The overseas investment watchdog flagged some concerns about key players in the Happy Valley Nutrition venture before the attempt to set up a milk processor turned sour.
Creditors of Happy Valley were set to vote on Thursday on whether to tip the company into liquidation or not.
Papers released to BusinessDesk show when the company was first being set up, the Overseas Investment Office (OIO) had concerns about the founding shareholders’ past commercial dealings.
They considered the issue of “moderate relevance” describing it as “moderately serious”, but ruled in 2020 the issue did not preclude a finding of good character.
In the end, it gave the venture the go-ahead.
It did not go well.
McGrathNicol’s Andrew Grenfell and Kare Johnstone were appointed administrators of the ASX-listed entity last month.
Founded in 2016 and listed across the Tasman three years ago, the company was set to build a factory in the Waikato town of Ōtorohanga, south of Hamilton, but it was stalled by a lack of capital.
After just over a month as administrators, Grenfell and Johnstone made a recommendation to tip the entity, and its subsidiary, into liquidation at a meeting due to be held in Auckland today.
They noted in their report last week that they’d received two expressions of interest to potentially recapitalise the business and could adjourn the meeting if enough certainty arose about the proposals.
Grenfell and Johnstone said they had started preparing for a sales process for the project and a database of potential buyers had been collated.
Given most of Happy Valley’s shareholders were offshore, it had to apply to the OIO for approval to purchase the 309ha of land for the factory and expenditure of more than $100 million.
That was granted in late 2020.
According to the application’s assessment report, dated August 18 of that year and released to BusinessDesk under the Official Information Act, there were concerns about David McCann and Randolph van der Burgh’s involvement in a failed capital raise.
The pair were founding shareholders of the company, with Van der Burgh stepping down as a director in May and McCann coming off the board on July 5 this year.
In 2014, Van der Burgh and McCann signed an agreement to enter into a joint venture to help fund an infant formula site using their entity PEH New Zealand Limited.
Under that deal, the pair were to provide the capital for the plant for a 51% stake in Danpac (NZ) alongside Bodco, a dairy company based in Waikato founded by Mataura Valley Milk Limited.
China Animal Husbandry Group, a Chinese state-owned entity, now has control of Mataura Valley.
The anticipated capital raise did not eventuate, with Brian Wagstaff and Richard Young, Danpac’s directors, not informed PEH did not have access to funds and was having difficulties finding them.
In the end, Wagstaff and Young lost patience and transferred the shares back to Bodco.
PEH took the matter to court, claiming that was unlawful and repudiated the joint venture and it had suffered significant losses as a result.
The High Court ended up ruling in Bodco’s favour, finding Van der Burgh had made misleading claims contrary to the Fair Trading Act.
But it said there was no finding that they were intentional and no damages were awarded.
While the case went to the Court of Appeal, it ended up being settled out of court.
In the OIO’s decision, it said the matter was of moderate relevance to the investment as it was a matter involving commercial business and contracts.
“We consider this matter to be moderately serious as it involves a breach of contract.”
However, it said after considering the High Court judgment and the decision to appeal, the OIO considered the matter did not preclude a finding of good character.
In the end, the land regulator granted the application, saying the benefit to NZ from the investment would be, “or is likely to be, substantial and identifiable”.
This story has been updated to correctly state the findings of the High Court.