Proposed Reduction of Capital, Return of Capital, Consolidation of Ordinary Shares, Change of Name and Notice of General Meeting

Quindell Plc
(“Quindell”, the “Company” or the “Group”)

Further to its announcement on 2 November 2015, Quindell (AIM:QPP.L) announces today that it is posting an explanatory circular (“Circular”) to shareholders of the Company (and, for information only, to holders of share options in the Company) convening a General Meeting (defined below) and inviting shareholders to approve resolutions to authorise a proposed reduction of the Company’s share capital (“Reduction of Capital”) and a proposed return of capital to shareholders (“Return of Capital”). Subject to the Reduction of Capital and Return of Capital being approved, shareholders will also be invited to approve a resolution to authorise a proposed consolidation of the Company’s ordinary shares (“Consolidation”). In addition, shareholders will also be invited to approve a resolution to change the Company name to Watchstone Group plc. The Circular contains details of the formal notice of the General Meeting to be held at Park Plaza Westminster Bridge, 200 Westminster Bridge Road, London, SE1 7UT at 10:00 a.m. on 26 November 2015 (the “General Meeting”).

The Circular, together with the notice of the General Meeting will be made available on the Company’s website at www.quindell.com.

The Circular provides shareholders with information about the background to, and reasons for, each of the Reduction of Capital, Return of Capital and Consolidation and explains why the Directors of the Company (“Board”) consider these to be in the best interests of the Shareholders and the Company as a whole and why the Board unanimously recommend that shareholders vote in favour of the requisite resolutions at the General Meeting, as they intend to do in respect of their beneficial holdings. The Circular also contains details of the requisite Court approval process pertaining timings to the Reduction of Capital.

HIGHLIGHTS

• The proposed Return of Capital to shareholders in December 2015 will be of approximately £414 million in aggregate.
• The effect of the proposed Reduction of Capital and Return of Capital will be that for every fully paid ordinary share of 15 pence each held at the Record Date (as defined in the Circular), a shareholder will receive 90 pence in cash.
• Trading in Ordinary Shares ex-entitlement to Capital Return is expected to be on 18 December 2015 with the expected dispatch of cheques to Shareholders or crediting of Shareholders’ CREST accounts (as appropriate) in respect of Return of Capital entitlements, on or around 31 December 2015.
• Conditional on the approval of the Reduction of Capital and the Return of Capital at the General Meeting and by the Court, the Consolidation would consolidate the Company’s ordinary shares so that every 10 ordinary shares with a nominal value of 1 penny (after the Reduction in Capital) would become 1 ordinary share of 10 pence (such shares having the same rights and being subject to the same restrictions (save as to nominal value) of the existing ordinary shares).
• Conditional on the approval of shareholders, the Company’s name will be changed to Watchstone Group plc.
• Following the Return of Capital, in addition to its operating businesses, the Company expects to retain approximately £90 million in cash. The Group has a further £55 million held in escrow accounts relating to the Disposal and the Company retains rights to contingent consideration estimated to have a current value of approximately £39.6 million.

EXPECTED TIMETABLE OF EVENTS

Notes These dates (except those of the receipt of Forms of Proxy and of the General Meeting) are estimates only, being subject to agreement of hearing dates with the Court. The timetable assumes that the General Meeting is not adjourned as a result of there being no quorum, or for any other reason. If there is an adjournment, all subsequent dates are likely to be later than those shown. Any changes will be notified to Shareholders by an announcement on the Regulatory News Services of the London Stock Exchange. All references to time in this announcement are to London time.

Peel Hunt LLP which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as nominated adviser to the Company in relation to the transaction referred to in this announcement. The responsibilities of Peel Hunt LLP as the Company’s nominated adviser under the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange and are not owed to the Company or to any Director or to any other person. Persons reading this announcement should note that Peel Hunt LLP will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for advising any other person on the arrangements described in this announcement. Peel Hunt LLP has not authorised the contents of, or any part of, this announcement and no liability whatsoever is accepted by it for the accuracy of any information or opinion contained in this announcement or for the omission of any information.

