Sleeping Duck founders win court case against angel investor Adir Shiffman

Sleeping Duck founders win court case against angel investor Adir Shiffman

Sleeping Duck founders Selvam Sinnappan (left) and Winston Wijeyeratne (right).

Dr Adir Shiffman, an angel investor who helped turn around the fortunes of mattress e-commerce startup Sleeping Duck, has lost a Supreme Court case where he alleged oppressive, unfairly prejudicial and discriminatory behaviour from the founders whilst simultaneously being denied the right to sell down his shares. 

Shiffman, who is currently chair of sports-tech company Catapult (ASX: CAT), had sought to cash in on shares and options in Sleeping Duck based on historic valuations which have since fallen, and claimed he was "shut out" from active participation in the business from late 2020.

In legal proceedings he had also sought orders to be preferentially bought out, which did not transpire because the judge dismissed all claims. 

In exchange for his advice, in 2018 Shiffman had been given options for a 10 per cent stake in the company, which he exercised for $100,000 in 2020.

From July 2019 to September 2021 Shiffman received $10,000 a month for consulting services to Sleeping Duck, while his company BBHF received dividends of $2.14 million over a slightly longer timeframe.

In June 2020 he was given a further 10,000 options in the startup, equivalent to lifting his potential stake to 20 per cent which has since been diluted by other share issuances. 

This was prior to the floating of several takeover discussions that never led to a deal, although Shiffman contended that the founders Selvam Sinnappan and Winston Wijeyeratne unreasonably rejected one in particular from CPE Capital in October 2021, involving a $60 million loan note transaction and different options based on various "exit waterfall" scenarios.

In March last year Shiffman had tried to reach a deal to sell his Sleeping Duck stake for $56 million, even though his holdings were worth nowhere near that level at the time based on expert valuations.

The founders knocked back the offer, which a judge last year determined was "excessive, unrealistic and uncommercial" - an assessment supported by Justice Delany last Friday while also dismissing the oppression claim and assertions by Shiffman that he had reached certain agreements with founders relating to a sell-down.

In its submissions Shiffman's company BBHF claimed the business went from being "a loss-making ‘amateurish’ outfit" before his involvement to achieving revenue of close to $50 million with a valuation of $462 million in August 2020.

It was just a couple of months later that he claimed the exclusions from management began - although Shiffman never was a director of the company, nor has he ever claimed to be one - and the company's success began to wane.

This was a fate that founders put down to external factors such as the impact on sales at the end of the pandemic as lockdowns were lifted.

To illustrate the effects this had on the company, an expert valuation prepared by Owain Stone and filed by BBHP for October 2021 was at $170-196 million, while an expert report in response filed by the defendants and prepared by Michael Potter valued Sleeping Duck at $121.8-126 million, and then $98.1-101.3 million just a month later.

Justice Delany also concluded that it was unnecessary to determine a date at which BBHF's shares in Sleeping Duck should be valued for a buy-out order, because "BBHF has no entitlement to a buy-out order".

"We welcome the court's judgment. We’ve always tried our best to do the right thing and treat everyone fairly," says co-founder Selvam Sinnappan.

"We are happy to have stood for our values and are relieved that the comprehensive judgement delivered by the Honourable Justice Delany sets out the circumstances so clearly and transparently."

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