Keybridge Capital (ASX:KBC) - Case Update

The Supreme Court of New South Wales has ruled that the appointment of an administrator for Keybridge Capital (ASX: KBC) was not for an improper purpose, despite finding that he was conflicted due to his previous dealings with the company.

The Melbourne-based investment firm entered voluntary administration on 9 February, facing a demand for repayment of a $4.6 million loan from one of its subsidiaries, chocolate and toy company Yowie (ASX: YOW), as well as court action by one of its own shareholders, WAM Active (ASX:WAA), a firm controlled by Geoff Wilson. Wilson’s group, which owns over 45% of Keybridge, has been at odds with companies owned by Nicholas Bolton — Keybridge’s CEO — which own about 20% of Keybridge. Mr Bolton is also the CEO of Yowie.

WAM challenged the appointment of Gideon Rathner of Lowe Lippmann as voluntary administrator. Shortly before the administration, WAM called a shareholders’ meeting under section 249F of the Corporations Act to remove and replace certain directors, including Mr Bolton and John Patton. The incumbent directors — knowing that proxies already lodged would pass these resolutions — appointed the voluntary administrator the evening before the meeting. The next day, Mr Patton, the meeting's chair and an incumbent director, purported to adjourn the meeting sine die without addressing the resolutions. Shareholders objected, elected a new chair, and passed the resolutions.

WAM argued that the appointment of the administrator was for an improper purpose — namely to prevent the shareholder vote from proceeding and to preserve the incumbents’ control of the board. They contended that Mr Patton and Mr Bolton, motivated by self-interest, orchestrated the appointment with Mr Rathner, who was not independent given his prior dealings with Keybridge. Essentially, WAM argued that there was a prior arrangement struck between Mr Bolton and Mr Rathner as to a range of matters, including how the administration should unfold in a manner favourable to the ex-directors and Yowie.

The Court agreed that there were issues with respect to Mr Rathner’s independence arising from his previous dealings with Keybridge, and that Mr Rathner did not adopt a position of neutrality in respect of the issues arising in the administration proceedings. However, this did not provide a sufficient basis to conclude that the appointment was invalid, since it could not be said that Mr Rathner and Mr Bolton had come to some unspecified understanding about how the administration would unfold, and that Mr Rather would not have been proposed as administrator absent this improper purpose. Two of Keybridge’s directors had genuinely formed the view that Keybridge was insolvent or likely to become so, and were not acting for an improper purpose.

The Court did find that the adjournment of the shareholders’ meeting was invalid, outside the scope of the company constitution and not made in good faith or for a proper purpose. However, the Court concluded that the meeting was validly continued and that the resolutions removing and appointing directors were validly passed.

While the Court upheld the administrator's appointment, it invited submissions on ending the administration, noting that a funding facility offered by WAM may be able to restore Keybridge’s solvency.

Read the decision HERE.

Professionals involved:

• James Emmett SC of Banco Chambers, Daniel Krochmalik of 3 St James' Hall Chambers and David Monteith of Banco Chambers (instructed by Mills Oakley) for WAM and the other plaintiffs

• Gideon Gee of New Chambers (instructed by Tisher Liner FC Law) for Keybridge and the administrator

• Andrew Broadfoot KC of Dever’s List, Andrew Byrne of 7 Wentworth Selborne and Annabel Osborn Brodie of Sixth Floor Selborne Wentworth Chambers (instructed by Cornwalls) for Mr Bolton, Mr Patton and Richard Dukes