Liquidator finds faults on both sides of RipeTime meltdown, reports potential law breaches to Companies Office
Allegations that Kiwi intellectual property ended up in Australia after a bitter falling out between founders and funders of failed horticulture analytics start-up RipeTime have been quashed after a liquidator’s investigation.
RipeTime administrator/liquidator Conor McElhinney of McGrathNicol told the Herald last year that his investigation into the July collapse of RipeTime in a welter of infighting included probing allegations by a former director that a company registered in Australia, or other parties, “may have misappropriated RipeTime’s intellectual property and other assets”.
The allegations were made by RipeTime co-founder and director Jon Lowy and followed RipeTime’s largest shareholders setting up a new business in Australia, Post Harvest Learning Pty. This company applied for a patent for a sensor to detect ripening of fresh produce in the supply chain to reduce food wastage.
RipeTime was not trading when McGrathNicol was called in as administrator.
The interim liquidator’s report said intellectual property and patent specialist AJ Park had been engaged to review the patent, its invention, and whether the patent infringed on RipeTime’s US patents.
“AJ Park concluded the AU patent and Post Harvest’s technology is different from, and does not infringe upon, RipeTime’s US patents and intellectual property and that it does not appear to have been created using RipeTime confidential information.”
“AJ Park also advises that the accidental registering of the AU Patent application in the name of RipeTime Ltd, rather than RipeTime Pty Ltd (ie. Post Harvest) by Post Harvest’s lawyers is not determinative of ownership. Consequently, AJ Park concludes that RipeTime is not entitled to the AU Patent.”
Herald inquiries last year showed the Australian company was registered in Australia in2018 as RipeTime Pty Ltd and renamed last February Post Harvest.
The liquidator’s report said Post Harvest’s website, launched in August last year, contained information taken directly from RipeTime’s site, likely breaching copyright, and included blogs referencing RipeTime. Post Harvest removed the material after being contacted by the liquidator’s lawyers, the “normal remedy” for such a breach according to AJ Park.
The report said irreconcilable differences between RipeTime founding directors Lowy and Grant Sargent, and funding directors Ross Shannon (chairman) and Jonathan Shannon, resulted in RipeTime being unable to secure ongoing funding needed to complete development and commercialisation of its technology.
“RipeTime became gridlocked and could no longer operate.”
The funding directors argued they had no choice but to set up the new company in Australia. But at the point they “gave up” on RipeTime and decided to operate as Post Harvest, they should have declared a conflict of interest and resigned from the RipeTime board, said the report.
“The impact on RipeTime itself, or any loss incurred, however, is not easily quantifiable, as neither entity has sales or a commercially proven product.
“Which party [the funders or founders] is to blame for the failure of RipeTime [or whether both parties bear responsibility] and what loss was suffered by RipeTime creditors …. and shareholders….would likely need to be determined by the Court.”
The report notes Lowy’s company Salvo withheld some RipeTime assets, claiming a lien over them for unpaid debts.
The liquidator had incurred “considerable” time and cost recovering these assets, which are included in the sale of RipeTime’s assets, previously listed as net $2.45 million with liabilities of $1.29m.
Whether Salvo’s action had breached the Companies Act and what loss was suffered would need further investigation. Any creditor or shareholder wishing to fund a further investigation was invited to contact the liquidator.
The liquidator had sent a report to the Companies Registrar setting out other potential breaches of the Companies Act that did not necessarily give rise to compensatory or liquidator actions.
Ross Shannon paid $92,000 to place the company in voluntary administration and then liquidation.
Then followed allegations – by both parties – that the other party “misappropriated funds” received from RipeTime’s final capital raise of $1.3m, through unapproved expenditure in RipeTime.
The liquidator analysed RipeTime’s bank statements and financial records from 2015, to consider whether any funds had been misapplied.
It found $8.8m seed funding was raised from shareholders (71 per cent in equity and loans), Inland Revenue research and development grants (15 per cent) and Callaghan Innovation (14 per cent).
“During our high-level analysis we did not identify any material unexplained payments. However this …. analysis does not (and cannot) consider whether the relevant parties provided value for monies received.”
The liquidator also analysed the source and spending of a further $1.3m raised in late 2018 and 2019. It found $1m or 75 per cent was raised from shareholders, $245,000 from Callaghan grants and tax credits, and $67,000 advanced to the company by shareholders’ loans.
Expenses incurred by the funding directors (Shannons) and challenged by the founders “appear to be genuine and for the benefit of RipeTime”.
The founders also alleged the expenses payments breached the shareholders’ agreement but the liquidator said whether this was relevant depended on the composition of the board, currently the subject of legal proceedings between the parties.
Again the liquidator invited any creditor or shareholder wanting to fund a further investigation of this issue to get in touch.
The same went for anyone wanting a further investigation of funding directors’ allegations against the founders over $50,000 of unapproved expenditure.
These payments could be valid if the founders’ appointment to the board in May/June 2019 were valid and benefited RipeTime, but as these broader matters were also the subject of legal proceedings, the liquidator had not considered their validity further.
Whether creditors got any money back would depend on the outcome of the sale process and the success of any potential legal actions funded by stakeholders.
The next liquidator’s report will be sent out before March 25.
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