Sunday 28 June 2015

IoM regulator asked for formal investigation into T1ps investment

This letter was sent to Denham Eke and David Gibson, then non-executive directors of Rivington Street Holdings, from Suzanne Collins, in her capacity (at that time) as a regulator at the Isle of Man Insurance and Pensions Authority.

Pathway One Plc
Background
On 19March 2012 I was emailed a copy of a complaint received at the T1ps Investment Management Limited (‘TIM UK’) office from the Financial Ombudsman Service (‘FOS’).  This complaint was on behalf of Mr R Forster, an investor in the T1ps Smaller Companies EIS Fund.
The basis of his complaint was that he had requested an EIS 3 tax certificate for one investment – Commercial Tyre Solutions/Pathway One – which had been outstanding since October 2010.
As he stated it was a requirement of the fund that the fund managers only invest in EIS qualifying businesses who will supply a tax certificate.
TW produced a response to the FOS on behalf of T1ps Investment Management (IoM) Limited (‘TIM IoM’) (attached as Appendix 1). 
This response set out the following as the chain of events:

1.            On 2 July 2010, the t1ps Smaller Companies EIS Growth Fund (the ‘Fund’), through WCS Nominees Limited (the Nominee for the Fund), made an investment into Commercial Tyre Solutions Limited (‘CTS’).  CTS never actually issued shares to WCS Nominees Limited and as a result the investment was treated as an unsecured loan. 

2.            The assets and liabilities of CTS were acquired by Pathway One plc (‘Pathway’), prior to CTS entering administration. As a result of this the loan became payable by Pathway and was subsequently converted into shares in Pathway.  Unfortunately, this process resulted in the disqualification of the subscription for the purposes of EIS tax relief.

3.            The Directors of Pathway advised that they were discussing the pending EIS application with HMRC. When the delay became unacceptable, the Fund Administrator undertook an investigation and discovered that no application had been made to HMRC.

4.            The Fund Administrator was on the point of issuing a letter with text provided by t1ps (IoM) to advise investors of the loss of EIS reliefs on their CTS/Pathway investment when we received your letter.

5.            All of the shares issued to WCS Nominees Limited for the Fund in Pathway to be acquired at the original subscription price purchased.  This will negate any potential loss incurred by investors in the Fund.

6.            The investors will be offered the choice of having their monies re-invested into an alternative EIS qualifying investment within 90 days of the purchase of the Pathway shares or to have their monies returned to them by the end of May 2012.

7.            The Investment Management Agreement for The t1ps Smaller Companies EIS Fund was novated by the former Manager, t1ps Investment Management Limited, to t1ps (IoM) with effect from 1st October 2010.  This change was notified to investors via the regular Newsletter.

Whilst this did leave a number of questions unanswered, it did provide a reasonable if superficial response to the FOS, and supported a request to have the complaint considered outside the scope of the FOS due to the novation of the management to the Isle of Man. 
The letter and supporting all investors letter (copy as appendix 2) was sent to the FOS on 26 March.
One of the obvious questions resulting from this letter was who would be buying the shares back and refunding the monies to the fund.  I then became aware that the potential liability of this buy back was £100k, plus the refund of any tax liabilities arising out the failure to obtain the tax certificate in a timely manner.  I also became aware, through a document on a file, that Russell Darvill, of RSH London office, was a director and company secretary of Pathway, and that the company operated out of the London office.
In an attempt to discover more about Pathway I sent an email to TW (attached as Appendix 3) asking for more information.  I have had no response to that email.
I also became aware at this time that Russell Darvill had requested the accountant to make provision within TIM (IoM) accounts for £100k to fund the buyback.  This has since been moved back into the UK company and no provision is currently held within TIM (IoM).
On Monday 26 March – I sent a chaser to TW asking for the information on Pathway with additional information on CTS (Appendix 4).
Having no response to my requests for information I undertook some investigation into Pathway and CTS.
Pathway One Plc

1.            Co No 04311137 – UK – Incorporated on 25/10/2001.

2.          2.    The company had been formally dormant a couple of times then appeared to commence trading in 2005/2006. At this time it appears to have been operated by Ian Leith and Robert McDonald Watson.  It seems to have been a software company – it has an entry in Bloomberg which describes how Pathway One Plc together with its subsidiaries (?), provides a range of information technology products and services based around a suite of tools for teachers. At this time it was showing a contact address in Leeds.IL was terminated as a director on 17/09/2009 and RMW on 20/11/2008.

3.            3.     The Bloomberg article also states that as of 17 November 2008 Pathway has operated as a subsidiary of Rivington Street Holdings Limited.Other articles on the internet also describe it as a RSH subsidiary.  At present I have not ascertained whether this was the date RSH became involved or not.

4.        4.    Russell Darvill became a Director and Company Secretary on 17/11/2009.Paul Rewrie became a director on 15/09/2010.  These are currently the only directors shown.

5.       5.      The Annual Returns have been filed up to date.  A list of the members is attached (Appendix 5).  Richard Henstock who shows a shareholding was a director until 7 November 2008.  It is not clear from this listing why RSH should be the ultimate parent.

6.              6.      The accounts have been filed up to date – the last filing was to December 2010.  The next filing is due by June 2012.(Appendix 6)
Note 15 to the accounts talks about a ‘loan’ of £100k to CTS ‘a company of which Mr P E Rewrie is a director’.  It then goes on to state that CTS went into administration in June 2011 and that £40k of the loan has been written off.  It is unclear whether this is a separate loan to that granted by the fund or the same one taken over by Pathway.  There is no mention of Pathway having bought the assets and liabilities of CTS as stated by TW in the FOS response. 

7. The Auditors resigned 13/01/2011, no new appointment has been filed at Companies House.

Commercial Tyre Services

1.    TW forwarded to me his research in respect of CTS (Appendix 6 & 7).

2.    Paul Rewrie was appointed as a director on 26 October 2009. 

3.    CTS went into liquidation in May 2010.

4.    According to the Liquidator’s statement of receipts neither Pathway nor the fund are listed as creditors.

As you can see there are significant inconsistencies in the liquidation date and I can see no reason why the fund should make an investment into a company which had already appointed a liquidator – or why Paul Rewrie should be promoting it at that time. 
It is not clear when or what Pathway took over when they assumed or bought all of CTS assets and liabilities – if they did.
It is not clear if there is one loan to CTS from the fund or one from the fund and another from Pathway.  The Auditors have signed off that there is one for Pathway that has been 40% written off, so that does seem to exist but it is not clear whether this dates from before or after the liquidation or explain why they are not listed within the creditors of CTS.
The appointment of Paul Rewrie appears unusual given his link to CTS and the loss of monies in that venture. 
I cannot explain the relationship to RSH given the shareholding held – especially as it was originally lower than it is now, however, publicity has been given to the ultimate parent being RSH for some time.
If this company is a subsidiary of the group has it been included for consolidation purposes?
Recommendation
I recommend that a formal investigation is carried out into the actions of Pathway, and the investment of the fund into CTS.  I cannot find a reasonable explanation for the investment of the fund at the time it was made or for Pathway purchasing anything from CTS or lending them monies. 
Despite requests I have been unable to obtain any explanation into the use of Pathway from TW.

Suzanne Collins
29 March 2012

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