As examinerships go, it went to the wire. The 100-day statutory deadline had passed. Fuelled by a bitter internecine battle between two of the company’s shareholders, the future of the insolvent Cork tech start-up Altada hung in the balance.

Yesterday afternoon, in the cramped confines of Court 21, Mr Justice Robert Haughton delivered a lengthy judgment in the High Court that will ensure the firm lives to fight another day. He approved proposals put forward by examiner Joseph Walsh to save the troubled company that had launched with aplomb two years ago, winning the accolade of ‘Tech Start-Up of the Year’ at the IT@Cork Awards in 2018.

The decision has immediate ramifications. Its ten employees have been spared redundancy. The company may even be poised for global opportunities in the coming months as it readies two of its AI data privacy products for the market.

A good outcome. But at great cost to the company’s three founders.

US financier and former Morgan Stanley banker Jeffrey Leo, who put up a solitary fight against examinership, has lost €1 million. His firm Steelworks bankrolled the start-up. Altada chief executive Allan Beechinor, who provided the AI technology nous to the enterprise, had his conduct criticised, even though he insists he has done nothing wrong. All documents have been sent to corporate watchdog, the ODCE. The third founder, Brendan Cannon of Canton Communications, played a largely silent role as the legal dispute over the company’s future unfolded over four months.

The High Court ruling means all the three stakeholders will see their shareholding in Altada completely wiped out as new investors from Ireland and the US, described as “high net individuals”, take the reins of the business.

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It all began so well for the three men in March 2017.

Beechinor joined forces with Leo and Cannon of Canton Communications to form Altada, which specialised in data privacy management. Cannon has an MBA in business and has previously worked in senior roles at Intel and as chief operating officer of data governance software company, Adaptive.

The company was set up to provide an artificial intelligence (AI) solution to the new GDPR rules across the European Union. Essentially, Altada’s technology identifies and classifies data in automatic compliance with GDPR and other data protection regimes such as the CCPA in California. Three software products went into development.

The shareholding in the company was split three ways between the founders. While they all pumped finance into the business, the start-up was primarily kept afloat, day to day, during its R&D phase by Leo, whose previous investments in Ireland were more typically in the hospitality sector. Ventures he has embarked on include the acquisition and renovation of the 220-acre Dundrum House Hotel and golf resort in Co Tipperary.

While Altada quickly garnered recognition for its tech prowess, being name-checked by global insights firm Gartner on its cool vendor list, its business fortunes started to head south in December 2018. There were tensions as Leo, through his company Steelworks, began to withdraw funding from the business, leaving it in severe difficulties with the Revenue Commissioners, currently owed around €252,594. The court heard Beechinor was under pressure finding money to pay staff.

It reached a crisis point last summer, by which time losses of €1.7 million had accrued. The company’s financial position was described in court as “extremely precarious”. Ultimately, Altada was insolvent.

The company’s workforce nosedived from a high of over 30 employees to just 10. The court heard two former employees have lodged claims with the Workplace Relations Commission.

The Altada corporate logo

To add to the company’s woes, Beechinor and Leo fell out.

A Circuit Court application by Beechinor for the appointment of an examiner to rescue the business was made in late July and rejected in September. Leo had staunchly opposed the move, preferring liquidation over salvation.

“This was disputed by his co-founders and much to the judge’s surprise, no formal written agreement had ever been entered into by the business partners, nor was any formal security put in place.”

The decision was then appealed to the High Court.

It came before Justice Haughton, who overturned the lower court’s ruling, believing efforts to keep the business afloat would be of potential benefit to the community, staff and the company itself. On September 20, nearly two months after the petition was first mooted, Joseph Walsh was appointed as examiner. The company finally had breathing space from its creditors.

Leo continued to oppose the process every step of the way, raising a swathe of objections both before and after Walsh’s appointment. He believed he had “nothing to show” for the money he had plugged into the venture. Just how much he had spent keeping Altada in business was disputed but Justice Haughton settled on a figure, slightly north of €1 million.

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There was more in contention. Leo insisted money advanced by his side to provide working capital was a loan and not an equity investment. This was disputed by his co-founders and much to the judge’s surprise, no formal written agreement had ever been entered into by the business partners, nor was any formal security put in place. Leo had acted as the company’s financial controller. Justice Haughton noted that efforts were made to regularise the situation in legal correspondence last summer but the dispute was exacerbated by the apparent refusal of Leo to make available the books and records of the company. A conditional offer by Leo to plug in six-figure funding was not agreed upon.

Another rift came to light, this time around Altada’s intellectual property, a key part of the software enterprise. Leo claimed, on affidavit, that his company Steelworks had been deceived. “I believe that there is no product or that it is not developed to the extent that it is merchantable and/or can be sold or launched in any way. This is the reason why I believe the examinership application was initiated: to hide and prevent any further analysis or consideration of the IP product such that the debt of Steelworks would be crammed down and the product could be divested, sold or traded and in some way hid behind the screen and protection of the proposed examinership,” he said in the sworn document. This was denied.

He urgently sought an external IP audit, which was ordered by Justice Haughton. Beechinor gave undertakings to the court to cooperate with the process which was undertaken, in part over the phone, by blue-chip law firm Mason Hayes & Curran. This was carried out to the satisfaction of the court. However, time constraints meant no valuation was put on the company’s IP rights. Haughton found Beechinor complied with his obligations. But the process did uncover, for the first time, an exclusive distribution contract from last May between the company and Beechinor’s firm Algodata for the exclusive distribution of the company’s product in France.

While Beechinor has signed away these residual IP rights, Haughton said this potentially important agreement should have been disclosed.

