A party no one should be sorry to have missed

By David Blackwell

The purpose of Aim is to foster baby companies until they become sufficiently mature to move to the main market.

However, a couple of recent events suggest that when a company does announce plans for a full listing, there may be trouble ahead. Soon – to pinch a couple more lines from Irving Berlin’s Let’s Face the Music and Dance – investors will be “humming a diff’rent tune/and then/there may be teardrops to shed”.

The classic case was Aero Inventory, the aircraft component supplier. On September 30 it begun preparations to move from Aim to the main market. On November 11 it appointed administrators.

It was a rare occurrence. Robert Corden, an analyst with Charles Stanley who had a “buy” recommendation on the stock until the end of October, said: “I have been working in the industry for 40 years and I have never seen a company go from moving to the full list to administration in my life.”

This column is not for a moment suggesting that a similar fate awaits JSM Indochina, the Vietnam and Cambodia residential and retail property fund. However, the company did say on September 10 that it expected to move to the main market by the end of the year. Then on October 20 it announced that it had received a notice requisitioning an extraordinary meeting from Passport Capital, a US hedge fund with a stake of 13 per cent.

Events since have pushed the prospect of moving to the full list off the agenda for a while. The extraordinary meeting was postponed three hours before it was scheduled to start on Thursday last week.

The meeting, rescheduled for next Monday, was to have voted on Passport’s proposals to oust half the board and replace them with its nominees. However, Craig Jones and Rowell Tan resigned as directors ahead of the meeting.

Passport, which described the short notice of the postponement as “unprecedented and highly inappropriate”, was pleased with the resignations. But they were not sufficient, it said, “to address the significant transparency and governance issues” it had identified.

The company said the meeting was postponed because many voting forms representing a significant number of shares were “either unclear, completed incorrectly or altered after a relevant cut-off date”. Given the importance of the outcome, the additional time would allow discrepancies to be resolved “so that the final calculations may reflect with greater certainty the intent of the investors”.

The disagreement between Passport and the company centres on Mr Jones, founder of the company and holder of a 14.5 per cent stake. Passport is concerned that Mr Jones and affiliated entities in the US were last week found by a Los Angeles court to have committed fraud. Compensatory and punitive damages of $1.9m (£1.1m) plus costs have been awarded against Mr Jones.

The company said this week that the board understood the award against Mr Jones was “a civil law-based breach of contract claim under Californian law and not of a criminal nature”. Mr Jones is understood to be seeking to appeal.

Passport, which wants an accelerated return of uninvested cash and a review of the investment strategy, is also concerned about a $3.5m loan from JSM Indochina to Mr Jones. However, the company says the loan, which has a 17 per cent annual interest charge, is not due for repayment until March.

Claims against Mr Jones as an individual and companies associated with him were filed in the Los Angeles courts in February 2006. The prospectus, prepared by Evolution and Lehman Brothers for JSM Indochina’s admission to Aim in July 2007, says the company was unaware of any prospective litigation.

However, it also points out that Mr Jones’s US business has “from time to time been the subject of claims and litigation brought by landowners, joint venture partners, suppliers, tenants, financing parties and others relating to projects” undertaken by him and his companies.

The prospectus shows that Mr Jones has a management agreement set to run for eight years from the admission, with only a limited basis for termination. Mr Jones, who has much of his family fortune invested in JSM Indochina, and Mr Tan have retained their roles as managers to JSM Indochina.

The outcome of Monday’s reconvened meeting might see them having to deal with Passport’s nominees.

Alternatively, JSM Indochina might be left with four non-executive directors and no executives.

Passport came late to this party, which is the kind that provides entertaining anecdotes for months. But it’s also the kind of party most people should be glad to have missed.