Affresol are in liquidation - we knew about this a while ago. Crowdcube now have a handy easy sympathy message for all their disappointed investors It's an improvement on saying nothing, which is what they have been doing since 2011. Maybe on these they should remove the strap line? I think our logo above is more fitting. We have written about them before here
We understand that Affresol is now in liquidation. I'm sure that this news
will be extremely disappointing for you as an investor in the company.
If applicable, you should have received your SEIS3 or EIS3 form to enable
you to claim any tax relief you may be entitled to and if you haven’t yet
done this, we recommend you do so. Income tax relief can be claimed within
five years of the year you made the investment.
If appropriate, loss relief is also available under SEIS or EIS. You should
seek professional advice if necessary. For more information about tax
relief, please visit the HMRC website:
Above are the notes on page 30 of the last Sugru (Formformform Ltd) full and audited accounts for YE Dec 2016. This pertains to the movement of the bank loan and personal CL from long term liabilities to current liabilities. The big Q is was this information hidden from Crowdcube investors in March 2017?
Sugru have claimed in a written statement that the breach that caused this movement of the loans and the cancellation of the extended facility with the Clydesdale occurred in late 2017, was immaterial and was therefore not declared to Crowdcube SHs.
They have also claimed that the breach referred to above is a different breach to the one that took place in 2016.
It seems they want it both ways. If the material breach occurred late on 2017, what is it doing in the 2016 accounts. Balance sheets do contain information about actions that have taken place after the YE date - but these are as notes and they should not change the numbers for the YE date ie December 31st 2016. If the breach referred to here is immaterial, why does it result in the moving of around £2.5 of debt facility - a move that puts the current account into deficit when they told investors in May 2017 it was £1m in credit.
It all seems pretty obvious to us. You SHs need to complain firstly to Crowdcube and then the Financial Ombudsman. Crowdcube, if found to be liable, will have to compensate you.
A friend very kindly sent this through and I thought it might be useful for anyone wishing to look at taking action against Crowdcube and or Sugru. I have to say my experiences with Ombudsmen is not good.
I have complained against companies that have
ripped me off and have been complained against so here it is.
No matter how much fuss you kick up, and is on the
message boards, the FCA won’t do a thing. They are not listening and not even
If any FCA company gets one or more complaints
which are upheld by the Ombudsman, then suddenly the FCA is all over the
offender. But under their light touch regulation, they have to identify a
problem before they investigate it.
You need to get one of the investors or many of
them to complain to Crowdcube. Standard stuff is we were presented misleading
information to make our decision on. As such I want my money back.
Crowdcube then has 28 days to investigate and find
a way to make the client happy.
If the investor is not happy he can then complain
to the ombudsman (the FCA is now aware and monitoring events via the
The ombudsman investigates and has the power to get
Crowdcube to refund all the investors money.
These are the proper channels for getting results.
The FCA doesn’t listen to anything else
Notes are back on Crowdcube, as expected. They have run out of your money. They dont tell investors what they told them last time, as that would be a real downer on their pitch. We told you back in March of this year but you dont seem to have listened. The pitch is funded.
In 2015 they told everyone that they would have revenues of over £13m for YE June 18. They now say that its truly great that they have reached almost £5m. In 2015, they said they would have EBITDA of £1.87m by now. Now they are very happy with £200k. A net profit was projected whereas we are looking at large losses.
At some stage surely someone is going to do somehtig about the word 'misleading' when it comes to the FCA's use of it in regulating ECF platforms. How is the above not totally misleading? None of the information from the 2015 pitch is inlcuded in this one - only up notes on how brialliant the whole thing has been.
Ok, so we all know it takes longer and its never possible to rely on projections - so why have them if they are so totally misleading? Well Crowdcube need them to show the 'big numbers' out there - the big numbers get the juices flowing. Crowdcube couldnt exist without them. And lest we foget, this is ALL about Crowdcube.
Sugru screwed Crowdcube investors for around £6m. It now seems confirmed that the breach that occurred in their banking facility with Clydesdale Bank, prior to the 2017 pitch, was material and was hidden from investors.
It all depends on interpretation. Sugru claim it was not material but they admit it happened and they admit they and Crowdcube agreed not to tell investors. Thereby materially altering the company position presented by the platform - which claimed the £3.5m facility was 'secure'. The accounts for the period confrim that the breach resulted in the loan, due to be repaid in 2019 was moved into current liabilities. That is material.
This is Paraic's (a board dierctor at Sugru) extraordinary explanation of these events -
As for the
“discrepancy” you mention, there is none. In the crowd cube pitch the bank loan
(£2M) and loan from junior debt holders (£0.5M) were both classified as
long-term debt. In the Dec 2016 statutory accounts these two amounts were
classified as current liabilities. Hence, the net current liability position in
the statutory account looks worse than the net current asset position in the
CrowdCube pitch. It is purely a classification change. Again, no “smoking gun”.
