When Veriluma Limited debuted on the Australian Stock Exchange via a backdoor listing on September 26, 2016, it was nominated by one of the world’s biggest IT analytical companies, Gartner Inc., as a Cool Vendor in Analytics and one to watch.
Originally developing its patented algorithms for the Australian Defence Intelligence Organisation, Veriluma (ASX-VRI) specialises in the “prescriptive analytics” sector, which Gartner estimates will reach $1.1 billion by next year. As Veriluma states on its website: “Our software can deal with what we know AND can also consider what we don’t know.”
Fast forward 14 months and Veriluma entered into Voluntary Administration after it recorded a consolidated loss of $1.86 million.
Jirsch Sutherland’s Sule Arnautovic and Amanda Young were appointed replacement joint Administrators following a court order instigated by founding shareholder and Veriluma CEO Elizabeth Whitelock.
The replacement followed shareholder unrest when an annual general meeting held by the former Administrator was cut short after just two minutes. Shareholders argued there were conflicts of interest related to the board’s appointment of the former Administrator, as outlined in a report by the Australian Financial Review.
Better return in the shortest time
Urgent interim funding was then requested and shareholders were asked to assist in order for the company to continue trading. After exploring a number of options including a Deed of Company Arrangement (DOCA), wholesale investor Canary Capital swooped in with a $660,000 acquisition proposal, which included interim funding of $100,000.
Canary Capital was one of several potential suitors for Veriluma’s two entities, Veriluma Limited and Veriluma Software Pty Ltd and Administrators had been sizing up the rival bids.
“We had received proposals to recapitalise the company through a DOCA from four interested parties,” Amanda says. “The proposals had different – and somewhat complicated – structures, and each was amended at least once over the course of negotiations.
“We also received a proposal to purchase the intellectual property, software and other assets of both companies, which we recommended against, as it was not in the best interests of creditors. Canary Capital’s proposal was the only one that did not carry ‘terms’ and provided a much better return to creditors in the shortest possible time.”
Once the DOCA is executed by Canary Capital, Veriluma will then fall under the control of a new director structure.
“It was a unique situation in that there were four deed proposals and each of the interested parties/proposers were constantly trying to outbid each other,” says Amanda. “The value in the DOCA lay in the ASX-listed shell of Veriluma Ltd, however the coveted software was owned by Veriluma Software Pty Ltd, which is the reason a Joint DOCA proposal was considered.”
Further complications arose in respect of pre-appointment funding arrangements sought by the directors.
“Despite funding not being received by the Company, contracts were executed, which allowed the funder to register security interests and charge the company for costs incurred as a secured creditor,” Amanda explains. “DOCA negotiations had to take into account this security interest and releases of the same were required to be negotiated. It’s a great result for Veriluma, which is now trading business as usual.”
Importance of getting directors on board
Elizabeth Whitelock says that the Voluntary Administration process has had an adverse effect on some business opportunities. “These things don’t often end well so I understand the hesitancy some people might have,” she says. However, she has been pleasantly surprised by the number of people who were undeterred by the situation.
“Their philosophy was great,” she says. “They felt that we’d work it out and if we got through the VA they were keen to do business with us”.
One of the greatest lessons Elizabeth learnt from the process is just how important it is for a board of directors to be on the same page.
“We had two directors who had a different view of what needed to be done,” she says. “It wasn’t necessarily about our financial position. We were still trading business as usual and had money in the bank to pay staff. I learnt that not only do everyone’s views have to be aligned but it’s really important that every avenue is explored before you declare Voluntary Administration, because the interesting thing is that we didn’t have to.”
Elizabeth’s recommendations to anyone facing the prospect of Voluntary Administration:
- Have open and honest conversations with your fellow directors;
- Ensure all options have been explored;
- If VA is the only option, then act early;
- Do your homework and talk to people like Sule and Amanda for advice and guidance;
- Contrast and compare all advice received; and
- Whatever decision you take, always act in good faith and in the best interests of the company.
“Jirsch Sutherland made what had been a stressful time into an experience I could understand and support,” Elizabeth says. “Sule, Amanda and their team were always professional, supportive and patient. They took the burden that had been placed on us and allowed us to get on with ‘business as usual’. This is not an experience I intend to repeat.”
Elizabeth adds she is “both humbled and delighted” by the support of the shareholders. “Like us, they believe in the software and its potential. I am optimistic about the future and excited to be working closely with Canary Capital, our new board and our shareholders.”