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The founder of collapsed Australian artificial intelligence marketing start-up Metigy went on an $18 million luxury property buying spree in late 2021, just before he secured a $7.7 million loan from his firm that allegedly made it insolvent.
An administrator’s report, obtained by The Sydney Morning Herald and The Age, claims Metigy had traded while insolvent since David Fairfull, its sole director as well as chief executive, signed the $7.7 million loan “as both the lender and borrower” on November 14, 2021.
That same month, the Fairfulls purchased a $7.7 million luxury residence near Kangaroo Valley, south of Sydney. The 118-acre property features a main house with four bedrooms and four bathrooms, a detached cottage, a tennis court, swimming pool, a horse arena and two stables and a private rainforest waterfall, according to its Domain listing.
Metigy chief executive David Fairfull purchased a $10.5 million Mosman mansion last year.Credit:Domain/LinkedIn
Property records indicate just two months earlier, the Fairfulls purchased a $10.5 million trophy home in Mosman, with six bedrooms, five bathrooms, and sweeping views of Sydney Harbour.
The Sydney Morning Herald and The Age revealed earlier this month that investors in Metigy had placed a freeze on the Mosman mansion following the AI firm’s collapse. Fairfull is not the same person as the chair of accounting firm Hall Chadwick, who shares the name.
Administrators are now urging the sale of the two properties, as well as the company’s assets including computers and furniture, and attempting to recover bonds from leases Metigy entered into to try and claw back losses for creditors, the documents show. Creditors include investors and suppliers but also employees, who are owed about $2.5 million in redundancy payments, superannuation, annual leave, long service leave, notice pay and wages.
Until the end of last month, Metigy appeared to be one of the country’s most successful start-ups. It had received more than $20 million in funding and glowing press. One investor valued the business at $1 billion in April this year.
But by the end of July, Metigy, a portmanteau of a Greek mythical figure known for wisdom and the word “strategy”, was placed into administration. Seventy-five staff were rapidly made redundant, left shocked and overwhelmed that jobs were gone overnight.
“It’s overwhelming when you and all your colleagues lose their jobs,” one former employee wrote on social media after being informed of the collapse but before the administrator’s findings were revealed. “It’s also overwhelming when you realise you didn’t get paid for the last month either.”
“We’re pretty shell-shocked,” another former employee wrote on LinkedIn around the same time. “It’s not because we didn’t care enough or because we did a bad job or the market conditions weren’t in our favour — and that will always be the toughest thing to deal with when you work as hard as we did.”
Administrators began to comb its books. Their preliminary findings, which were presented to creditors on Friday, paint a sharply different picture to Metigy’s public image. Administrators Cathro & Partners wrote that the firm failed because of “Under capitalisation, poor strategic management of the business, inadequate cash flow or high cash use, trading losses [and] unreasonable director related transactions.”
The administrators’ report dated August 26 and lodged with ASIC said Metigy had not filed a tax return with the Australian Tax Office since its inception in 2015, and administrators believe the amount of tax owed is more than $3 million. In the administrator’s view, Metigy’s accounts were not audited, it did not prepare formal financial statements and it had not complied with corporate law requiring proper bookkeeping.
Metigy Administration, the entity that conducted the group’s day-to-day business, generated “limited revenue since its inception, in proportion to expenses”. Its sales were less than $70,000 a year for each of the last three years – less than the average full-time Australian wage.
For the financial year ending 30 June 2021, when online sales and marketing were booming across the economy because of pandemic lockdowns and stimulus, Metigy Administration recorded just $17,299 in sales.
Metigy, the parent entity, “does not appear to have earned any revenue since its inception,” the administrators’ wrote, and a third entity, Metigy Global, was dormant.
Administrator and managing principal of his eponymous firm, Simon Cathro said that Metigy had provided information to investors when it previously raised funds. But, he said via email, “some of the information appears to have not reflected the true state of the financial position at the time.”
Metigy’s website shows the company promised to grow businesses using the power of artificial intelligence.Credit:Website
Metigy’s 35 backers, who had contributed more than $20 million dollars in total, include major names in investing circles. Former CVC dealmaker Adrian Mackenzie’s Five V Capital, CP Ventures, Regal Funds Management and billionaire Melbourne investor Alex Waislitz’s Thorney Investment Group are among them.
