AIFZ Acorn Income Z

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA OR THE REPUBLIC OF SOUTH AFRICA

23 September 2021

Acorn Income Fund Limited (“Acorn” or the "Company”)

Publication of Circular: Scheme of Reconstruction and Winding Up

On 01 September, the Company announced that it had agreed heads of terms with Unicorn Asset Management (“Unicorn”) in respect of the proposed rollover of its assets into Unicorn UK Income Fund and an option for a cash exit (together, the “Proposals”). The Board of the Company announces that it has today published a shareholder circular setting out the terms of the Proposals (the “Circular”), which convenes an Annual General Meeting and an Extraordinary General Meeting of its Ordinary Shareholders to consider and, if thought fit, to approve the implementation of the Proposals.

Introduction

Given a combination of factors, including the Company's existing dual portfolio structure, a likely future cut in dividends, the historic discount to Net Asset Value at which the Ordinary Shares have traded in the market, and the relatively small size of the Company, the Board does not believe that the Company can viably continue in its existing form.

However, some Shareholders have confirmed their endorsement of the Company's Smaller Companies portfolio investment strategy under the management of Unicorn.  Other Shareholders have indicated a preference for a cash exit at close to Net Asset Value. Having reviewed and considered various proposals regarding the future of the Company and following consultation with some of the Company's Shareholders, the Board concluded that offering a rollover of its assets into the Unicorn UK Income Fund, an open ended vehicle managed by Unicorn, and an option for a cash exit is in the best interests of Shareholders as a whole.

The Board has agreed terms with Unicorn for a scheme of reconstruction and winding up of the Company that would involve a rollover of some or all of the Company's assets (excluding those attributable to the ZDP Shares) into the Unicorn UK Income Fund.

The Board is therefore pleased to propose to Ordinary Shareholders recommended Proposals for a scheme of reconstruction of the Company (the "Scheme"), which would result in the voluntary winding up of the Company.  The Scheme would entitle Ordinary Shareholders to elect to roll over all or part of their holdings of Ordinary Shares in the Company into the Unicorn UK Income Fund, with rollover entitlements being calculated on an NAV for NAV basis; and/or to receive cash as all of or part of Ordinary Shareholders' entitlement upon the liquidation of the Company, at a price which will be close to the prevailing NAV per Ordinary Share. 

Unicorn has agreed that the income shares in Unicorn UK Income Fund ("UKI Shares") issued to Ordinary Shareholders under the Shares Option will not be subject to an entry charge and, further, will benefit from a waiver of UKI's annual management charge for the 12 months from the date of issue.

As part of the Proposals, ZDP Shareholders would be paid their ZDP Share Final Capital Entitlement in full and sooner than the current ZDP Repayment Date of 28 February 2022.  ZDP Shareholders should take no action in relation to the Proposals.

The Proposals are subject to the approval of the Company's Ordinary Shareholders. The purpose of the Circular is to seek Ordinary Shareholders' approval of the Proposals at the Extraordinary General Meeting, to give Ordinary Shareholders information about the options available under the Scheme, as well as to convene the Company's next, and likely final, Annual General Meeting.

The Proposals

Under the Proposals, the Company will enter into a scheme of reconstruction (the "Scheme"). In accordance with the terms of the Scheme, the Company will be placed into liquidation at the Extraordinary General Meeting by means of a voluntary winding-up pursuant to section 391(1)(b) of the Companies Law. Shareholders will be able to elect to receive in exchange for their existing shareholdings in the Company:

·      UKI Shares with the same value as their holding of Ordinary Shares on the basis of the relative values of the Residual Value per Ordinary Share (calculated as the NAV of the Ordinary Shares less their pro rata contribution to the Liquidation Fund and the Retention Fund) and the NAV per UKI Share as at the Calculation Date (the "Shares Option"); and/or

·      a cash amount equal to the Residual Value per Ordinary Share multiplied by the number of Ordinary Shares held by such holder as at the Calculation Date (the "Cash Option"). 

