Corporate Governance

Arrangements have been put in place by the Board which it believes are appropriate to an investment trust company and enable the Company to apply Principles of Good Corporate Governance and comply with the provisions as set out in Section 1 of the Combined code of best practice (the Combined Code) as required by the Listing Rules of the Financial Services Authority.

STATEMENT OF COMPLIANCE WITH THE PROVISIONS OF THE 2003 COMBINED CODE
The Directors have reviewed the principles outlined in the Combined Code as published in July 2003 by the Financial Reporting Council and believe that, insofar as they are relevant to the Company’s business, they have complied with the provisions of the Code during the year to 30 September 2006, subject to the exceptions explained below.

THE BOARD AND COMMITTEES
The Board is responsible for all matters of control and direction of the Company, including its investment policy which is managed by Laxey Partners (UK) Limited. The Board Directors possess a wide range of expertise and experience relevant to the direction of the Company and consider that they commit sufficient time to the Company’s affairs

The Board wholly comprises non-executive directors and meets regularly throughout the year to review the Company’s investments and all other important issues to ensure that control is maintained over the Company’s affairs. As all the Directors are non-executive, the Chairman, Mr D.E.H. Panter, is the senior non-executive Director. With the exception of Mr C. Kingsnorth, the Board considers that all the Directors are independent in character and judgement. A schedule of matters specifically reserved for the decision of the Board was adopted on 15 January 2002 for application at all meetings. On the same date a procedure was adopted for Directors in the furtherance of their duties, to take independent professional advice, if necessary at the Company’s expense. Directors are selected and appointed by the Board as a whole. The Directors have access to independent advice from the Company Secretary. To enable the Board to function effectively and allow Directors to discharge their responsibilities, full and timely access is given to all relevant information. The Directors do not have service contracts with the Company. However, under the Articles of Association, they are required to retire by rotation and their re-appointment is subject to Shareholders’ approval. Each Director must submit himself for re-election at intervals of no more than three years. In accordance with current corporate governance, the Board has agreed as a policy that all Directors of the Company aged 70 years and over will offer themselves for re-election at each Annual General Meeting (AGM). There is no chief executive position within the Company. Being an externally managed investment trust the Company has no employees and therefore has no requirement for a chief executive. An Audit Committee comprising the Chairman, Mr D.E.H. Panter, Mr J.C. Colvile and Mr A. Boyd supports the Board. The committee has written terms of reference, which deal with its authorities and duties. The Company does not have a formal Nomination Committee to consider new appointments to the Board which is not in accordance with A4.1 of the Code. The reason for this is that the Board as a whole would consider any such appointments.

The Company holds Board meetings once a quarter and additional meetings are arranged as necessary. During the year to 30 September 2006 there were five scheduled Board meetings and individual details of attendance by the Directors are shown below:

Attendance at Board meetings during the year to 30 September 2006

D.E.H. Panter                         5
D.J.M. Blackler                       2
J. Colvile                                4
C.W. Kingsnorth                    5
A. Boyd                                 5
A.J.R. Collins                         5

During the year to 30 September 2006 there was one scheduled Audit Committee meeting and this was attended by all the members of that Committee (as shown on page 18 and confirmed above).

In exercising and discharging its responsibilities, the Company’s Audit Committee meets with representatives of the Investment Manager and receives reports upon the quality and effectiveness of the accounting records and management information maintained on behalf of the Company. It reviews the annual financial statements and reviews the nature and scope of the statutory audit and the findings thereon. In addition, the Audit Committee reviews and monitors the external auditor’s independence and objectivity together with the effectiveness of the audit process. The Audit Committee is attended by the auditors who provide a formal statement of independence each year. The terms of reference of the Audit Committee are available as required. It is intended that these will be reviewed during the year ending 30 September 2007 and updated as necessary.

Given the comments above and not withstanding A.6 of the Combined Code, the Board has not established a formal process for the annual evaluation of the performance of the Board, its Audit Committee and the individual Directors. The Directors have informally evaluated performance, both individually and as a Board. During the year ending 30 September 2007, the Board will be seeking to further review and evaluate its own collective effectiveness.

INTERNAL CONTROLS
The Directors acknowledge that they are responsible for the Company’s system of internal controls and for monitoring its effectiveness. Internal control systems are designed to meet the particular needs of the Company and the risks to which it is exposed, and by their very nature can provide reasonable but not absolute assurance against material misstatement or loss. The systems are designed to manage rather than eliminate the risk of failure to achieve business objectives. The Directors have reviewed the effectiveness of the system of internal controls, including financial, operational and compliance controls and risk management.

Throughout the year under review, there has been an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process accords with the guidance in the document “Internal Control: Guidance for Directors on the Combined Code” (the Turnbull guidance) and will remain in place throughout the Company’s life. This process is reviewed on a regular basis by the whole Board in accordance with the Turnbull guidance. The process involves reports to the full Board from the Company Secretary on compliance, in conjunction with the Investment Manager’s regular reports which cover investment performance and compliance issues.

Internal controls aim to ensure the maintenance of proper accounting records, the reliability of the financial information upon which business decisions are made and which is used for publication and that the assets of the Company are safeguarded. These controls operated by the Board include the authorization of the investment strategy and regular reviews of the financial results and investment performance. In addition, the Investment Manager and the Custodian of the Company’s assets, HSBC Bank plc, maintain their own system of internal controls. The Board has contractually delegated to external agencies, including the Investment Manager, the management of the investment portfolio, the custodial services (which include the safeguarding of assets), the day to day administration and Company secretarial requirements. Each of these contracts were entered into after full and proper consideration by the Board of the quality and cost of services offered including the internal control systems in operation in so far as they relate to the affairs of the Company. The Board is responsible for setting the overall investment policy and monitors the activity of the Investment Manager at regular Board meetings. The Investment Manager has established an internal control framework to provide reasonable assurance on the effectiveness of internal controls operated on behalf of its clients. The Investment Manager’s compliance department assesses the effectiveness of the internal controls on a continuing basis.

All of the Company’s management functions are delegated to third parties whose controls are reviewed by the Board. It is therefore felt that there is no need for the Company to have an internal audit function, although this is reviewed annually.

DIRECTORS’ REMUNERATION
Details of Directors’ fees are set in the Directors’ Remuneration report on pages 26 and 27. There is a formal procedure for fixing the level of Directors’ fees, which are set at a level sufficient to attract and retain directors of the calibre required to direct the Company successfully. The Board as a whole fulfils the function of a Remuneration Committee. The reason for this is that the Company does not have any executive directors. The Board considers remuneration matters in accordance with the appropriate principles of the Code.

RELATIONS WITH SHAREHOLDERS
The Board welcomes dialogue with all Shareholders and encourages measures to enhance Shareholder communication. Any such dialogue with Shareholders is communicated to the Board as a whole by the Chairman or appropriate Director at the regular Board meetings of the Company. The views of these shareholders are considered by the Board and taken into account in formulating policy. The Board particularly welcomes the participation of Shareholders in the Annual General Meeting.

GOING CONCERN
The Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements as they have proposals in place for the continuation of the Company which they are confident will be approved by shareholders, and in addition the Company has adequate financial resources to continue in operational existence for the foreseeable future. Nevertheless, as set out in the Chairman’s statement, the valuations of both the quoted and unquoted portfolios should be viewed with caution and shareholders should recognise that the values disclosed may vary significantly from prices which may ultimately be realised.