The embattled online sports and surfwear re-tailer has confirmed its board received an "open letter" from Crown Financial which contends that SurfStitch is being operated in a manner which is contrary to the best interests of the company and its shareholders.
"SRF is in a precarious position and disclosure to the market has been superficial at best," says Crown's managing director Joakim Sundell in the letter.
Earlier this week, Crown Financial used its 9.33 per cent stake in SurfStitch to call for an extraordinary general meeting (EGM) for a vote on the removal of chairman Sam Weiss.
Crown Financial has taken legal action against SurfStitch, which has suffered a spectacular fall from grace in 2016 and 2017, over the fallout from a failed content sharing deal with its subsidiary Three Crowns Media Group which was one of the major causes of its share price wipeout.
The company downgraded its earnings three times, largely because of a dispute with surf technology group Coastalwatch and Crown Financial over the licencing deals which fell through, and this wiped around $20 million off revenues.The Gold Coast-based SurfStitch, which sells brands such as Billabong, Quiksilver, Vans and Converse, went into a voluntary three-month trading halt late last month after it was hit by a $100 million shareholder class action.
The open letter from Crown Financial also sets out a list of 18 questions concerning SurfStitch's future including how they planned to restructure, can they remain solvent in the face of big losses, clarification of debts and what strategies are in place to produce revenue and what assets they intend to sell off.
SurfStitch responded by saying it will defend any legal action made by Crown Financial.
"The Crown Financial letter states that the company's compliance with its continuous disclosure obligations has been 'superficial'," the SurfStitch statement says.
"The company considers that it is fully compliant with all statutory and regulatory obligations in relation to continuous disclosure."
SurfStitch says it will cooperate with an ASIC investigation which was launched in November 2016 into its disclosures relating to the deals with Coastalwatch and Crown Financial.
It also pointed out that although it rejected an initial offer of 100 per cent of the company's shares by Coastalwatch in November 2016, it was now open to a more "genuine commercial offer" for the business.
The market capitalisation of Surfstitch has fallen rapidly from its peak in November 2015 of $590 million to its recent value of $18.9 million.
Since its much-hyped IPO in 2014, SurfStitch has endured a series of major setbacks with a massive loss in FY16, a share price wipeout and the acrimonious departure of co-founder and CEO Justin Cameron.
Investors who piled into the IPO at $1.00 a share have suffered a 93 per cent loss.
Never miss a story: Sign up to Business News Australia's free news updates
Follow us on Twitter, Facebook, LinkedIn and Instagram
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support