Arron Banks on Leave.EU, Smithson and Patisserie

The Andrew Marr interview of Arron Banks was all good knock-about stuff but there was no knock-out blow inflicted. Andrew Marr was interviewing Arron Banks about his £8 million funding of the Leave.EU campaign. The Electoral Commission have recently asked the National Crime Agency (NCA) to investigate the matter as they apparently do not believe his story about the source of the funding. The suggestion has been made that the funding came from Russian sources or from a company registered in the Isle of Man (Rock Holdings) which would not have been permitted under electoral law.

You can watch the full interview here: https://order-order.com/2018/11/04/arron-banks-marr-interview-full/

Mr Banks made it clear that the money came from Rock Services Ltd and strenuously denied it came from other sources. Andrew Marr suggested Rock Services was a “shell” company and that neither that company nor Mr Banks had sufficient financial resources to cover the £8 million in funding.

It is of course a simple matter to look at the accounts of Rock Services Ltd at Companies House (it’s free to do so – go here: https://beta.companieshouse.gov.uk/search?q=rock+services+ltd ).

Rock Services Ltd hardly looks like a “shell” company which is normally used to describe a company with no revenue and no assets apart from possibly some cash. Rock Services had Turnover of £50 million for the year ending December 2017 but little in the way of profits or net assets. But it did have fixed assets of over £1 million. This is hardly a “shell” company in the normal usage of the word. The “Strategic Report” says the company’s “principal business activity is that of performing a recharge function for services for the Group and other related parties”. The profit of the company is generated from service charges added to costs and salary recharges.

Aaron Banks has been running motor insurance companies for many years and is involved in a group of companies which includes Rock Services, Rock Holdings and UK registered Eldon Insurance. I vaguely recall he was involved in a company called Brightside I held shares in from 2012/2014 which was publicly listed before being taken over. The accounts of Eldon Insurance can also be read at Companies House and indicate revenue of £77 million and profits of £1.8 million in 2017. Another substantial company in the Group is Southern Rock Insurance which is based in Gibraltar. You can see a complete list of group companies and their transactions through Rock Services Ltd on page 15 of their accounts.

In summary the allegation that Mr Banks or his UK companies did not have the financial resources to make the donation to Leave.EU is not reasonable, and Andrew Marr and his researchers should have looked into the background more before making the allegations he made.

As Mr Banks said in the interview, other donations were made to the remain campaign from subsidiaries of foreign companies. Why were they not being investigated? It certainly looks like a witch-hunt to me. It would seem to be more about politics than election regulation.

Note that Companies House is an invaluable source of information on companies and their directors. All investors should be familiar with it. It can be useful in other ways – for example I recently obtained a bid from a company to provide web site development work. That was done from the email address of a company that was different to that from which they suggested would do the billing. When I looked the former company up at Companies House it had actually changed name a couple of years ago and under its latest name had got appallingly bad references on the internet. Needless to say I decided not to do business with them.

Smithson Investment Trust (SSON) is now trading at a remarkable premium to net asset value of 7.4% according to the AIC after its recent IPO. Bearing in the mind the state of the market and the fact that it can hardly have yet invested the money raised (one might call it a “shell” company), it would seem investors are putting a high premium on the name of Terry Smith and his involvement in this trust. There must be investors out there who are purchasing shares at that premium to maintain this “discount” but that seems very unwise to me when most investment trusts have historically traded at a discount. The reason for this is quite simple – investment trusts incur costs in management and administration which reduces the yield and returns on the underlying shares they hold. Investors can always buy the underlying shares directly to avoid those costs. In the recent bull market and recognition of late of the merits of investment trusts, some have been trading at small premiums but a premium of 7.4% when the company has no track record and will be mainly holding cash seems somewhat unreasonable.

As I said when reviewing the IPO, it may be best to wait and see what transpires for this trust.

Patisserie (CAKE) and the recent General Meeting have been covered in several previous blog posts. I have previously mentioned that I was not happy that Luke Johnson did not answer my questions – he ruled them out along with a lot of others. When can a Chairman refuse to answer questions in a General Meeting? It was always judged to be matter of common law that questions should be answered but that has now actually been put into a Regulation.

I have written to Mr Johnson and my letter includes these paragraphs:

1. As regards the conduct of the General Meeting, I suggest you not only handled it badly as Chairman but that refusing to answer my questions was a breach of The Companies (Shareholders’ Rights) Regulations 2009. There are valid grounds on which you can refuse to answer questions at General Meetings but the reason you gave for not answering mine (refusal to answer any questions that might prejudice the investigations) was not a valid one.
2. Holding a meeting a 9.00 am is also not good practice. This note published by ShareSoc (and partly written by me) gives guidance on how to run general meetings, and includes references to the law on the subject: https://www.sharesoc.org/How_To_Run_General_Meetings.pdf

If you study the aforementioned regulations, you will see that the directors can refuse to answer questions that would require disclosure of confidential information or “if it is undesirable in the interests of the company or the good order of the meeting that the question be answered”. That may be quite broad but it hardly covers the questions I posed and the answers to my questions would certainly not have prejudiced any investigations.

I have therefore asked him to answer the questions in my letter. He may have other things on his mind, but all company directors should be aware of the law, or take legal advice when required.

Shareholders should not allow directors to ignore their responsibility to answer reasonable questions.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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