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Communications broke down in Resilium dispute

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Communication between representatives of private equity firm Pemba and Coverforce founder and MD Jim Angelis broke down amid a dispute over funding for an acquisition of Resilium.

A summary of the now-concluded case in the NSW Supreme Court says discussions between the two sides were taking place through independent Coverforce director Ian Neal, with Pemba sidelined as Mr Angelis pushed ahead with the deal.

Justice James Stevenson says Mr Angelis regarded Coverforce as a family business and clearly wished to bring about a situation where Pemba ceased to be a shareholder.

“He certainly did not wish to be forced into a trade sale as a result of Pemba exercising its drag right, and thus to lose what he saw as being a family business,” Justice Stevenson said.

Coverforce issued shares to Resilium MD Adrian Kitchin and partners Benjamin Hastie and Drue Castanelli as part of an arrangement that also provided $20 million to fund an acquisition of the AR network from Suncorp through a management buyout.

But last week the court found Coverforce did not have the proper board approval to complete the transaction or to issue the new shares.

The management buyout parties led by Mr Kitchin are entitled to “in effect ‘unwind’ the Resilium transaction or recover damages” from Coverforce, Justice Stevenson says in his decision.

Under a 2017 agreement, upheld by the court, Coverforce shareholder Pemba had a 49% stake and “drag rights” which allowed it to trigger the sale of the entire company if it received an acquisition offer.

Mr Kitchin made clear at the time there could be no agreement with Coverforce over acquiring Resilium unless Pemba surrendered its drag right, as he understood Suncorp would not agree to a transaction where such a right existed and he did not wish to be forced to sell his shares.

The court found he went ahead with the deal after assurances from Mr Angelis that the issue would be taken care of. However, Pemba did not approve an alternative to the drag rights.

Mr Angelis told last week the company will “definitely be appealing” the decision. He declined further comment.

AUB said last week that it wouldn’t go ahead with a proposed acquisition of Coverforce after it did not receive due diligence materials on time.

AUB CEO Mike Emmett told the company had kept a close eye on the court proceedings.

“Given the matters raised and the potential implications on the Coverforce and Resilium businesses, we are comfortable that AUB made the appropriate decision to allow the conditional sale agreement with Pemba to lapse in accordance with its terms,” he said.

A Suncorp spokeswoman told the court proceedings did not affect its sale of Resilium via the management buyout in March.

Justice Stevenson has invited submissions from the Kitchin parties “as to what, if any, further findings or orders should be made”.

Mr Kitchin provided a brief comment to following the decision.

“We are very pleased with the judgment of the NSW Supreme Court and look forward to continuing to grow the Resilium business and cementing our reputation as the number one independently owned AR network in Australia,” he said.