We Are Social, a creative agency of which Fairfull was previously the managing partner, was also a shareholder.
Five V Capital, Regal and Thorney all declined to comment. CP Ventures and We Are Social have been contacted for comment.
Cathro said there might be enough money to cover staff payments. “It will be subject to funds that could become available from the sale of properties,” he said. “Given the type of properties, the sale of the properties should not be complex and should be quick so we are not expecting a lengthy and expensive process by the financiers or their advisers.”
If there is insufficient money to pay the former workers, they may have to rely on the Fair Entitlements Guarantee, a government scheme that supports staff whose employers go under without enough assets to cover employee bills.
Metigy’s other assets are limited and administrators told creditors their efforts to sell the company had been unsuccessful. Interested parties were discouraged by potential brand damage and “and the difference in the financial position of the companies in comparison to the financial position that had been portrayed to the market during its various capital raising rounds,” according to the report.
The administrators will try to get back bonds for leases on Metigy’s existing office and another it was set to move into in the inner Sydney start-up enclave of Surry Hills. They are also attempting to claw back up to $350,000 by selling laptops and devices, and are investigating the Metigy entities in the US and Singapore, which the administrators have not been appointed to.
On November 14, 2021, the report notes Fairfull signed a loan document as both borrower and his lender.
“The director does not dispute the existence of the loan and made representations surrounding its repayment to the administrators and our legal representatives post our appointment,” the report reads. “He has advised that the purpose of the loan was to complete a personal property settlement.”
The money was transferred from Metigy to a company controlled by Fairfull two days earlier, according to the report. “We have only conducted preliminary investigations but we do believe that the monies were used to purchase both properties. Further analysis and tracking of the monies are required,” Cathro said.
The Mosman property purchase settled on November 16, 2021, days after the loan from Metigy was signed, according to state land searches. The same searches show the rural property settled a month later, in December.
Cathro & Partners’ report suggests a major chance of recovering significant funds for employees and creditors is by selling the Mosman and Kangaroo Valley properties. Mortgages on both properties are in default and interest to a property lender is racking up at more than $4000 a day, according to the administrators’ report.
The report by administrators Cathro & Partners, who were appointed after Fairfull put the company into administration at investors’ behest, lays out several ways the money in the properties could be accessed.
One is that two Metigy entities were allegedly “insolvent from at least 14 November 2021 when the director obtained the loan from Metigy.” If that is the case, the report notes “a liquidator has the right to recover compensation from directors for debts that they have incurred at a time when the companies [were] insolvent.”
Metigy co-founder David Fairfull led the company since its inception in 2015.
The administrators’ view is preliminary, and subject to change based on further investigation. There are defences available to claims of insolvent trading, though the administrators note that “we are not aware of the director having any defences to insolvent trading available to him at this time”. Litigation is costly and time-consuming. It would also depend on the timing of various expenses.
Another way is voiding the loan agreement, which the administrators suggest may be possible because it is, in their view, “likely an uncommercial transaction”, though that again depends on further investigation and a court’s view.
The first choice for creditors will be whether to put Metigy into liquidation, which unlocks those avenues. A vote on that will be held this week.
Fairfull, who did not respond to calls and texts seeking comment, has been assisting the administrators.
“Mr Fairfull has been helpful and complying with his duties to assist the administrator and he and his lawyer have been available and in regular contact with us during our appointment,” Cathro said.
Even before Metigy went into administration, Fairfull had repaid millions of dollars on the loan, with the last repayment in July taking the outstanding balance down to $4.76 million. Discussions about the repayment between Fairfull and the administrators are ongoing, but he appears unlikely to keep either trophy property.
Between the two properties, there are mortgages of $12.74 million. Based on that, and an estimate that the properties are now worth less than what Fairfull paid in a bull market, the administrators’ view is that there’s just over $3 million in equity left in the properties.
Fairfull’s other assets are not clear but there will likely be a limit on any claims against him.
“The director’s solicitors have advised that he is likely to declare bankruptcy in the near future,” the administrators’ report reads. “If this occurs, we would be limited to the funds that are available in the bankrupt estate.”
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