Bubs Australia sues founder, former chair over use of company funds

Bubs Australia sues founder, former chair over use of company funds

Dennis Lin (left) and Kristy Carr (right).

As the board of Bubs Australia (ASX: BUB) puts its defence plans in motion ahead of a board spill vote at the end of next month, the infant formula group has lodged a legal claim against founder and former CEO Kristy Carr as well as former chair Dennis Lin.

The group, which fired both individuals unceremoniously in May, alleges the they breached their fiduciary and directors’ duties to shareholders and misused company funds.

Bubs claims the alleged misuse of company funds has been confirmed from independent expert analysis showing Carr and Lin engaged in "undisciplined expenditures that were not approved by the board", were in breach of employment agreements or Bubs' travel and expenses policy, or believed to be "personal expenses that should not have been charged to the company".

The independent expert analysis shows the two former directors spent more than $1.4 million between 1 January 2022 and 31 May 2023 at a time when the business was unprofitable, including the rental of a residential apartment in Brisbane suburb of Teneriffe at the cost of $74,800 over an 88-week period, luxury clothing, accommodation at hotels, and expenditures at a bar at Crowne Melbourne, among other venues.

In its statement of cross claim filed in the Federal Court, Bubs also alleges Carr entered into an agreement to award a US$900,000 bonus to a consultancy that was not disclosed to the Bubs’ board.

The group also alleges that Lin, despite having received directions not to open any bank accounts in China in connection with the “Project Marathon” joint venture or visit a site in the province of Heilongjiang in China's northeast, "deliberately ignored" the instructions, opening a bank account and attending the factory site with Carr.

"The Bubs board does not resile from making the tough decisions needed to protect shareholder value," said Bubs chair Kristina Rathie, who last week issued a statement criticising the proposed new board and leadership.

"We are taking all the appropriate action to recoup funds that rightfully belong to our shareholders. It is important that shareholders are aware of these allegations and the facts as they consider who they can trust to act in their best interests."

Carr has also filed a statement of claim in the Federal Court alleging Bubs breached Fair Work rules.

Carr and Lin are among the dissident shareholders involved in the campaign to overhaul Bubs Australia's leadership, but they have not put themselves forward for positions as they are now focused on their advisory business TAKE Global. Neither Carr nor Lin responded to requests for comment this morning, although Lin is currently in a different timezone in the Americas. 

Carr provided a statement this afternoon, describing the allegations made against her as untrue, baseless, and a "transparent attempt to divert the attention of shareholders from the current board's lack of a clear and articulable plan for the Bubs Australia business".

"Throughout my time as CEO I have only ever spent company money on business activities, in the best interests of Bubs Australia. Any money spent by me has been properly accounted for and reported to the board on a monthly basis," she said.

"At no time has any of the money I spent been questioned or queried by the same directors who have now authorised the baseless and untrue allegations to be made against me.

"I also note that the allegations have been made in a cross claim that was first provided to my lawyers at midday today, apparently after the board had briefed media as to the allegations and sought to put the allegations into the press rather than into Court. This smacks of desperation and a willingness of the board to say anything, irrespective of the truth, to try to sling mud in the hope that some shareholders will be fooled by these untrue allegations."

She also alleges that Bubs Australia's lawyers were previously asking the Federal Court to not release to the media the Statement of Claim filed by herself and Lin, "purportedly because of their concern that the directors had not been able to respond to our allegations and it may prejudice shareholders".

"The behaviour of the board in leaking the cross claim to the media is entirely inconsistent with what their lawyers were telling the Court," she said.

"As both my claim and the cross claim are now before the Court, I won't be responding further to these baseless allegations in the media. I will respond fully to them in the Court and look forward to my claims and the claims made by the board being thoroughly tested by the Court."

Earlier this week, Lin reaffirmed his belief in the proposed new board and denied vested interest allegations from Rathie over the inclusion of AZ Global in the board spill campaign, given AZ Global is the company's Chinese partner in what the company deems a "failed strategy" in the Chinese market.

Proposed CEO Peter Nathan outlined part of his strategy if he is elected, while one of the proposed directors, James Jackson, took umbrage with Rathie's claim he had appeared not to be a director of an ASX-listed company in five years, even though he has been an ASX-listed company director for that entire period.


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