Investors who propped up Salt Lake Potash with a $28 million equity raising six months before it went under in October were potentially misled by the company, according to an insolvency expert charged with investigating the failure.
Dermott McVeigh, a special purpose administrator put into Salt Lake and eight associated companies in December, believes the group could have breached stock exchange disclosure rules and the Corporations Act by not informing shareholders of ongoing problems at its Lake Way project near Wiluna when it raised the cash in May 2021.
Also, he says directors could have breached their duty of care by “failing to properly inform themselves” of the group’s “true position” in the lead-up to the raising, and may potentially be liable for up to $5 million of claims related to overseeing Salt Lake while it was insolvent.
“It is my view that the directors breached their duty imposed by Section 180 of the Act, which requires of them to act with the degree of care and diligence that a reasonable person in their position would exercise,” Mr McVeigh, the principal of Avior Consulting, said.
“In my opinion, based on the books and records available to me, the directors failed to properly inform themselves of the true position of (Salt Lake) in the lead up to the May 2021 capital raise.
“Had they done so, they would have uncovered significant delays to (Lake Way) and the unfeasibility of the plan presented to the market.
“More frequent board meetings, with timely, meaningful and understandable information, including progress against plan and targets, would have assisted directors in keeping themselves informed of (Salt Lake’s) position and take appropriate action to discharge their duties.
However, Salt Lake potash chairman and long-time resources investor Ian Middlemas has denied directors breached their obligations.
While Mr McVeigh believes the group was insolvent from October 5 — three weeks before it was put into administration — Mr Middlemas said the directors at all times believed that Salt Lake was able to raise more capital that would have enabled it to pay its debts as they fell due.
Administrators from KPMG, which appointed Mr McVeigh after Salt Lake collapsed on October 21, said in their statutory report that Mr Middlemas, on behalf of the board, had advised them “that the directors deny any breaches of obligation and would vigorously defend any insolvent trading claim brought against them”.
He had also rejected Mr McVeigh’s assertion that a “lack of co-operation” from directors, with the exception of former chief executive Tony Swiericzuk, “significantly ... hindered and protracted” Mr McVeigh’s investigations.
Mr Middlemas said he had abided by his statutory obligations in dealing with Mr McVeigh, adding in support of his arguments that he had provided a copy of his own communications with the special administrator to the corporate regulator.
According to McVeigh’s findings, which were sent to Salt Lake creditors along with KPMG’s report on Monday, Salt Lake’s fundraising presentation in May 2021 may have “led investors to believe” that Lake Way would achieve targeted production by June 2022, “which was unlikely to be achievable” because of production and operating delays.
Subsequently, Salt Lake may not have raised the cash “had the market been properly informed of (its) true position”, Mr McVeigh said.
The board eventually called in administrators after failed efforts to raise as much as another $90m to keep the group afloat.
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