On October 7, day 69 of the examinership process, Walsh was granted an extension to the period of court protection, to the maximum 100 days allowed by statute, to give him more time to conduct creditors’ meetings and put forward rescue plans for Altada.

The court heard the US investor thought the company’s projections, anticipating monthly sales of around €500,000 from next February when the products go live, were conservative.

With the examinership in full swing, Walsh had expressions of interest from up to nine potential investors to deal with. Of that number, eight were provided with non-disclosure agreements. While the examiner said he would have considered Leo a “serious bidder” if he had put in a bid, the financier opted not to play the hand. In his ruling, Haughton said he had no doubt that this was due to a history of disputes and a “breakdown in trust” with Beechinor.

But one group of investors, led by US financier Peter Kearns of Princeton Capital, got off the blocks faster than the others. Kearns knew Beechinor from previous business dealings. He visited Altada in Cork, apparently pre-examinership and without the knowledge of Leo, and he liked what he saw. In a letter opened in court, dated August 20, Kearns outlined a 10-day stint of due diligence he had undertaken. He had reviewed Altada’s products, personnel and cash flow, and had got feedback from three multinationals around the software’s viability in the market. He remarked on the sophistication of the data tools, which he found particularly impressive given the small size of the team based in Cork.

The other bidders faded as Kearns’ proposals were favoured by the examiner. The court heard the US investor thought the company’s projections, anticipating monthly sales of around €500,000 from next February when the products go live, were conservative.

Kearns’ deal consisted of an offer of €410,000, and further capital if required, to buy out the business. The deal would be done through a special purpose investment vehicle called Flame Cairn Ltd. He also offered to pay the price of the examinership, including the legal fees, a total sum of around €220,000. This would be delivered upon a non-recoverable basis.

The investment proposal, adopted by the examiner, meant all of the current directors would have to resign while existing shareholders would be wiped out clean. A new board would have to be put in place.

Much of the IP value is directly tied-in to Allan Beechinor’s expertise in AI development and his continued journey with the business.

Kearns has also promised 81 separate sales leads for the company to pursue internationally, leads he confidently believes will generate revenue for the start-up. No names were mentioned in court, but there was a passing reference to a multinational tech firm where positive discussions have already taken place. The court also heard that Altada may require a sales representative in New York to capitalise on such opportunities.

With the end of the protection period closing in, Walsh duly put the scheme of arrangement before the court on November 5 for approval. The different classes of creditors had, in the majority, agreed to massive debt write-downs, in most cases receiving a 4.5 per cent dividend on money owed.

Of course the alternative for creditors, in a liquidation, was that they would receive in most cases literally nothing. In a winding-up, the company’s assets, mainly intellectual property rights, were valued at €100,000. As a going concern, the sum inflated to €305,000. Much of the IP value is directly tied-in to Allan Beechinor’s expertise in AI development and his continued journey with the business.

Leo was far from happy. Having put in over €1 million into Altada, as a creditor his firm Steelworks would get back just €47,000. He raised several objections to the examiner’s scheme of arrangement from the viability of the potential investor to an alleged lack of candour in the petition, alleged non-disclosure and alleged improprieties at Altada including claims Beechinor had set up phoenix companies to divert business away from the data solutions firm. These were all denied.

Having heard details of the salvation plan and Leo’s objections to it, Justice Haughton deferred his ruling in order to give the investment scheme his full appraisal.

Returning to court yesterday, he said he was satisfied the firm had a reasonable prospect of survival, a key test in approving an examinership proposal. He was swayed by the experience and wealth of the investor Kearns and his backers, a mix of US and Irish individuals and institutional investors keen to raise additional capital as and when the company grows. “[Kearns’] presence in the business is, I believe, vital to its success,” the judge said.

With particular reference to Leo, he said he did not believe any party’s interests were unfairly prejudiced by the scheme. In a winding-up of the company, Steelworks would get nothing.

He noted there had been “exaggeration” by Altada on an Enterprise Ireland funding application (yet to bear fruit) but thought it would be disproportionate to rule against the firm on such grounds.

Justice Haughton had a lot to consider.

On the issue of phoenix companies, Haughton accepted at “face-value” Beechinor’s contention that he had set up three companies last August, for purposes essentially unrelated to Altada. The judge was satisfied this was very unlike other cases in which phoenix companies have been established to take over a pre-existing company in an examinership.

He noted there had been “exaggeration” by Altada on an Enterprise Ireland funding application (yet to bear fruit) but thought it would be disproportionate to rule against the firm on such grounds. Similarly, evidence of a previous business relationship between Beechinor and Kearns did not trouble the court.

With the proposals confirmed and no order for costs made, Beechinor’s lawyers informed the court that their client “refutes that he has been anything other than honourable” adding that all papers would be sent to the ODCE.

There were some more pointed observations, however. Sworn evidence that Beechinor had discussed confidential business in front of his wife, and had spoken of allegedly withholding valuable source codes were denied by the chief executive “but not with any great precision”, Haughton found.

The judge formed the view that Beechinor “had little real understanding of his duties as a director, particularly his duty not to disclose information and not to compete with the company”.

However, Haughton noted, under the examiner’s proposals, Beechinor would cease to be a director and shareholder. Therefore the issue was essentially moot.

With the proposals confirmed, Beechinor’s lawyers informed the court that their client “refutes that he has been anything other than honourable”, adding that all papers would be sent to the ODCE.

Leo’s legal team reacted more strongly, with barrister Jarlath Ryan noting in the course of an application to shield the financier from any prospective costs order that “my client is more than merely a disappointed investor, he is calamitously at a loss”.