Directors' share dealings prove a big issue

Traders swap squillions of shares for cash daily. So what could be simpler. Yet when big cheeses at small companies sell their shares it is the cue for slews of lawyers, tax experts and regulators to debate every nuance.

And so they should, given the impact of directors' dealings on share prices. More surprising is how detached some boards and their advisers can be when top executives enter into complex share trades.

Last week, a string of Aim-quoted companies, including Angle, IQE and Cloudbuy, had to clarify pacts between top bosses and Indianapolis-based Equities First Holdings.

The flurry started with Quindell, the business set up by Rob Terry which has still not recovered since shortseller Gotham City Research attacked the group's quality of earnings in April.

Quindell - variously described as a software company, insurer and the UK's biggest listed legal business - was forced to elaborate on how EFH had paid close to £10m to Mr Terry and two other directors in return for nearly 9m Quindell shares so they could buy more. "The deal was unfathomable," says a former investor.

In fact, it was less a loan as first billed than a sale of shares with a promise to buy them back in two years. EFH says it won't short the shares but Quindell admits EFH does not have to hold on to them. Quindell's shares toppled from 120p last week to 70p. Surely, it would have been simpler to short the stock?

Quindell's response was a childlike "he-did-it-first", pointing the finger at Andrew Austin, chief of shale gas explorer IGas Energy, who borrowed £400,000 in January from EFH. But unlike Mr Terry et al, Mr Austin remains the beneficial owner and gets to vote his shares and reap the dividends. IGas's shares tumbled 24 per cent last week.

Quindell's openness sparked clarifications from wafer maker IQE, Cloudbuy, the software group whose shares fell 7 per cent last week, and medical business Angle, whose shares dropped more than a tenth. All revealed that directors had sold stock for cash, some to buy more shares, others for home improvements. And like Quindell, the directors handed over full ownership allowing EFH to sell shares.

EFH, which describes itself as a lender and is keen to add to its list of six Aim clients, says that it has never in 13 years dumped large chunks of shares on the market.

But if nothing else, last week's outbreak of clarifications highlights the fragility of market confidence and its sensitivity to directors' trades. Boards cannot take directors' dealings lightly and nod them through without question.

It's difficult enough finding the staff, but entrepreneurs also face disproportionately high costs when they take on their first employee, writes Sarah Gordon. So says recent research by the Centre for Economics and Business Research in conjunction with the Federation of Small Businesses.

It suggests that if the first staff member is paid £21,800, the business faces additional costs of more than £15,000. These are made up not just of taxes like national insurance contributions but "non-wage" costs such as payment processing. The latter is estimated to cost a typical UK small business, employing six people and the owner, £1,200 a year.

Many of these non-wage costs are one-offs, such as employer's liability insurance, and businesses therefore find that, for every additional worker they take on, the cost per person goes down. Non-wage costs, the CEBR says, account for nearly a quarter of total employment costs when the business employs one worker, but only a little over a tenth when the workforce goes above 20.

The FSB and CEBR have launched an index based on their findings which will track these costs to small employers. A useful tool with which to needle government, of course, but cost for many entrepreneurs is the least of their worries when taking on their first staff.

Discussions with several small businesses suggest that the administrative burden - endless box-ticking and workplace regulations you didn't know about, as one put it - is more detrimental to the growth potential of a newish business than the financial costs of increasing your workforce. Outsourcing as many HR tasks as possible may help - but is yet another additional cost.

The leap from founder to people manager is challenging enough. Reducing the red tape around it is a good place for the FSB to focus its lobbying efforts.

[email protected]

[email protected]

© The Financial Times Limited 2014. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation