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Liberty Specialty Markets
Liberty Specialty Markets

Resilium managers 'entitled to sue Coverforce'

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Managers who led the buyout of the Resilium authorised representative firm from Suncorp earlier this year have been told by the NSW Supreme Court they would be entitled to seek damages against Coverforce for deceptive conduct over the deal.

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 the acquisition of the AR network.

But this week the court found Coverforce did not have the proper board approval required to complete the transaction amid a dispute with private equity shareholder Pemba.

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

Coverforce MD Jim Angelis told today the company will “definitely be appealing” the decision. He declined further comment.

Suncorp last year appointed advisers to look into the future of Resilium and on March 25 confirmed a sale through a management buyout. The deal was completed on May 31.

The court heard that under the proposed acquisition deal the “Kitchin parties” would end up with shares in Coverforce, which would effectively then own Resilium revenues.

But under a 2017 agreement 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 offer.

Mr Kitchin made clear at the time there could be no agreement with Coverforce over acquiring Resilium unless Pemba surrendered its drag right, partly because he understood Suncorp would not agree to a transaction where such a right existed.

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 could not possibly have had any doubt that Pemba did not approve Coverforce proceeding with the Resilium transaction,” Justice Stevenson said.

It was also misleading or deceptive for Pemba representatives Mark Summerhayes and George Georgiadis not to say something to Mr Kitchin, the judgment says.

Pemba received an indicative proposal from AUB Group on May 27 to buy Coverforce. AUB later announced it planned to purchase Coverforce, subject to resolution of the legal issues, but on Monday said it would not go ahead with the transaction.

The following day the Supreme Court upheld Pemba’s shareholding and drag rights and said that “but for AUB’s announcement yesterday, Pemba could have proceeded with the sale”.

AUB CEO Mike Emmett told today the deal was conditional upon delivery of due diligence materials, which had not occurred by an agreed date.

“We also kept a close eye on the dispute between the shareholders of Coverforce before the NSW Supreme Court as it unfolded, and note the matters raised by Justice Stevenson in his judgment as to the conduct of the parties, including misleading and deceptive conduct,” he said.

“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.”

A Suncorp spokeswoman told the company was working with Resilium to understand the ramifications of the court decision, but says the court proceedings did not affect the sale of the business.

"Suncorp sold Resilium to Resilium Management via a management buyout (MBO) back in March. The court proceedings have no impact on the MBO," she said.

Resilium’s Mr Kitchin provided a brief comment 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.

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