Summary of 2nd Meeting of Creditors

Sorry it has taken so long to publish this but we were all devastated by yesterday's events and we needed to get some sleep.

The second meeting of creditors was held in Sydney yesterday (29th May 2009). As we said yesterday, The Ventracor Shareholders Group withdrew their DoCA because the two major cornerstone investors were unable to finalise due diligence in time. Although we remain confident that these investors would eventually have decided to proceed we could not guarantee that.

This left us with $5M in cornerstone investors which is not enough to fund all the things we needed to do immediately, i.e. pay the creditors, relist on the ASX & fund the day to day running costs which are a staggering $400K per week. Unfortunately the $7.5M pledges of support for a share purchase plan count for nothing in the administration process. The only money that Steve Sherman cares about is what is in his bank account on Monday morning.

We felt that allowing creditors to vote on something that did not have a reasonable chance of success was inappropriate. If we failed to secure the additional cornerstone investment the company would probably re-enter administration and we felt that employees should probably accept the Orqis offer because this would ensure some of them kept their jobs.

Our lawyer helped us make the decision by pointing out that presenting the DoCA when we knew it was underfunded could be seen as “misrepresentation” with potential legal consequences.

Before the meeting, we regretfully advised Steve Sherman that the shareholder’s DoCA was being withdrawn. We then saw him smile for the first time.


What follows is a summary of the meeting.

A large number of employee creditors were present as were some major shareholders, our lawyer (Simon Della Marta), our accountant (Jamieson Louttit) and three members of the Ventracor Shareholders Group (Nabil Antonios, Rod Hurley & Paul Donohue).

We were very pleased to see lawyers from ABN AMRO and the Department of Innovation in attendance. These organisations both have large contingent liabilities (for ABN AMRO it is $500K in fees from the last SPP and for Department of Innovation it is the commercialisation grant of $2.8M). The administrator's lawyers were clearly not expecting these guys as both organisations previously said they would not pursue these debts. Their presence was very welcome because we doubt they were there to vote for the Orqis bid. Had it come to a vote based on creditor debt their support would have easily negated Peter Crosby's large claim.

Last week our lawyer, Simon Della Marta, came up with a way for shareholders to be treated as creditors and therefore get a vote at the second creditor’s meeting. We asked some larger shareholders to submit proxies and their names were read out along with their debt. These proxies would have counted as one vote so we did not bother asking everyone for their proxy. The roll call of huge potential losses was sobering and, if nothing else, should have reminded the employees of just how much has been invested in Ventracor over the years.

After reading out the shareholder proxy details one of the Administrator's lawyers explained that the precedent comes from the Sons of Gwalia administration in which a shareholder claimed the company had misled the market by not disclosing information. He then dismissed the proxies and said they were not valid. If you are interested in the Sons of Gwalia precedent look at this www.mallesons.com/publications/2007/Feb/8783044w.htm.

Some brave employees asked Sherman awkward questions such as “Why did you terminate Peter Crosby when his contract was due to expire in a few weeks?” Sherman’s response was totally unsatisfactory, i.e. Crosby’s salary was $55K per month and terminating him allowed the company to continue operating for longer. Sherman dismissed follow up questions about the appropriateness of Crosby’s termination.

The administrator pointed out that the company only has $500K left in the bank and this is only enough to cover his anticipated fees. The company’s weekly burn rate is $400K. Paul Donohue asked the administrator is he would consider deferring payment of his fees until an eventual sale is finalised so that the company’s remaining cash could be used to fund another week of operations. Mr Sherman stated that the administrator would not be prepared to do this.

Mr Sherman described the precarious state of the Siqro bid’s finances. At the time of the meeting they had not secured the bridging finance needed to operate the company until their proposed sale completion date of 12th June 2009. He emphasised that, should the funds not materialise, he will have no choice but to liquidate the company on Monday. In this event most employees will be terminated although Mr Sherman said he would need a few to help him close down operations. He advised employees to turn up for work on Monday and he would tell them if their services were required.