1. Introduction

The Board today announces the process and anticipated timetable for the repayment of approximately £414 million in aggregate (assuming the exercise of in-the-money Options over 6,065,341 Ordinary Shares (or equivalent one off payments as described in section 4 of Part 1 of this announcement) and that 884,770 Ordinary Shares are issued as deferred consideration shares and settlement shares prior to the Record Date) to Shareholders by way of a Return of Capital.

This announcement explains the background to the Proposals and how the Return of Capital is proposed to be effected. The effect of the proposed Reduction of Capital and Return of Capital will be that for every fully paid Ordinary Share held at the Record Date, a Shareholder will receive 90 pence in cash. The expected date for the Return of Capital through dispatch of cheques to Shareholders of crediting of Shareholders’ CREST accounts (as appropriate) is on or around 31 December 2015. In addition, the Board announces a proposed consolidation of Ordinary Shares, conditional on the approval of the Reduction of Capital and the Return of Capital at the General Meeting and by the Court.

The purpose of this announcement is to provide information about the background to, and reasons for, the Reduction of Capital and the Return of Capital, to explain why the Board considers the Reduction of Capital and the Return of Capital are likely to promote the success of the Company for the benefit of the Shareholders as a whole and why the Board unanimously recommends Shareholders vote in favour of the Resolutions to be proposed at the General Meeting. Shareholders should note that, unless the Resolutions are approved at the General Meeting (and the Court approves the Reduction of Capital), the Reduction of Capital and the Return of Capital will not take place. In addition, this announcement contains details of a proposed consolidation of Ordinary Shares, conditional on the approval of the Reduction of Capital and the Return of Capital at the General Meeting and by the Court and a proposed change of the Company name.

2. Background to and reasons for the Reduction of Capital and the Return of Capital

On 30 March 2015, the Company announced the proposed sale of its Professional Services Division to Slater & Gordon (the “Disposal”) for an initial cash consideration of £637 million and further contingent cash consideration to follow completion of the sale (“Completion”). Following requisite approval from shareholders, the Solicitors Regulation Authority and the Financial Conduct Authority, Completion occurred on 29 May 2015.

As previously announced, the Company proposes to use part of the proceeds of the Disposal to fund the Return of Capital to Shareholders. The Company believes that the working capital to be retained by the Company following the Return of Capital will be sufficient to develop its business and fund future capital expenditure. Further, and as detailed in Part 3 of this announcement, the Company notes that the proposed Return of Capital involves a legal process to be undertaken which ensures Shareholders and creditors of the Company are adequately protected. The proposed Reduction of Capital will enable the Company to make a Return of Capital to Shareholders of approximately £414 million in aggregate.

Following the Return of Capital, in addition to its operating businesses, the Company expects to retain approximately £90 million in cash which the Company will hold in UK regulated banks holding either AAA or AA credit ratings. The Group has a further £55 million held in escrow accounts and, as previously detailed, the Company retains the rights to contingent consideration in relation to future receipts arising on noise induced hearing loss (“NIHL”) cases which were current on the Disposal date. The Group will receive 50% of the net after tax receipts (after allowing for administrative costs) collected on these NIHL cases. The Company has performed a valuation exercise and has determined that a prudent estimate of the current value of the contingent consideration is approximately £39.6 million.

3. The Reduction of Capital

Under the Companies Act 2006, a company may, with the sanction of a special resolution and the confirmation of the Court, reduce or cancel its existing share capital. It may apply the sums resulting from such reduction in repaying holders of the relevant shares the amounts paid up on the share capital which is reduced or cancelled. This is the mechanism by which Shareholders holding fully paid Ordinary Shares will receive 90 pence for each Ordinary Share which they hold upon the Return of Capital taking place.

In seeking the Court’s approval of the Reduction of Capital and the Return of Capital, the Court will need to be satisfied that the interests of the creditors (including contingent creditors) of the Company, whose debts remain outstanding on the date on which the Court Order is registered, will not be prejudiced by the proposed Reduction of Capital. The Company will put in place such arrangements as the Court considers appropriate to satisfy the Court in this regard.

Shareholders should note that if, for any reason, the Court declines to approve the Reduction of Capital, then the Return of Capital will not take place.

Further details of the proposed Reduction of Capital can be found in Part 3 of this announcement.