Paraic if you read the accounts, the reason given for moving the debt from LT to ST liabilites is the breach of the covenant. They were moved not 'classified'. This movement put your company into a net deficit on its current account. Most of us consider that to be a highly important fact that should have been shared with investors in the 2017 Crowdcube raise. You clearly dont but you give no reasons for this curious decision. Perhaps accounts are not your thing. This is not just a smoking gun - it's a bleeding, recently dead body with a large bullet hole, also.
Sugru go on to say that the Bank's withholding of the balance of the loan was not the reason the company had to be sold. They later go on to say that cash issues played a significant part in the course of events. They clearly cant add 1 and 2 up and get to 3. As we have said before the collapse was down to very very poor management. Full stop.
Which ever clever way you try to spin this - it all reeks of collusion and fixing. How Crowdcube will get away this, as they undoubtedly will, will be interesting.
We have been approached by a source who has another take on this and it is one that the platform will not be able to get away with if it turns out to be true. It is certainly material and it was never mentioned either.
Crowdcube investors in March to May 2017 were shown the 'projected accounts' for the company's YE Dec16 in the pitch documents - ie they were actuals. These showed a reasonably healthy current account balance of £1m credit.
Now the filed accounts, which remember were for YE Dec16, so had already been completed 5 months before the Crowdcube pitch closed, show a very different story. These accounts were not made public until December 2017, so there is no way that anyone outside the company other than Crowdcube, would have known the real figures.
These accounts show a current account deficit as at 31 December 2016 of £337,528.
This difference of £1,337,528 is around the amount that the company states it was due from the Clydesdale, in the second tranche of their agreed loan. The one they had breached but hadnt told people about - the one the bank withdrew which resulted in the fire sale.
That seems pretty clear to us. Crowdcube told investors the exact opposite of the truth in the 2017 raise. Maybe this was because Sugru hid it or maybe not. Either way it shows Crowdcube's due diligence is totally worthless.
Indeed an astonishing exit @ 90 pct discount to equity value at last raise a good year ago. Sure we have all taken calculated risks, and this is one of the outcomes that was to be expected. HOWEVER, I find it hard to believe that the bank's withdrawal made a fire sale unavoidable, even with unforeseeable (?) challenges in DIY distribution. So the case indeed raises serious questions as to governance, and why we should pay to warm our Directors' cold feet, instead of being able to rely on them exercising their fiduciary duties to everybody's benefit, including ours.
Questions which only the Directors can answer. So I wrote to them today (see below). Let's see what they say.
Keep you posted. Any support / observations welcome.
PS: At least one question missing from my list below, i.e.: Have the Directors / founding shareholders / current top management agreed on continued employment / advisory relationship with Tesa, and on what terms ?
Dear Roger, Jane, Paraic & James,
Thank you for your letter, and congratulations to you on your successful exit.
To me, having acquired shares in the last round of crowdfunding in 2017, this is very disappointing news indeed. How disappointing the news is for the other shareholders depends, I suppose, on the timing and terms of their respective investments.
At this point, as an outsider, I cannot exclude that the incumbent shareholders / Directors may have misled the new investors in the last round of fundraising with the purpose of making a final bet for their own benefit, very largely at the expense of the new shareholders. All this based on a – from today's perspective certainly, and probably even then, taking into considerations the terms of the first crowdfunding - grossly overstated valuation (i.e. 10 x the equity valuation realised only slightly over a year later). For a relatively mature player already profitably active on a highly international scale in both production and distribution, it certainly appears to be highly unusual that the same set of insiders should have revised their views on equity valuation down by 90% within a year. In other words, the final crowdfunding round led to only minimal dilution of the incumbent shareholders' stakes at the time, at the full expense of the last entrants.
The sale to Tesa on these terms, at this time, therefore raises a number of serious questions, in particular with respect to conflicts of interest of the managing incumbent shareholders / Directors vis-à-vis the later shareholders.
May I therefore ask for your co-operation in addressing these concerns, by responding to the questions below. Given the very unfortunate short timeframe of only a few days between your announcement and scheduled completion, I am forced to hereby formally challenge and object the sale itself as well as the lawfulness of the execution of the drag-along right.
Finally I am concerned about the potential reputational aspects of this sale for the Sugru brand. Please allow me, therefore, to share this letter with the Board of Directors of Tesa S.E., and to post it on the respective crowdfunding platform you used in 2017.
SALE OF FORMFORMFORM (THE „COMPANY“) TO TESA INFORMATION REQUEST AND QUESTIONS
INFORMATION REQUEST Minutes of all Board meetings since 1 Jan 2016
Complete copies of any and all business plans and valuation reports on the company produced by it, its advisers, employees, Directors, consultants or similar, since 1 Jan 2016
Any pay-outs to Directors and advisors since 1 Jan 2016 (including cash salaries, stock grants, etc.)
Full copy of the Sale & Purchase agreement with Tesa, including all Annexes etc.
