Once appointed the new board of Hipgnosis Songs Fund (SONG ) will be pushed to terminate the contract with the trust’s investment adviser without triggering exit fees of up to £24m.

Following the company’s annual general meeting last week, when shareholders overwhelingly voted against continuation, attention has shifted to the future of the trust and the nature of the contract with Merck Mercuriadis, the founder of the £865m alternative income fund and its investment manager, Hipgnsosis Song Management.

A major investor, who spoke to The Times, said they believe the contract could be ended for ‘cause,’ meaning the billionaire would not recieve his substantial payout. 

‘My suspicion is that once a new board starts going through this business there will be enough red flags to terminate his contract for cause,’ the shareholder told the newspaper.

They added that the proposed asset sale of a fifth of the portfolio at a 25% discount to NAV to a Blackstone fund also managed by Mercuriadis had exposed ‘too many conflicts of interest’.

This position echos that of Stifel analyst Sachin Saggar, who said that after a ‘spate of negative news events’, he expected a ‘pre-emptive notice of termination’ to be served on Mercuriadis, where he could theoretically re-pitch for the job. ‘However, the nature of the termination will also be important.’

‘We imagine the new board could explore the option of termination based on negligence, which would remove the need for a termination fee,’ Saggard said, noting that he expected the board to use the ‘string of unforced errors’ since launch to negotiate down costs.

Currently, Merckuriadis is entitled to two payments - 12 months’ notice as a percentage of the trust’s average market capitalisation, equating to about £8m, and a one-off termination payment based on the group’s operative net asset value of $2.32bn, totalling £16m.

Having forced out chair Andrew Sutch, with 71.5% voting against his re-election, and non-executive directors Andrew Wilkinson and Paul Burger resigning the night before, a largely new board will be in charge of this critcal next phase. 

The board, whose surviving members are Cynthia Coleman, the new senior independent director who became a non-executive four years ago, Cindy Rampersaud, who joined the board in August, and Simon Holden, who joined in 2018 and received only 61% of votes, have six months to put a new strategy to investors.

Shareholders are thought to be keen to appoint Robert Naylor, the outgoing chair of Round Hill Music (RHM ), to lead SONG. Round Hill recently accepted a cash bid at a 67% premium to the share price, but an 11.5% discount to NAV.

The largest shareholders in Hipgnosis include Investec, Aviva and Cazenove Capital, with respective positions of 9%, 6.7% and 6.3%, accordng to Refinitiv data. Newton, which was the largest shareholder as recently as two weeks ago, halved its stake to 4.3%.

At Friday’s close of just over 73p, the shares are trading at a discount wider than 50% to the March NAV.