Paul Donohue addressed the meeting and received a round of applause which was nice but we were there for votes not applause. Details of what Paul said are at the end of this post.

And then the voting started. The first two resolutions related to the administrator's obscene bill of roughly $500K. If there was ever going to be a protest vote this was the time and we were very disappointed to see the employees vote almost unanimously in favour. It is worth pointing out that not all employees support the Orqis bid. Some brave people gave us their proxies and we thank them for that.

Then came the vote that really mattered – the resolution "that the company execute a Deed of Company Arrangement - the General DOCA Proposal", i.e. the Orqis / Siqro bid. The overwhelming majority of creditors voted in favour and the company was, effectively, sold to Orqis for $10M.

Steve Sherman then asked the creditors if a “Committee of Inspection” should be formed. This committee assists the liquidator, approves fees and, in limited circumstances, approves the use of some of the liquidator’s powers, on behalf of all the creditors.

Some employees nominated for the committee as did Paul Donohue. This put the cat amongst the pigeons and the administrator conferred with his lawyers. They smugly pointed out that such a nomination should come from a creditor. That is when we whipped out Fergus Dixon’s proxy and the shareholders now have a representative on the committee. Fergus, we owe you one.

So where does this leave shareholders? If the Orqis bid proceeds we may receive a small payout but this will only be a token amount. If the Orqis bid fails then we may have an opportunity to reengage.

A lot of people have asked what they can do to help? Our lawyer and accountant are working on our options over the weekend. Our fighting fund is running low and we need more money to maintain the fight. If you want to donate please visit www.saveventracor.com/Pages/donate.html.


Here is Paul’s address to the meeting.

My name is Paul Donohue and I am a member of the Ventracor Shareholder’s Group. Two other members of the group are here with me today, Nabil Antonios and Rod Hurley, as is our lawyer (Simon Della Marta), our accountant (Jamieson Louttit).

I am one of 8 organisers and we are supported by 30 volunteers and 1,400 shareholders who have registered their support. That represents more than 25% of the shares on issue. The shareholders have pledged $7.5M towards a future share purchase plan and we are confident this would reach its target of $10M.

Our plan is contingent on cornerstone investors who will contribute the funds required to take the company out of voluntary administration. Initially we searched for cornerstones among fellow shareholders and we secured $5M from 3 investors.

In mid May we widened our search to institutions. We had not done this earlier because we understood that Ventracor had exhausted every possible source of funds. We soon learned this was not the case because we soon dicovered two very large potential investors who are interested in joining our syndicate;

1. A financier who specialises in commercialisation.

2. A medical device company whose technology and facilities make them a perfect strategic partner for Ventracor.

We were surprised to learn that the medical device company had actually approached Ventracor twice in the last 6 months but had been rejected both times. It is worth pointing out that this company was on the list of potential suitors which was given to Ferrier Hodgson at the start of their administration although Steve Sherman did not attempt to contact them.

These organisations need more time to complete their due diligence and a few days ago we sought to delay this meeting by a week. The administrator said we would need to contribute bridging finance to fund the company’s operations of $400K per week. He demanded 2 weeks funding, i.e. $800K. We approached some large shareholders and were amazed when we raised $600K in one day. Of this, $350K is currently in our lawyer’s trust account and another $250K should arrive later today.

That is how things were at 5am when I left Brisbane to attend this meeting. By the time I arrived in Sydney I was informed that the two large cornerstones had pulled out of our funding syndicate. Although they both have great admiration for Ventracor and the VentrAssist device they were not happy with the uncooperative nature of the administrator in particular difficulties in accessing confidential information and the unreasonable time frame for due diligence. In addition, the terms Ferrier Hogdson placed on the bridging finance were un acceptable to those who provided the funds.

Therefore the Ventracor Shareholder’s Group DoCA, in its current form, is not viable and we reluctantly withdraw it. Thank you to the shareholders & employees who supported our campaign.