Ordinary Shareholders (other than Restricted Shareholders) who do not make any elections will be deemed to have elected for the Shares Option as the default option under the Scheme.

Under the Proposals, the Company's ZDP Shareholders will receive their Final Capital Entitlement in full in advance of the current repayment date of 28 February 2022.  The date on which ZDP Shareholders are expected to be sent cheques or electronic bank transfers (as applicable) in respect of the ZDP Final Capital Entitlement will be announced in due course.

Benefits of the Proposals

The Directors consider that the Proposals should have the following benefits for Shareholders:

(i)           they provide Ordinary Shareholders with a greater choice than if the Company were simply to be wound up, since the Proposals enable Ordinary Shareholders to: (i) continue their investment exposure through a rollover into the Unicorn UK Income Fund; (ii) receive cash; or (iii) receive a combination of cash and UKI Shares;

(ii)          the Proposals allow Ordinary Shareholders to retain their investment exposure through another investment vehicle with a similar investment objective and portfolio and managed by the same manager as the Company's current Smaller Companies Portfolio, Unicorn;

(iii)         the Proposals enable those Ordinary Shareholders who wish to acquire UKI Shares to do so whilst avoiding an entry charge and, further, benefitting from a waiver of UKI's annual management charge for the 12 months from the date of issue;

(iv)         the UKI Shares may carry certain advantages for some Ordinary Shareholders.  The Unicorn UK Income Fund is the best performing fund in the IA UK Equity Income sector since launch[1].  In addition, Unicorn offers daily liquidity in the UKI Shares through a dealing facility priced by reference to net asset value;

(v)          the Proposals afford Ordinary Shareholders the opportunity to achieve a complete cash exit from the Company at a price that should be close to Net Asset Value per Ordinary Share;

(vi)         the mechanics of the Scheme are designed with the intention of allowing certain Ordinary Shareholders subject to UK tax to continue to receive investment returns without triggering an immediate liability to capital gains tax (Shareholders should read paragraph 6 of Part 6 of the Circular carefully and should consult their own tax advisers as to the advantages or otherwise of the Proposals); and

(vii)        the Proposals allow the ZDP Shareholders to receive their ZDP Final Capital Entitlement in full and sooner than the ZDP Repayment Date.

Conditions to the Scheme

The Scheme is conditional upon, amongst other things:

(i)         the passing of all the Resolutions to be proposed at the Extraordinary General Meeting and all conditions to such Resolutions (excluding any condition relating to the passing of any other Resolution) being fulfilled; and

(ii)        the Directors not resolving to abandon the Scheme.

In the event that any of the Resolutions is not passed or any other condition of the Proposals is not met, the Proposals will not be implemented. In that event, the Company will continue as presently constituted.

The Rollover Vehicle – Unicorn UK Income Fund

The Unicorn UK Income Fund is a sub-fund of Unicorn Investment Funds, an open-ended investment company with variable capital incorporated in England and Wales and authorised by the FCA. Unicorn Investment Funds is an umbrella company (as defined in the FCA's rules) and is a UCITS scheme.

The investment objective of the Unicorn UK Income Fund is to provide an income by investing in UK companies. UK companies are defined as those which are incorporated or domiciled in the UK, or have a significant part of their operations in the UK.

The Unicorn UK Income Fund may also invest, at its discretion, in other transferable securities and deposits and cash. The fund may also enter into certain derivative and forward transactions for hedging purposes. The fund invests at least 80 per cent. of its assets in UK companies which are quoted companies with a bias towards small and medium sized companies (those with a market value of less than £4 billion). Some of the companies in which the fund invests may be quoted on AIM.

