In a letter seen by FTAdviser, Earthworm — which runs an Impact EIS fund and a Seed EIS portfolio — told advisers the pandemic had been an “extremely challenging time” for the firm and that a decision had been made with “significant regret” to close the company.
Administrators Leonard Curtis said the company’s fundraising opportunities had been “significantly diminished” due to the Covid-19 pandemic, which had ultimately impacted Earthworm’s ability to generate revenue.
This, in turn, led to a gradual depletion of the firm’s reserves and it could no longer meet the regulator’s capital adequacy requirements.
The adviser, who did not wish to be named, said: “My client will be fine but it leaves a bad taste in the mouth that something has gone so wrong.
“This is where suitability becomes really important and relevant, and only recommending something that is suitable for the client.”
He added that because his client had the capacity to deal with the loss, the client would identify this company failure as an “unfortunate outcome” in just one case.
According to Companies House, Earthworm applied for the company to be struck off last week (December 3).
The firm pledges to only invest in projects that have a “positive social and environmental impact on the world”.
On its website, it says: “We want everyone to invest in things they care about...we consider the consequences of our actions before making any investment.
“And every investment we make is about delivering returns as well as achieving positive environmental and societal outcomes.”
More positively, the adviser said the administration had brought “some clarity” to the situation.
He said: “I’m hopeful the client will get some protection. He may be able to declare loss relief and there are some merits now that we’ve got some certainty.
“I’ve never had it happen before, we’ve never had anything that has failed or gone wrong so I really don’t know what will happen now. It’s a new experience for me.”
According to the administrators, it is hoped the funds will be transferred to SEIS and EIS manager SFC Capital Partners.
This was the “best outcome” for creditors and investors, the administrators said, and would “mitigate cost and disruption to investors”. Investors have been invited to consent to the proposed transfer.
Leonard Curtis said it was unable to return investors’ assets to them instead of the transfer.
They added: “Investors may be eligible to benefit from the protection provided by the FSCS if they have a ‘protected claim’ against the company.
“[Investors] should proceed with caution if approached by a claims management company. For the vast majority of investors, there is no benefit in involving a third party in reclaiming your assets.”
Investors in EIS qualifying companies can receive a tax break of as much as 50 per cent of the amount invested, with any income and capital gains exempt from tax.
However, the companies within EIS portfolios are younger, smaller and riskier than a typical investment.
Leonard Curtis and Earthworm were approached for comment.
imogen.tew@ft.com
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