In the latest development in the saga of the Gresham House Strategic trust (GHS), the board has announced the net asset value of the trust has been overstated since 30 July and Gresham House, the former investment manager, has been overpaid.
In a stock exchange update the board of GHS has said Harwood Capital, the recently appointed investment manager, has found the tax liability of profitable sales on the trust have been incorrectly stated, meaning the NAV is approximately £1.3m lower than stated.
A further consequence of the overstating of the NAV means Gresham House Asset Management has been overpaid £0.3m, inclusive of VAT, in performance fees, which the board now intends to reclaim.
The issue arose because of changes to tax legislation, which became effective on 1 April 2020, which limited the use of capital losses against realised gains to £5m per year.
Realised gains the £5m per year are currently taxed at 9.5% and not zero as was previously the case.
At the end of July the trust sold Augean which gave rise to a gain of £18.8m. This when combined with other recent profitable sales meant the trust owes taxes that were not accounted for.
The board has also noted that if the entire portfolio was liquated today there will be a further gain of £3m and that would leave to a tax liability of about £1.3m or approximately 2% of Nav.
Shareholders accounting for almost half of GHS' total share capital called for an immediate return of cash and the realisation of its portfolio at the beginning of the month (5 November).
Gresham House led the charge, which followed a controversial strategic review, which resulted in them being ousted for Harwood.
The former asset manager said the review was "inadequate" given that they had been offered liquidity to realise their full investment at NAV. Instead, the company argued that all shareholders should have been offered that option.
Gresham House then obtained irrevocable undertakings from shareholders to vote in favour of the return in capital.
The board said it is arranging for all the weekly NAV calculations to be recalculated since the incident occurred and will release the information to the market.
The trust is trading on a 15.1% discount, according to the Association of Investment Companies (AIC).