4. Share Option Plan

Should the Proposals be completed, the number of shares under, and the exercise price of, Options under the Share Option Plan will be adjusted to take account of the implementation of the Proposals. It is intended that Optionholders will continue to hold Options after implementation of the Proposals, which will (subject to the paragraphs below) have a comparable commercial position to the Options that they currently hold in terms of the option price and the percentages of the revised issued share capital that is subject to the Options. Optionholders holding vested options will be invited to exercise their Options prior to the Record Date. Shares acquired on the exercise of Options prior to the Record Date will be subject to the Proposals. Should the Proposals be completed, following the Record Date, the exercise price of Options under the Company Share Option Plan will be reduced to take account of the Return of Capital as follows:

• Options with an exercise price of 33 pence shall have their exercise price reduced by 32 pence, to 1 penny, being the new nominal value following the Reduction of Capital and Return of Capital. In addition, those Optionholders holding Options with an exercise price of 33 pence will receive a one-off payment in cash of 58 pence per share under Option (representing the difference between 90 pence and 32 pence). Such payment will be subject to the deduction of applicable tax and paid at the same time as the Return of Capital;
• Options with an exercise price of 68.65 pence shall have their exercise price reduced by 67.65 pence, to 1 penny, being the new nominal value following the Capital Reduction and Capital Return. In addition, those Optionholders holding Options with an exercise price of 68.65 pence will receive a one-off payment of 22.35 pence per share under Option (representing the difference between 90 pence and 67.65 pence). Such payment will be subject to the deduction of applicable tax and paid at the same time as the Return of Capital;
• Options with an exercise price of 240 pence shall have their exercise price reduced by 90 pence, being the quantum of the Return of Capital, to 150 pence; and
• Options with an exercise price of 600 pence shall have their exercise price reduced by 90 pence, being the quantum of the Return of Capital, to 510 pence.

Following the Consolidation, Options will be further adjusted such that the exercise price per share is increased by a factor of 10 and the number of shares subject to each Option will be reduced by a factor of 10, each to reflect the 10 for 1 consolidation.

5. Share Consolidation

Conditional upon the approval of the Reduction of Capital and the Return of Capital at the General Meeting and by the Court, the Company proposes to consolidate its issued share capital so that every 10 Existing Ordinary Shares with a nominal value of 1 penny (after the effect of the Reduction of Capital) become 1 ordinary share of 10 pence (the process being the “Consolidation” and the shares being the “Consolidated Ordinary Share”). The Board considers that the current issued share capital of the Company is considerably higher than similar sized companies on AIM and believes that this negatively affects investors’ perception of the Company. Accordingly, the Consolidation is being proposed in order to reduce the number of ordinary shares that are in issue to a level more in line with comparable AIM listed companies. The Directors believe that the Consolidation may improve the liquidity and marketability of the ordinary shares in the Company.

6. Change of Name

It is proposed that the name of the Company be changed to Watchstone Group plc.

7. Taxation

For information regarding the tax position of the Proposals and the Consolidation, please see Part 4 of this announcement.

8. Non-United Kingdom Shareholders

Shareholders who are not resident in the United Kingdom or who are citizens, residents or nationals of other countries should consult their professional advisers to ascertain whether the Proposals or Consolidation will be subject to any restrictions or require compliance with any formalities imposed by the laws or regulations of, or any body or authority located in, the jurisdiction in which they are resident or to which they are subject. In particular, it is the responsibility of any Shareholder not resident in the United Kingdom or a citizen, resident or national of another country to satisfy himself as to full observance of the laws of each relevant jurisdiction in connection with the Proposals or Consolidation, including the obtaining of any government, exchange control or other consent which may be required, or the compliance with other necessary formalities needing to be observed and the payment of any issue, transfer or other taxes or duties in such jurisdiction.

The distribution of this announcement in certain jurisdictions may be restricted by law. Persons into whose possession this announcement comes should inform themselves about and observe any such restrictions.

Shareholders who are not resident in the United Kingdom should note that they should satisfy themselves that they have fully observed any applicable legal requirements under the laws of their relevant jurisdiction in relation to the Reduction of Capital, Return of Capital or the Consolidation.

