Investors in the collapsed Woodford Equity Income Fund are set to receive compensation totalling up to £230 million after a judge's ruling last week.
About 300,000 people lost money when the fund, run by famous stock-picker Neil Woodford, was frozen in 2019.
Experts have called the ruling a “key milestone” in the long-running saga.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Almost 94% of investors backed the compensation scheme - although only 54,000 voted.
The first payments are expected next month, but delays could tip them into April.
“Investors will be breathing a sigh of relief following the news that the judge has approved the Woodford redress scheme,” said Ryan Hughes, interim investments managing director at the investment platform AJ Bell.
“The review had dragged on longer than anticipated due to some complex legal arguments heard at the court hearing in mid-January, but this clears a major hurdle for investors to move closer to getting their redress payments.”
What happened with the Woodford fund?
Neil Woodford was one of the UK's most high-profile investment managers. His flagship fund, Woodford Equity Income Fund, managed more than £10 billion at its peak.
But investors started to get worried about the investments being made - such as in illiquid, private businesses - and many withdrew their money.
But this caused problems, as the fund couldn’t sell the holdings fast enough. As a result, redemptions were suspended in June 2019. The fund was later closed and wound up.
How will the compensation scheme work?
The compensation scheme was proposed by Link Fund Solutions (LFS), the former authorised corporate director of Woodford Equity Income.
The Financial Conduct Authority (FCA) had previously investigated the way LFS had managed the fund, and three investor groups had also filed lawsuits.
High Court Judge Jonathan Richards said in a ruling on Friday that he saw no reason to contradict the conclusion of the "overwhelming majority" of investors.
According to the FCA, the scheme means that investors could receive around 77p in every pound they had put into the fund.
However, there could be an appeal. The Transparency Task Force, which campaigns for some Woodford investors, said the scheme offered an "appalling outcome" for those affected.
It is considering an appeal against the court's approval, saying that it removes legal protections for individuals.
Investors have already received £2.56 billion in compensation since the fund’s suspension date in 2019, from the sale of investments.
The additional £230 million covers claims against LFS.
How much money will investors get?
If the scheme is implemented, investors should receive a total initial £183.5 million payout this quarter.
It is not clear when the rest of the £230 million pot will be released.
Hughes said that investors may have to wait until April to receive a first payment.
“First payments to investors are anticipated to be paid in March although given the delay in approval this may well tip over into April, which will make it close to five years since the high-profile fund suspended and investors were left in limbo. With each new step taken, investors will just hope this whole saga can be brought to a conclusion,” he said.
“While there may be an appeal which means we aren’t quite there yet, the fact the judge has approved the scheme is a key milestone.”
How will investors receive the compensation?
In terms of logistics, holders of Woodford Equity Income Fund will receive their payout automatically in a similar way to the distributions already paid out over the past year or so.
Investment platforms receive the money and then allocate to the holders who can then withdraw or invest or hold it in cash.
Will “Liberation Day” strike again?
Israel claims victory in the '12-day war' with Iran
