Receiver’s appointment in doubt after court ruling

iNO doubts there’ll be much that’s considered wonderful in the households of Mitchell Ball, Craig Seymour or Michael Birch this week after a court found that allegations of conspiracy against the latter two were made out.

“The appointment of Mr Ball as receiver was part of the course of conduct that I have found contravened s 12CB of the ASIC Act or the corresponding provision in s 21 of the ACL. My preliminary view is that that appointment should be set aside to give effective relief against that conduct, but I should allow Mr Ball a further opportunity to be heard prior to making that order, where he has not actively participated in this hearing.” Justice Ashley Black, NSW Supreme Court.

In the matter of 1derful Pty Limited [2024] NSWSC 1414 NSW Supreme Court judge Ashley Black found Fletch Capital had contravened the ASIC Act and concluded that Mackay Goodwin director Ball’s appointment as receiver of the 1derful Group of Companies should be reversed.

“The Fourth Defendant, Mr Ball, was at one point purportedly appointed as receiver to the assets of the Companies. The Plaintiffs do not press a claim for relief against Mr Ball who was excused from attendance at the hearing,” the judge said.

Ball was appointed receiver to various 1derful entities in October last year after Fletch Capital had assigned to it a debt 1derful Group owed to secured lender PI Lorica Pty Ltd (“PIL”). PIL’s sole director is prolific company director Justin Epstein of the GEMI Group.

The 1derful Group comprised companies whose business was to develop and market proprietary technology for the provision of branded debit and credit products for businesses that allowed clients to use branded debit and credit cards to provide instalment and hybrid payment options.

One of the Group’s subsidiaries – 1derful Lending Pty Ltd – held an Australian credit licence from the Australian Securities and Investments Commission (ASIC) and the Group also had an agreement dated 25 January 2023 with Mastercard (“Mastercard Agreement”) that provided for the payment of performance-based incentives by Mastercard to 1derful.

But Justice Black’s judgment reveals that the company was experiencing funding difficulties and it was to Seymour and fellow Fletch shareholder Michael Birch that 1derful director Luke Bunbury turned in a bid to resolve demands from lenders and to secure new sources of funding.

According to Justice Black the solution involved a conspiracy that ultimately led to the transfer of the credit license to an entity associated with Fletch Capital and in his honour’s words, the “forced acquisition of the Companies’ business by surprise and at undervalue”. Hence Bunbury’s derivative action for declarations and damages.

“It is plain that the agreement or combination was executed in whole or in large part, and largely in accordance with the plans which had been made by Mr Seymour to implement it,” the judge said.

” … many of the answers given by Mr Seymour in cross-examination, did not adequately distinguish between a “refinancing” of a company’s debt, which allows the company to retain its assets with a new lender in place, and the acquisition of debt and security by a party which then exercises its security to acquire the company’s assets for itself.

“I am satisfied that by their execution of that combination, Fletch and at least Mr Seymour have caused loss or damage to the Companies, being at least the loss of a business which then had a value of at least $2 million (in Mr Seymour’s own assessment) and the loss of any prospect that the Companies could have raised further funding, restored their relationship with Mastercard and then increased the value of that business.

” I am therefore satisfied that the claim in conspiracy is established against Fletch,” the judge concluded.

No such adverse findings were made against Ball, who was named as a defendant in the proceedings.

He chose not to participate and while the judge made provision for Ball to be heard in relation to the circumstances of his appointment and its likely fate, it remains to be seen if he’ll seek to oppose his removal. iNO doubts it.

“The Fourth Defendant, Mr Ball, was at one point purportedly appointed as receiver to the assets of the Companies. The Plaintiffs do not press a claim for relief against Mr Ball who was excused from attendance at the hearing,” the judge said.

“The appointment of Mr Ball as receiver was part of the course of conduct that I have found contravened s 12CB of the ASIC Act or the corresponding provision in s 21 of the ACL.

“My preliminary view is that that appointment should be set aside to give effective relief against that conduct, but I should allow Mr Ball a further opportunity to be heard prior to making that order, where he has not actively participated in this hearing.”

Interestingly, Ball and Seymour have a link through their former involvement with the BPS insolvency group.

Seymour was formerly part of Simon Nelson’s BPS Recovery and Reconstruction in Melbourne while Ball was the “B” in Sydney-based BPS Recovery before his move to Domenic Calabretta’s Mackay Goodwin in 2020. An ASIC search on Fletch Capital meanwhile revealed that its former name was BPS Advisory Pty Ltd.

The parties have been directed to provide submissions in reply to their short minutes of order by November 29. iNO’s mail is that an appeal’s likely.