Tuesday 24th September 2019
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A company which had claimed $270 million in damages has failed in a court pursuit of its former business partner after plans to build an infant formula plant came undone.
While the company, Pure Elite Holdings, did not succeed, Justice Edwin Wylie has pointed out potential Companies Act breaches by its opponents, directors Brian Wagstaff and Richard Young.
According to a judgment dated Sept. 3, the case concerned the business relationship between Pure Elite and Bodco. The latter took over Danpac in 2015 and is now majority-owned by one of China’s largest state-owned enterprises.
Danpac had been formed by infant formula plant experts Wagstaff and Young to build an infant formula factory in the South Island.
Pure Elite got involved because it had been distributing infant milk formula. The investment company is British Virgin Island-registered and was chaired by Hong Kong-based asset manager David McCann.
Danpac was not properly capitalised, and, after numerous attempts to raise capital, eventually Young and Wagstaff transferred shares they had given to Pure Elite back to Bodco.
Pure Elite, through its lawyer Adam Ross, QC, argued that a heads of agreement signed made binding legal obligations creating a joint venture. Pure Elite said Wagstaff, Young and Bodco repudiated the joint venture when they took back the shares.
In order to capitalise the business, it was proposed that Bodco would contribute $5.1 million, while Pure Elite and associated entities would contribute $5.3 million.
According to the judgment, Pure Elite didn’t actually have the money arranged and was under considerable financial pressure. Chair McCann was actually trying to raise about US$200 million for future expansion, including Pure Elite's contribution to the proposed factory.
Justice Wylie’s judgment details numerous attempts to raise millions of dollars for the plant but, in short, the money did not eventuate. The judge indicates in one of the six attempts to raise capital, McCann was “the victim of a not particularly sophisticated scam.”
After the capitalisation failed, Pure Elite sued, saying that it should still have a share in Bodco.
Justice Wylie found that Wagstaff and Young were entitled to transfer back the shares because the capitalisation never happened.
However, he noted that Wagstaff and Young breached companies rules by not giving notice of the adoption of Danpac’s constitution and not maintaining a share register for Danpac.
“I want to hear from counsel at the telephone conference if there is any good reason why a copy of this judgment should not be sent to the Registrar of Companies,” his judgment says.
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