9. General Meeting

The Reduction of Capital, Return of Capital and Consolidation is conditional upon, amongst other things, Shareholder approval being obtained at the General Meeting. The General Meeting is to be held at Park Plaza Westminster Bridge, 200 Westminster Bridge Road, London, SE1 7UT at 10.00 a.m. on 26 November 2015, at which the Resolutions will be proposed. Resolutions 1 and 2 are special resolutions, meaning that for them to be passed 75% or more of votes cast must be in favour. Resolution 3 is an ordinary resolution, meaning that for it to be passed, members representing a simple majority of the total voting rights of members must vote in favour.

10. Recommendation

The Directors consider the Reduction of Capital, Return of Capital, Consolidation and the proposed change of the Company name, are likely to promote the success of the Company for the benefits of the Shareholders as a whole. Accordingly, the Board unanimously recommend that Shareholders vote in favour of the Resolutions, as the Directors intend to do in respect of their beneficial holdings.

PART 2 – DEFINITIONS

The following definitions and technical terms apply throughout this announcement, unless the context otherwise requires:

PART 3 – FURTHER DETAILS OF THE PROPOSED RETURN OF CAPITAL

The Reduction of Capital

As discussed in section 3 of Part 1 of this announcement, in seeking the Court’s approval of the Reduction of Capital, the Court is required to consider the protection of creditors (including contingent creditors) of the Company, whose debts remain outstanding on the date that the Reduction of Capital becomes effective, to ensure that they are protected. Any such creditor protection may include seeking the consent of the Company’s creditors to the Reduction of Capital or the provision by the Company to the Court of an undertaking to deposit a sum of money into a blocked account created for the purpose of discharging the non-consenting creditors of the Company.

In addition, the Court is likely to consider the potential shareholder claims and the SFO Investigation to which the Company is subject when considering whether to approve the Reduction of Capital. Details on the potential shareholder claims and the SFO Investigation are set out below.

In view of the Court’s considerations in giving its approval and in consultation with professional advisors, the Board has undertaken a thorough and extensive review of the Company’s liabilities (including contingent liabilities) and the potential liabilities of the Company under the potential shareholder claims and the SFO Investigation. The Board considers that the Company will be able to satisfy the Court that, as at the date on which the Court Order relating to the Reduction of Capital becomes effective, the Company’s creditors will be sufficiently protected.

The Company intends that an application will be made for the Court to approve the Reduction of Capital promptly after the General Meeting provided that the Resolutions have been passed. It is anticipated that the initial directions hearing in relation to the Reduction of Capital will take place on 4 December 2015, with the final Court Hearing taking place on 16 December 2015 and the Reduction of Capital becoming effective on 18 December 2015, following the necessary registration of the Court Order at Companies House. It is anticipated that Shareholders will be sent cheques (or have Shareholders’ CREST accounts credited (as appropriate)) for the proceeds of the Return of Capital on or around 31 December 2015.

SFO Investigation and potential shareholder claims

On 20 March 2014, the FRC launched a review of the 2012 report and accounts of the Company. On 30 September 2014, the FRC extended the scope of its review into certain aspects of the 2011 report and accounts. On 24 June 2015, the Company announced that the FCA had commenced an investigation in relation to the public statements made regarding the financial accounts of the Company during 2013 and 2014. On 5 August 2015, the SFO informed the Company that it had opened an investigation relating to business and accounting practices at the Company. On the same date, the FRC advised the Company that, in light of the positive actions taken by the Directors in correcting the identified errors, amending accounting policies and providing their undertakings, the FRC had closed its review of the 2011 and 2012 report and accounts. On 18 August 2015, the FCA announced that, in light of the above investigation by the SFO it had decided to discontinue its own investigation with immediate effect. Accordingly, the Company continues to co-operate fully with the SFO Investigation which is now the only ongoing investigation to which the Company is subject. Since the specific focus of the SFO Investigation is currently unclear to the Directors, it is not possible to determine whether the SFO will, in due course, seek to pursue a prosecution of the Company and/or any individuals, or whether the SFO will seek a resolution of its investigation which does not involve a prosecution. Further, it is not possible to determine whether any such prosecution (if pursued) would be successful, or what the quantum of any fine or confiscation imposed as a result of a successful prosecution might be. However, the Company expects that it would have sufficient assets to pay any fine that it considers to be reasonable (and satisfy any ancillary orders) imposed on the Company by a court in the event of a successful prosecution by the SFO.

