Resilium reverses Coverforce transaction
Resilium will repay $25 million in loans to Coverforce next year and have more than $8 million in profits returned in arrangements to finalise the reversal of funding and equity transactions related to the authorised representative (AR) network buyout.
NSW Supreme Court Justice James Stevenson says the loans and interest should be paid by May 31 and Coverforce should return $8.27 million in profits derived from Resilium by May 24.
Coverforce provided an interest-free loan to fund a management buyout of the AR network from Suncorp in March last year and entered into a share purchase deed with Resilium MD Adrian Kitchin and partners Benjamin Hastie and Drue Castanelli.
But a later AUB Group acquisition offer to Coverforce private equity investor Pemba triggered a dispute over shareholdings and the validity of stock issuance to the Kitchin parties.
The Supreme Court found last December that Coverforce did not have board approval to complete the Resilium transaction or to issue the new shares, and the Kitchin parties were entitled to unwind the arrangement or recover damages.
The matter returned to court this year to finalise issues flowing from unwinding of the deal, including whether interest should be paid on the loan and the return of profits to Resilium.
Mr Kitchin said today that he and his partners were pleased with the judgment delivered in December and the work of their legal team.
“We are pleased that the court record now shows that Coverforce has been found to have engaged in deceptive and misleading conduct in its dealings with my business partners and I,” he told insuranceNEWS.com.au.
“We have been growing the Reslium business since the MBO last year and look forward to continuing to grow the business and cementing our position as the largest independently owned broker in terms of market position.”
Justice Stevenson ruled last week that interest should be paid on the loan for the period from his December 11 decision to its repayment, reflecting the changed arrangements.
“The parties’ agreement that the loans be interest-free was in the context that Coverforce was to own the Resilium producing asset, Resilium OpCo, which through the management services agreement received the revenue from the Resilium business,” he says.
“The Resilium transaction has been reversed in part; but not completely. The Kitchin parties have recovered their shares in Resilium OpCo, but still retain the proceeds of the loans.”
Under the now reversed share purchase deed, Mr Kitchin, Mr Hastie and Mr Castanelli sold shares in Resilium OpCo to Coverforce, in which they received holdings in return.
Justice Stevenson ruled against immediate repayment of Resilium earnings that had gone into Coverforce’s bank accounts, while noting that “Coverforce has no entitlement to that profit”.
“The matter is finely balanced, but my conclusion is that the appropriate order to make is that Coverforce pay Resilium OpCo the amount of the Account seven days prior to the date to be set for the repayment by the Kitchin parties of the loans,” he said.
Justice Stevenson said Coverforce should pay the costs of the reference, including the Kitchin parties’ costs.
Separately, Pemba has flagged action it intends to take against Coverforce, MD Jim Angelis and CFO and board member Jitendra Dutt requiring the parties to provide information.
Justice Stevenson, in a decision on August 10, released Pemba from undertakings it had given around documents it’s already accessed, subject to certain conditions.