Yesterday, Altada’s woes appeared to be at an end. The receiver appointed to sell the insolvent Cork artificial intelligence firm struck a confidential deal with cybersecurity entrepreneur Eoin Goulding to take over the business. While the terms of the sale are unknown, the sum on the table is apparently sufficient to keep blood flowing through the AI start-up which since its founding in 2017 has racked up millions in debt and has often seemed incapable of learning from its own mistakes.

Then last night came a rather large fly in the ointment: a report by John Healy of the accountancy firm Kirby Healy dropped. Healy was appointed provisional liquidator by the High Court on December 13, following a winding up petition by Altada creditor Datech – led by US investor Jeff Leo, a former backer of Altada who today emerged as a rival bidder for the firm having lost around €1 million when the company went into examinership back in 2019. 

Healy’s report raised “weighty concerns” about the validity of the debenture behind the €500,000 bridging loan Altada secured last September whose default just seven weeks later led to the appointment of receiver Nicholas O’Dwyer of Grant Thornton last November. 

The findings had the potential to poison the imminent sale.

The drama unfolded on Wednesday morning in the packed confines of Court 19, a court the size of an average co-living apartment. Justice Brian Cregan had to ask for the door to be kept open to allow employees of the firm, owed months in back pay, to hear the proceedings from the corridor. 

What emerged next was notable. First off, Healy was confirmed as liquidator of the company by the judge who ordered that Altada be wound up. Then Healy’s report was read out to the court. Its contents were enough for Revenue to threaten to block Goulding’s immediate acquisition of the AI firm.

Once touted as a potential unicorn, Altada’s assets are currently valued at around €865,000, much of that being intellectual property. 

Its creditors include the secured lenders behind the now controversial €500,000 September issue, €2.8 million owed to preferential creditors, and €5.33 million in unsecured debt.

So what was in the report?

For one, Healy’s investigations suggest the start-up was insolvent and defaulting on its creditors for at least 12 months prior to his appointment in December. Some creditor claims show unpaid amounts dating as far back as 2020, just months after the fintech start-up emerged from an examinership process in 2019 that saw significant debt write-downs and fresh investment and put in.

The court heard many post-examinership investors and lenders struck deals with Altada on the basis it could only create a security charge over the company and its assets with their consent. 

The receiver Nicholas O’Dwyer of Grant Thornton was appointed on November 4, 2022, on foot of a registered fixed and floating charge registered against the company on September 16 in favour of Grattan Boylan, Noreen Gallagher, Alan Bruce, and Lynn Bruce. The security was in respect of a €500,000 loan to the company taken out in two tranches on August 30 and September 1 while Altada was “heavily insolvent”, the court heard.

The reason the charge was delayed by a fortnight was that the company required the written consent of the company’s shareholders and investors before implementation. According to Healy, in some instances, consent from key institutional backers was not sought or provided. He describes this as a “significant failing” on the part of the company.

Another unusual factor was that at the end of the eight-month term, Altada was to repay the lenders a premium of €500,000 on top of the capital sum – amounting to 100 per cent interest. 

The liquidator says the receiver and the secured lenders, through their lawyers Matheson, denied there were any irregularities in the security or the receiver’s powers to sell the assets on foot of the charge, advising Healy there was considerable urgency in concluding a sale so that the value of the business’s assets could be maximised. The receiver was particularly concerned about Altada’s employees (currently owed €636,830), who had not been paid for several months and whose continued support was critical to a deal.

Having regard to commercial realities, Healy reached an accord with the receiver in mid-December whereby he would not bring a court application challenging the validity of the security (potentially jeopardising the sale) so long as the distribution of the proceeds of the transaction was put on ice. Matheson agreed to a January 13 deadline on disbursement but would not agree to a subsequent request for a two-week extension as the situation evolved.

That evolution was brought about by Datech re-entering the picture this time as a bidder offering to buy Altada for an undisclosed sum that would pay off all preferential creditors in full and set aside €1 million for the costs of the liquidation and the unsecured creditors. The offer, said to be supported by 75 per cent of the company’s non-management shareholders, envisioned the retention of the firm’s 32 staff.

Healy forwarded the bid to the receiver on December 16. He was informed by Matheson on January 10 that O’Dwyer had concluded a contract with Goulding’s Cometglaze, based on an offer the liquidator believed would result in an inferior outcome for the general body of creditors when compared with Datech’s bid.

Revenue rows in

Which brings matters to the court hearing this morning, January 11. Barrister David Whelan, for the liquidator, sought and secured greater visibility of the terms of the Goulding offer that would allow him to properly evaluate the rival bids. He also secured an agreement from the receiver that if the sale went ahead, the proceeds would not be disbursed before January 27. Barrister Declan Murphy, for the receiver, said there was a brewing row as to whether the receiver will be allowed to give the money to the debenture holders, commenting that Healy’s report did not “augur well”. 

In his submissions to the court, Arthur Cunningham, counsel for the Revenue, raised serious concerns that Altada’s directors had acted without authority in applying security to the half million euro bridging loan. He said Revenue, owed €1.6 million in preferential debt, would object to the sale of Altada by a receiver not in lawful custody of the company’s assets. “Very often Revenue is neutral but it has taken a firm view on this,” counsel added, raising the spectre of injunctive action.

The Healy report

Aside from the debenture the liquidator in his report has also raised concerns about some of the spending at Altada, particularly around foreign travel and directors claiming round sum expense payments. While he doesn’t specify any items, filings show the company owes Stein Slatterys’ travel €133,190 and Trip Actions €125,685.

Since his appointment, John Healy says he has been informed that a number of former employees have filed complaints with the Workplace Relations Commission.

The directors of the company Allan Beechinor and Niamh Parker have been cooperative and filed a statement of affairs, the court heard.

Shareholders in Altada include Princeton Capital Ventures (34.16 per cent), Oysterhaven Ventures (26.96 per cent), Allan Beechinor (11.12 per cent), Niamh Parker (10.11 per cent) and Enterprise Ireland (4.97 per cent).

Preserving the pie

Eversheds Sutherland solicitor Graham Kenny, for the company, told the court staff had not been paid for five months. They understood the company was to be sold this week and would leave if the sales process went on any longer. He reminded the judge that the employees were of intrinsic value to the IP of the tech company. “We’re carving up a pie that may be gone after this court hearing,” he said.

He said if accepted, the competing offer by Datech would result in the staff and directors of Altada walking out.

The €500,000 loan last autumn had been part of a broader funding round, he added by way of context.

Justice Cregan called it a “bit of a conundrum”. He asked the parties to convene over lunch and then apprise the court on whether Revenue or the liquidator would try and injunct Altada’s disposal.

Instead in the afternoon session, he was told by counsel for the liquidator that after extensive discussions, the parties had decided to work towards achieving a sale of the assets before the week ends. While it was “too early to say”, the court heard there had been some exploration as to whether the liquidator could participate in a joint sale without prejudice to the concerns he had raised in his report. 

Revenue accepted this position, saying it was important to distinguish between the sale and the distribution of assets – suggesting a big row may have been delayed rather than averted.

The case is back for mention next week.