Big Review TV liquidators lose $27 million claim against former financiers

The Federal Court has dismissed a claim by the liquidators of Big Review TV Ltd against its former financiers over funding arrangements alleged to have been "extravagantly uncommercial" and designed to inflate the share price of its ASX-listed parent, finding the liquidators failed to establish breaches of duty, knowing involvement or compensable loss. Justice Moore dismissed the proceeding against FC Securities Pty Ltd, Finstro Payments Pty Ltd, Finstro Holdings Pty Ltd and their director Bradley Prout, and ordered the the liquidators to pay the respondents' costs.

Big Review TV, or BRTV, operated a video review platform and was the sole operating subsidiary of ASX-listed BIG UN Ltd. BRTV entered administration on 21 May 2018 and liquidation on 7 November 2018, while BIG entered administration in August 2018 and liquidation two months later. BRTV's liquidators, Anthony Elkerton and Cameron Gray of Salea Advisory, brought the proceedings against entities associated with former financier First Class Capital.

The dispute centred on a Sponsorship Agreement under which FC Securities provided funding for BRTV to produce promotional videos, together with a Subscription Agreement involving the issue of 3,030,303 BIG shares. Under the Sponsorship Agreement, a $20 million funding pool was available to BRTV, with the financier generally retaining 24% of the value of sponsored customer offers and providing the balance through working capital and a security deposit structure.

The liquidators alleged that BRTV's officers entered the agreements for an improper purpose. Their case was that the arrangements allowed BRTV to record financing received from FC Securities as customer revenue, boosting BIG's reported results and artificially inflating its share price for the benefit of officers who held shares or options in the listed parent. They alleged the financiers and Prout were knowingly concerned in those breaches. The liquidators sought approximately $27.2 million in statutory and equitable compensation, or alternatively an account of profits or knowing receipt of up to approximately $72.7 million.

Justice Moore rejected that case, finding it failed "at multiple levels." The Court found BRTV was pursuing a deliberate start-up growth strategy that prioritised building a large customer base and video library over short-term profitability. Funding from the FCC entities helped finance that expansion, with BRTV intending to monetise its content through subscriptions, higher-value video packages, online television shows and automated video-production technology.

That broader business model undermined the liquidators' contention that the Sponsorship Agreement could be judged principally by its immediate cash flow. Justice Moore noted that BRTV ultimately sold intellectual property rights, including its video content library, for $42 million, a benefit that was not incorporated into the liquidators' analysis of the agreement's commerciality.

The Court also rejected the allegation that BRTV's officers entered the financing arrangements to manipulate BIG's share price. Evidence showed that CFO Andrew Corner had repeatedly sought accounting advice on revenue recognition and that BRTV ultimately acted on advice endorsing the treatment of payments from the financier as revenue. Justice Moore found the officers did not intend to present a false picture of BRTV's revenue and rejected the liquidators' case that they were seeking to prefer their personal interests over those of the company.

The liquidators' expert evidence on the commerciality of the Sponsorship Agreement was also rejected. Their expert assessed the agreement using a November 2016 starting date, but Justice Moore found the agreement was not finalised until 9 August 2017. The analysis also focused on whether cash outflows exceeded inflows, without accounting for the value generated by the video library, potential future revenue or changes BRTV was making to its business model.

Justice Moore concluded that the liquidators had not demonstrated that entering into or performing the Sponsorship Agreement was contrary to BRTV's commercial interests, that its business plans were unreasonable or doomed to fail, or that its officers acted other than honestly and in what they believed were BRTV's best interests. The separate claim concerning the Subscription Agreement was also rejected, with the Court noting that BRTV received a $500,000 reduction in its indebtedness and suffered no demonstrated detriment from that transaction.

The Court separately found that the liquidators had failed to establish their claimed losses. Their compensation case included approximately $25.5 million representing financing costs and cancellation fees, along with creditor liabilities and external administration costs. Justice Moore described the principal claim as effectively seeking the benefit of the financing without its associated costs and found the liquidators had not established that BRTV would have been better off without the Sponsorship Agreement.

The $42 million sale of BRTV's intellectual property presented a further difficulty. Justice Moore found that any assessment of loss had to account for the extent to which the financing helped create the video library and other intellectual property sold in the administration. The liquidators had not undertaken that analysis, leaving them unable to establish that BRTV suffered any loss from the Sponsorship Agreement.

The Court also rejected the bulk of the liquidators' alternative account of profits claims, including a claim of up to approximately $48.3 million relating to subsequent dealings with BRTV's intellectual property and a $9.4 million claim relating to BIG shares issued under the Subscription Agreement. Justice Moore found the necessary causal connection had not been established and noted that the BIG shares were never sold and ultimately became worthless.

Read the decision here.

Jason Potts SC of Eight Selborne, Joshua Knackstredt of Greenway Chambers and Andrew Emmerson of Eight Selborne, together with Allen Overy Shearman Sterling, represented the FCC entities, while Peter Braham SC of Eleven Wentworth and Tamasin Jonker of Omnia Chambers, together with HWL Ebsworth Lawyers, acted for Bradley Prout.

Jeremy Giles SC of 7 Wentworth Selborne, Jack Hynes and Bernice Ng of Eight Selborne Chambers, together with Piper Alderman, represented the liquidators.