In addition, the Company announced on 29 September 2015 that it had received a letter described as a “Notice of Intended Claim” from a law firm acting for a claimant group suggesting that it intends to commence an action against the Company under the Financial Services and Markets Act 2000. Whilst the Company is not in a position to verify the assertions in the Notice of Intended Claim (as no claim has been received at this stage), the Notice of Intended Claim estimates the value of the potential claims against the Company to be a maximum of approximately £9 million (not including any consequential losses or legal costs, if awarded) based on the number of potential claimants it represents. There can be no guarantee that other claimants will not also bring claims against the Company and, in particular, the claimant firm details that it has been approached, but not yet retained, by other potential claimants who together, it asserts, would have a claim of an approximate value (as at 25 September 2015) of a further £9 million (not including any consequential losses or legal costs, if awarded). The Company is not aware, and has not been made aware, of any other law firms acting for (or in the process of forming) other claimant groups.

Whilst the Company will vigorously defend all such claims, as appropriate, the Company expects that it would (following the Return of Capital) have sufficient assets to cover a successful action brought pursuant to the Notice of Intended Claim, based, among other things, on the estimations of the amounts which will be claimed set out in the Notice of Intended Claim.

Share Consolidation

As a result of the Consolidation, each Shareholder’s proportionate interest in the Company’s issued ordinary share capital will remain unchanged (excluding fractional entitlements, in respect of which, please see below). The only changes will be to the nominal value of ordinary shares and the number of the ordinary shares in issue. The rights attaching to Consolidated Ordinary Shares (including voting and dividend rights and rights on a future return of capital) will be identical in all respects to those of the Existing Ordinary Shares.

As noted above, the number of ordinary shares of the Company admitted to trading on AIM will change as a result of the Consolidation. However, the Consolidation will not affect the Group’s or the Company’s net assets. The Consolidated Ordinary Shares have been allocated new stock identification codes as follows: GB00BYNBFN51.

The last day of trading on AIM in the existing Ordinary Shares is expected to be 18 December 2015. The Consolidation is expected to become effective on 21 December 2015.

Any Shareholder who, as a result of the Consolidation, has a fractional entitlement to any Consolidated Ordinary Shares will not have an exactly proportionate shareholding of Consolidated Ordinary Shares to their holding of existing Ordinary Shares (prior to the Consolidation). Furthermore, Shareholders holding fewer than 10 Ordinary Shares as at the Consolidation Record Date will cease to be Shareholders of the Company.

PART 4 – TAXATION

The following comments are intended as a general guide only and are based on current UK legislation and HM Revenue & Customs (“HMRC”) practice as at the date of this announcement. These comments deal only with Shareholders who are resident or ordinarily resident for taxation purposes in the United Kingdom, who are the absolute beneficial owners of fully paid Ordinary Shares and who hold them as an investment. They do not deal with the position of certain classes of Shareholders, such as dealers in securities, persons holding unpaid Ordinary Shares, or persons regarded as having obtained their Ordinary Shares by reason of employment. Therefore, any such Shareholders are advised to satisfy themselves as to the tax consequences for them of their ownership of Ordinary Shares in the Company.

Return of Capital

Subject to the comments below, and obtaining HMRC clearance, we would expect the Return of Capital to qualify as a repayment of capital on the Ordinary Shares under section 1000(1)(B)(a) of the Corporation Tax Act 2010 (“CTA 2010”) and therefore would not expect any part of the proceeds received by a Shareholder on the Return of Capital to be an income distribution in the Shareholder’s hands.

Part 15 CTA 2010 and Chapter 1 of Part 13 of the Income Tax Act 2007 (“Chapter 1 ITA 2007”) are anti-avoidance provisions which might be applied to the Return of Capital so as to treat all or part of the receipt as income in the hands of Shareholders within the charge to UK corporation tax and within the charge to income tax respectively. The Company would not expect Part 15 CTA 2010 or Chapter 1 ITA 2007 to apply.

The Company has applied for clearance from HMRC under the sections above.

On the basis of the comments above, the Company would expect the Return of Capital to be treated as a part disposal of the Ordinary Shares for CGT purposes.

The Return of Capital on cancellation may give rise to a liability to CGT depending on the Shareholder’s individual circumstances (including the availability of exemptions, reliefs or allowable losses).