strike off Mr Schools, for “serious” and “deliberate” misconduct in relation to ATM Solicitors, a firm he owned and sold in 2011.
There was no suggestion of a link between the failings identified at ATM and Mr Schools’ role on the Axiom fund.
peter.walker@ft.com
