Thursday, 24 May 2018

As the fog on the Sugru debacle thickens, we have a lead that may prove the 2017 raise should never have been allowed.



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. 

Watch this space!

5 comments:



  1. On 19 May 2018 I asked Sugru Shareholder Support:
    Did you know, at the time of the crowd funding round in 2017, that the company only had enough guaranteed funding to survive for around one year?

    The reply was:
    No, when we were raising funds on CrowdCube in 2017 we certainly did not know how quickly circumstances would overtake us. We actually believed that if the round was as successful as it's predecessor, the cash from it in combination with the debt we anticipated from the Bank could navigate us to breakeven. In 2017 we did talk about sale to a big player in the industry as an exit option that could be a win-win but the urgency with which we would ultimately need to make that happen was definitely not in our thinking.

    Sincerely,
    Paraic.

    What do you make of that?

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    1. Paraic has been making excuses all day. I wrote to them but they didnt respond. Their now repeated claim that circumstances overtook them is pathetic. It's clear - the bank facility they claimed was secure was not. It was changes in this facility, partly brought about by events in 2016, that led to the downfall of the business. The material change in the Crowdcube pitch is that the company's current account stated it had a credit of £1m as of 31 Dec16. Whereas the now filed accounts show it had a deficit of £337k. That is a massive difference for any company let alone one with obviously critical cash flow issues. Crowdcube either colluded in this or their due diligence is so poor they didnt pick it up. Either way they should be liable.

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  2. It is inconceivable that a banking covenant breach that resulted in a loan not only having its undrawn portion cancelled but the drawn portion accelerated could be considered non-material. If it can be proven that Sugru and CC were aware of the covenant breach and its consequences and made a decision not to disclose it I think they are in big trouble.

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    Replies
    1. Wholly agree and I believe that both did know but havent got the proof yet. The accounts are VERY clear. They state that the movement of both the Clydedale loan and the private CL for £500k were moved in the financial year Jan 1st 2016 to Dec 31st 2016. It does NOT say that this was as a result of events taking place after the YE - as Sugru are now claiming. These were full audited accounts. What now needs to happen is for all Sugru (Formformform Ltd) SHs to write to the Financail Ombudsman and Crowdcube - as per our post on how to complain to the FCA. That is the only way there will be any action taken.

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    2. one further point to investigate - the loan would have included a date by which the covenant compliance certificate or notification of potential breach would need to be delivered to the bank. The time for delivering this would be much tighter than for filing the accounts. If sugru had notified the bank of the potential breach and/ or failed to deliver the compliance certificate by the deadline and the deadline fell before or during the raise, the there can be no question that Sugru was aware of the breach and should have disclosed it. Key question to Sugru - under the terms of your loan agreement, what was the time limit for providing covenant compliance certificates for the period ending 31/12/16?

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