Detailed table of amounts of Sources and Uses of Sale proceeds, including: Their respective timing (if not paid-out at proposed closing in May 2018) Allocation of proceeds to each of the Directors and founding shareholders
Analysis of financial returns to equity, expressed as percentage p.a. (Internal Rate of Return), and amount (in GBP), including: In aggregate since foundation Broken down into classes of shares Broken down into cohorts by timing of initial investment (i.e. For each funding round until exit) Individual returns of the Directors and founders
QUESTIONS How were the conflicts of interest of the founders / Directors vis-à-vis the later shareholders managed specifically over time ? (pls provide detail)
Why did the bank withdraw from further debt financing ?
Why did the company not disclose to shareholders at the time that such withdrawal had taken place ?
To preserve value, what alternative funding sources did the Board take into consideration following the bank's withdrawal ? Why did the Board instead ultimately decide to fire-sell ?
Did the Board / Directors actively consider there was a risk of insolvency ? If so, why ? If not, why not ?
Disposal process Who prepared and negotiated the sale (including advisers, legal counsel, consultants, etc.) How was Tesa selected as the buyer ? Was there a competitive bidding process ? Please provide details (number of parties approached, engaged, negotiated with, etc.) Were negotiations with Tesa conducted exclusively at some stage ? Why ?
Valuation Please disclose on what basis and how (exactly, i.e. including methodologies, amounts, etc.) the Company was valued as a basis for sale negotiations ? How exactly did this valuation differ from the ultimate purchase price achieved ? Please provide a detailed and reasoned reconciliation
In particular, provide details on the Enterprise Values (i.e. Value of the firm as opposed to certain classes of capital / assets) derived for the last round of crowdfunding vs. Enterprise Value achieved in the sale to Tesa (including a reasoned deviation analysis)
Purchase price Is the entire purchase consideration proposed to be paid entirely in cash, at closing in May 2018 ? If so, did the Directors consider negotiating contingent / deferred purchase price elements to allow the (later) shareholders to participate in the future performance of the Company ? If not, why not ? Did the Directors consider introducing amendments to the distribution of proceeds which would have made-whole, or at least reduced the severe losses of, the later shareholders ? If not, why not ? Proposed use of proceeds from the sale (in GBP) (in detail, including fees, and allocation of sale proceeds to individual classes of shares)
An impressive list of questions which I assume might by the basis of an unfair prejudice application to the court. Good luck with that. I only invested a tiny amount so I've taken it on the chin as a good lesson learnt.
Good list of questions - doubt you will receive answers to all of those (if any). Been radio silence from Crowdcube and Sugru on deal specifics so far. They will likely hide behind 'confidentiality' so as not to reveal what really went on.
Unfair Prejudice proceedings still leave the burden of proof on us. Yet the breach of provisions of the Articles is obvious. No offer was made to the minorities, in breach of para. 7 of the Articles. Also, it is not clear that para 8 (Drag-along) should override para 7. Even if that were so, Tesa does NOT qualify as a bona fide **arm's length ** purchaser according to para 8.1. of the Articles, not the least because of the envisaged continued employment of the Selling Shareholders. Such employment agreement in fact turns the unrelated parties (arm's length) into RELATED parties (NOT arm's length).
Also, the communication of the Company is inconsistent with the Drag-Along-Notice. The latter stipulates the price per share (@ GBP 0.09 / share), as required by 8.2.3 of the Articles, whereas the former is vague on final proceeds, claiming its dependency on currency conversion of financial debt. Unacceptable / invalid.
If all that were not enough, we have to date not received proof that the Conflict-of-Interest rules of the Articles have been properly adhered-to by the Directors in the process of resolving, and effecting, the sale.
The resolution may be, and the Sale and Drag-Along ARE in breach of the Articles, and therefore invalid. As a result of all this, I specifically call on the Selling Shareholders to exit from the Share Purchase Agreement. In particular, I specifically deny any Director's right to act on my behalf in transfering my Shares to tesa SE (para 8.7. of the Articles).
It does appear to me to have been shoddily handled at best.
My reading of it is they were/are very badly advised and left at the mercy of the only game in town who realized this and cut the offer at the last moment and the current directors decided that it was still best for them (as the main shareholders) and the staff to take it and keep their jobs. It could for example have been structured as an asset rather than a company sale.
It doesn't feel that they gave much consideration to the more recent shareholders - to not even delay completion a little so that the first round crowdfunding investors who are only a month or so away from a three year EIS hold suggest they really don't care about them.
There appears to be a question mark as to whether the company was already in breach of its banking covenants in March - May 2017, and if so I cannot see that this was disclosed. It is certainly material. Does anyone have any news of this please before I write to the company asking for proof that it was not in breach at the time. A 91% devaluation in less than 12 months is not consistent with the tone of the pitch, I am sure that if we pursue this then we will find more information about the state of the company in the last pitch. I am certainly open to being involved in any class action. This process has been disappointing from the perspectives of both Sugru and Crowdcube; it brings all other investee companies into question and suggests this may be the wrong platform to invest through.
As far as I am aware, the company is denying that they were in breach of the covenants at the time. One thing is clear though, based on the handling of this from Crowdcube, it is absolutely the wrong platform to invest through.