Management Resource Solutions Regulatory News (MRS)

16 July 2019

Management Resource Solutions plc

("MRS", the "Company" or the "Group") 

Result of independent legal review

As previously announced, the board of MRS (the "Board") commissioned an independent legal review to investigate and report on the merit of shareholder concerns regarding certain matters arising from the acquisition by MRS of Alerion Consulting Ltd ("Alerion") in March 2019. In particular, a number of allegations were made concerning potential conflicts of interest in relation to the independence of the vendors of Alerion (the "Vendors") from the Board and the involvement in MRS of Leon Hogan, who is a significant shareholder of MRS.

Memery Crystal LLP, solicitors, was instructed to conduct the investigation. This involved asking detailed questions of each member of the Board at the time of the Alerion acquisition, Mr Hogan, the Vendors and third parties, as well as various other enquiries. Unsolicited submissions from a limited number of MRS shareholders were also received and considered. This process has now been completed and Memery Crystal has reported its findings. The report is subject to the customary limitations, bases and assumptions for a report of this kind, including reliance on the statements and other evidence provided to Memery Crystal. Memery Crystal did not advise on the acquisition of Alerion, but has previously advised the Company from time to time.

As solicitors, Memery Crystal expressed no opinion on the valuation of Alerion, or the commercial rationale for its acquisition by MRS, and were not instructed to do so. The Company has previously announced that Leadenhall Services has been instructed to provide an independent valuation report on Alerion, and this is now expected to be completed in the latter half of July 2019, when its conclusions will be announced.

A summary of the principal findings on these matters is set out below.

1. Memery Crystal is of the opinion that the process of the acquisition of Alerion, which took several months, was appropriate and the negotiations were conducted at arm's length, although Memery Crystal has identified a number of matters that are detailed below and has provided recommendations to address these issues. The report further states that the documentation appears to be adequate and appropriate for the size of the transaction, and that due consideration seems to have been given by the Board to the process of an internal valuation of Alerion and to the advice of a solicitor who advised MRS on the acquisition, and who appears to have participated in the transaction to an appropriate extent. The report gives further detail about the methodology of the transaction and the fact that there was no legal due diligence report, noting that as Alerion was a newly incorporated company and its principal assets unregistered intellectual property, the ability to perform legal due diligence would have been limited. No evidence was found that the acquisition was a sham transaction.

2. Mr Hogan introduced the Vendors to the Chairman in autumn 2018. The Chairman negotiated the transaction on behalf of MRS. He considered alternative acquisitions and concluded that none were suitable for MRS's purposes; however, the rest of the Board did not consider these alternatives. The Board was kept informed throughout the negotiations from November 2018 onwards. An internal valuation was prepared by the Chief Executive Officer, assisted by management of Bachmann Plant Hire, the division of MRS into which the Alerion business would be integrated. There were regular informal discussions, and the acquisition was given formal consideration at two full Board meetings as well as a final approval by written resolution of all members of the Board.

3. The report sets out that Mr Hogan's role in the acquisition of Alerion was as the introducer of the opportunity and to facilitate the transaction by liaising with the Vendors to elicit the disclosure of necessary information to MRS. The Chairman negotiated an introducer fee directly with Mr Hogan, after the initial introduction but before the acquisition was completed, which the other Board members were aware of even though it was not formally approved at a Board meeting ; and MRS did not formally engage Mr Hogan or take adequate steps to ensure that Mr Hogan was aware that he was an insider or ask him to sign a confidentiality undertaking. Accordingly, Memery Crystal has recommended that the Board reviews MRS's policies and procedures in respect of the control and safeguarding of inside information, and the retention of consultants, so that these are in accordance with the Market Abuse Regulation, the AIM Rules for Companies and best practice.

4. No evidence was found of any material conflict of interest in relation to MRS's acquisition of Alerion based on any pre-existing relationship between any member of the Board of MRS and any of the Vendors of Alerion, or any such conflict as would be relevant for disclosure by MRS in its announcement of the acquisition of Alerion, whether under AIM Rule 13 or otherwise. No member of the Board of MRS appears to have had an interest either in the acquisition of Alerion or any interest that conflicts with the interests of the Company, thereby complying with the restrictions on directors' conflicts of interest enshrined in the Companies Act 2006. The Board has concluded that it has no further notifications to make in this regard further to the RNS of 28 March 2019 and 15 April 2019.

5. The report states that it does not appear that Leon Hogan is a shadow director or de facto director of MRS. However, there do appear to have been occasions where third parties were unclear as to Mr Hogan's role and where it may appear that Mr Hogan is involved in the business of MRS to a greater extent than is appropriate for a significant shareholder. Accordingly, Memery Crystal has recommended that the Board establish policies in relation to its dealings with Mr Hogan and other significant shareholders to ensure that they (or indeed any other shareholder) are not held out as representing the Board, and that any dealings between MRS and Mr Hogan (or any other shareholder) are conducted by an independent non-executive director.

6. Allegations were made by certain shareholders as to the possible existence of a concert party between the Board, the Vendors and others. It should be noted that only the City Panel on Takeovers and Mergers can rule upon the question as to whether a concert party exists, and this is not a determination that Memery Crystal can make.

The Company has reminded the Alerion Vendors of their obligation to make TR-1 notifications.

Paul Brenton, Chief Executive Officer of Management Resource Solutions, commented:

"The board of MRS has always maintained that Alerion represents an acquisition that is expected to replace services currently outsourced by the Group, complementing our service offering and enhancing the industry-leading services we offer to our customers. At the same time, we recognise that some of our shareholders had concerns and are therefore pleased that this independent legal review has shown the transaction process to be appropriate and that there was no conflict of interest between the parties involved. We have reviewed Memery Crystal's recommendations, referred to in paragraphs 3 and 5 above, and accordingly we have already started to implement measures to ensure that the Company's governance, policies and procedures are in accordance with best practice.

To this end, we have recently welcomed Robert Hackett onto the Board as an independent non-executive director and with our Chairman now being classified as non-independent, we have announced our further intentions on evolving the Board through the appointment of a further two independent non-executive directors."

ENDS

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About MRS

Management Resource Solutions plc (MRS), through its subsidiaries Bachmann Plant Hire and MRS Services Group, offers plant hire, equipment repair, refurbishment and fabrication, mine rehabilitation, earthmoving, road construction and other support services to a wide base of private and public sector clients in Australia. MRS caters predominately for the mining, civil engineering, construction and infrastructure industries. Further information on the Company can be found at http://www.mrsplc.info