The Unicorn UK Income Fund was launched in 2004 and is the best performing fund in the IA UK Equity Income sector since launch¹. The fund follows the same long-term approach as the Company's Smaller Companies portfolio with a focus on generating a differentiated and high quality income stream from a high conviction portfolio of predominantly small and medium sized UK equities. The Unicorn UK Income Fund is £527 million in size¹ and has been managed since 2013 by Fraser Mackersie and Simon Moon, who are also the managers of the Company's Smaller Companies Portfolio.

As at 31 August 2021, Unicorn estimates that the Company's existing Smaller Companies portfolio that it manages has an approximately 67 per cent. commonality with the UKI portfolio and that the balance of the portfolio can be realigned in an efficient manner ahead of the rollover.

Costs of the Proposals

The costs of the Proposals incurred by the Company (including all advisers' fees, printing and other ancillary costs of the Proposals) are expected to be approximately £500,000 (inclusive of any VAT).

Conditional on the passing of the resolutions to be proposed at the Extraordinary General Meeting, Unicorn has agreed to contribute £100,000 (the "Costs Contribution") towards the costs of the Proposals to Shareholders. The Costs Contribution will be reduced by the proportion of Ordinary Shares in respect of which valid elections (or deemed elections) are made for the Cash Option but subject to a minimum contribution of £50,000. 

The stamp duty incurred on the transfer of assets from the Company to Unicorn UK Income Fund pursuant to the Transfer Agreement will be paid by the enlarged Unicorn UK Income Fund and therefore borne by the existing shareholders of the Unicorn UK Income Fund as well as the Company's Ordinary Shareholders who elect to roll over.

In the event that the Proposals do not proceed, each of the Company and the Unicorn UK Income Fund will bear its own fees incurred in connection with the Proposals.

Liquidation Fund and Retention Fund

The Liquidators will retain cash and other assets in the Liquidation Fund in an amount which they consider sufficient to provide for all known liabilities of the Company (including tax and contingent liabilities) including the costs of the Proposals. Further details of the Liquidation Fund are set out in Part 2 of the Circular.

In addition, the Liquidators will retain cash and other assets in the Retention Fund in an amount for unknown and unascertainable liabilities of the Company. The retention in respect of all unknown and unascertainable liabilities is currently expected to be £10,000. Further details of the Retention Fund are set out in Part 2 of the Circular.

If, following completion of the Proposals and payment of the Company's liabilities, there remain funds in the Liquidation Fund and/or the Retention Fund, the Liquidators shall, on behalf of the Company, pay such surplus to those persons who held Ordinary Shares immediately prior to the Scheme becoming effective, pro rata to such holders, subject to a de minimis amount and at the discretion of the Liquidators.

ZDP Shareholders

Finally, before any assets are transferred to the Unicorn UK Income Fund under the Scheme or set aside to pay Ordinary Shareholders who have elected for cash, the Liquidators will retain in a "ZDP Fund" for the account of the holders of the ZDP Shares an amount in cash equal to ZDP Shareholders' aggregate ZDP Final Capital Entitlement as at 28 February 2022. 

The ZDP Fund will be distributed to ZDP Shareholders by the Liquidators at a date to be determined following the Effective Date, once the Company's portfolio is sufficiently realised to meet the ZDP Final Capital Entitlement in cash.  This may be prior to the Final NAV Calculation Date for the purpose of Ordinary Shareholders' entitlements under the Scheme, and in any event will be prior to the planned ZDP Repayment Date as provided for in the Articles of 28 February 2022.  The date of repayment of the ZDP Shares will be announced in due course.

Publication of Net Asset Value

Following the Effective Date of the Scheme, the Company will suspend its twice weekly publication of the Net Asset Value of the Company.  The final NAV of the Company, the NAV per Ordinary Share and the Residual Value per Ordinary Share will be announced on the Final NAV Publication Date.  

Payment of further interim dividend

The Directors intend to declare a further interim dividend, payable to the holders of Ordinary Shares, prior to the Effective Date and representing substantially all of the estimated revenue reserves of the Company at the relevant date. The dividend will be paid on 08 October 2021 to Ordinary Shareholders who are on the Register as at close of business on 01 October 2021.  Any balance accruing to the Company's revenue reserve after the further interim dividend has been declared (if any) will be included in the calculation of Total Assets for the purposes of calculating the entitlements of Ordinary Shareholders under the Scheme.

Restricted Shareholders

Restricted Shareholders will receive cash in respect of their entire holding of Ordinary Shares unless they have satisfied the Directors and Unicorn that it is lawful for Unicorn UK Income Fund to issue UKI Shares to them under all applicable laws and regulations including any applicable "know your customer" rules.

Shareholder Meetings

Annual General Meeting

The Company's next Annual General Meeting is being held immediately prior to the Extraordinary General Meeting at which the Proposals will be considered.  At the AGM, Resolutions will be proposed dealing with the Company's normal AGM business, notwithstanding that this is expected to be the Company's final annual general meeting assuming the Proposals are approved at the EGM.

In addition, the Board is required by the Company's Articles to propose the Discontinuation Resolution at the Annual General Meeting.  The Discontinuation Resolution is a special resolution that the Company shall cease to continue as presently constituted.  Such a resolution is required to be proposed by the Board at the Annual General Meeting and every five years thereafter, in accordance with the Company's Articles. 

The Board is recommending that Ordinary Shareholders vote IN FAVOUR of the Discontinuation Resolution at the Annual General Meeting.  The Board's proposals for the future of the Company will then be put to Ordinary Shareholders at the Extraordinary General Meeting.

Extraordinary General Meeting

The Proposals are conditional on the approval of Ordinary Shareholders which is being sought at the Extraordinary General Meeting.

At the Extraordinary General Meeting resolutions will be proposed which, if passed, will:

·      reclassify the Ordinary Shares to reflect the Elections made or deemed to have been made under the Scheme, and amend the Articles of Incorporation of the Company for the purposes of implementing the Scheme;

·      authorise the implementation of the Scheme by the Liquidators;

·      appoint the Liquidators and place the Company into liquidation (the "Winding-up Resolution"); and

·      agree the basis of the Liquidators' remuneration.

Each of the Resolutions proposed at the Extraordinary General Meeting will be proposed as a special resolution.

Recommendation

The Board unanimously recommends that Ordinary Shareholders vote (i) IN FAVOUR of the Discontinuation Resolution to be proposed at the Annual General Meeting, and (ii) IN FAVOUR of all of the Resolutions to be proposed at the Extraordinary General Meeting, as the Directors intend to do in respect of their own beneficial holdings amounting, in aggregate, to 74,366 Ordinary Shares (representing 0.47 per cent. of the aggregate voting rights of the Ordinary Shares).

Expected timetable

Expressions used but not defined in this announcement have the meanings ascribed to them in the Circular.

The Circular, including the Notice of Extraordinary General Meeting, will be submitted to the Financial Conduct Authority's National Storage Mechanism (the 'NSM') and will be available for inspection on the NSM's website at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Circular, including the Notice of the Annual General Meeting and Extraordinary General Meeting, will also be available for viewing on Acorn's website at https://www.acornincome.co.uk/

1. as at 31 August 2021.

2. ZDP Shareholders should take no action in relation to the AGM, the EGM or the Proposals.

3. Or as soon thereafter as the preceding Annual General Meeting shall have been concluded or adjourned

4. Assuming the Final NAV Publication date is 10 November 2021. The Settlement Date will be as soon as practicable following the Final NAV Publication Date.

This announcement does not contain all the information which is contained in the Circular.  Ordinary Shareholders should read the Circular and the Unicorn Investment Funds Prospectus (as defined in the Circular) to make informed elections under the Proposals.

For information, please contact:

Nigel Ward (Chairman)

via Singer Capital Markets or Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited
Company Secretary  +44 (0) 1481 745498

Singer Capital Markets (Corporate Broker)
Paul Glover / Alan Ray / Alaina Wong  + 44 (0) 207 496 3000