Bubs chair sues founder Kristy Carr, Dennis Lin and draws in Joe Hockey over $1.35m payment

An advisory firm helmed by former Coalition federal treasurer and ambassador Joe Hockey has been drawn into a stoush between Bubs’ board and a group of dissident shareholders led by sacked chief executive Kristy Carr and former executive chairman Dennis Lin.

Bubs chair Katrina Rathie is suing Ms Carr and Mr Lin, accusing the pair of “undisciplined expenses”, including paying Mr Hockey’s Bondi Partners a bonus of $US900,000 ($1.35m) without disclosing it to the board.

Ms Carr and Mr Lin this month launched their own legal action against Bubs’ board, alleging bullying, harassment and that the company failed to provide a safe workplace.

According to federal court documents, Bubs entered an agreement with Bondi Partners worth more than $2m.

The firm had been advising Bubs on its US strategy, which was successful. It became one of the first infant formula brands to gain temporary import approval from the US Food and Drug Administration as part of US President Joe Biden’s Operation Fly Formula to help ease America’s baby food shortage.

Ms Carr even appeared on a video call with Mr Biden, who later endorsed Bubs on Twitter – a move that added $130m to Bubs' market value within four weeks in June last year. And in a trading update last week, the company revealed it reported its first $1m month on Amazon’s US site in May.

“While the existence of the Bondi Partners Agreement was disclosed to the board of the company, the terms of the Bondi Partners Agreement were not disclosed, particularly the bonus that would be due and payable by the company to Bondi Partners in July 2023, in the amount of $US900,000,” Bubs’ board has alleged in the court documents.

“(Ms) Carr was not authorised to enter into the Bondi Partners Agreement without disclosing the Bondi Partners bonus payment.”

The cross-claim also alleges that Ms Carr and Mr Lin engaged in “undisciplined expenditures”, including luxury clothing, accommodation and whisky and karaoke bars.

Analysis from McGrathNicol shows that the pair spent a total of $1.4m on expenses from January 1, 2022 to May 31, 2023.

Ms Carr rejected the allegations, saying that they were “untrue, baseless and are a transparent attempt to divert the attention of shareholders from the current board’s lack of a clear and articulable plan for the Bubs Australia business”.

“Throughout my time as CEO I have only ever spent company money on business activities, in the best interests of Bubs Australia. Any money spent by me has been properly accounted for and reported to the board on a monthly basis,” Ms Carr said.

“At no time has any of the money I spent been questioned or queried by the same directors who have now authorised the baseless and untrue allegations to be made against me.”

Mr Lin told The Australian on Sunday, in response to queries about a project to manufacture infant formula in China for the Chinese market, that he followed board directions “to a T”.

The court documents allege that Ms Carr spent $12,050 on five pieces of women’s clothing at Giorgio Armani in Melbourne on or about June 6 last year. Other expenses included $312 on an 80-minute massage at the Ritz Carlton in California last January; and $3807 on “personal flights” from Washington, US to Athens, Greece to “attend a cruise across the Greek Islands”.

The documents also allege that Ms Carr spent $74,800 renting a residential apartment in the Brisbane suburb of Teneriffe over an 88-week period.

“Following the termination of Carr’s employment, the company resolved to cease paying the rental expenses,” the documents state.

It is understood the apartment was used for board meetings during the pandemic when travel to Queensland was restricted.

The legal action alleges that Mr Lin spent $85,912 worth of expenses on “luxury accommodation”, including $70,432 on hotels in the ‘Ritz Carlton’ group, and $15,480 at the Mandarin Oriental Hotel Group.

“On May 23, 2022, (Mr) Lin used the credit card that was issued to him, and paid for by the company, to incur $2255 worth of expenses at the Ocean 12 cigar, whisky and karaoke bar atop Crown Melbourne – a casino and resort complex located in Melbourne – which were not authorised or properly incurred,” the court documents state.

The legal action alleges that on September 14, 2020, Mr Lin entered into a “strictly private and confidential agreement” with Citigroup under which Bubs would be required to pay a minimum fee of $4m in relation to any transaction the company entered into that would result in a change of control of the company, unless terminated by giving 12 months’ notice.

Ms Rathie said Bubs was taking steps to recoup the funds.

“The Bubs board does not resile from making the tough decisions needed to protect shareholder value. We are taking all the appropriate action to recoup funds that rightfully belong to our shareholders,” Ms Rathie said.

“It is important that shareholders are aware of these allegations and the facts as they consider who they can trust to act in their best interests.”

Ms Carr said she was first made aware of the allegations in the cross claim at midday on Wednesday, “apparently after the board had briefed media”.

“This smacks of desperation and a willingness of the board to say anything, irrespective of the truth, to try to sling mud in the hope that some shareholders will be fooled by these untrue allegations,” she said.

“All of this suggests that the board are seeking to play these allegations out in the media for the collateral purpose of prejudicing shareholders against me and Dennis Lin, and by association, the alternate board being proposed to shareholders.

“The board are doing this because they do not have a clear and articulable plan for the Bubs Australia business. If they had such a plan, they would focus on that rather than on making baseless allegations designed to get media headlines.

“You would have to also ask yourself why the board was so quick to brief the media on its cross claim when, as late as last week, Bubs Australia’s lawyers were asking the Federal Court to not release to the media the statement of claim Dennis Lin and I filed, purportedly because of their concern that the directors had not been able to respond to our allegations and it may prejudice shareholders.

“The behaviour of the board in leaking the cross claim to the media is entirely inconsistent with what their lawyers were telling the court.”

Ms Carr said she was “confident that the court will uphold the claims I have made against the board” over bullying and harassment.

“In the court, the board will have to back up the allegations they have made with facts and evidence. That is something they will not be able to do,” she said.

Investment banker and corporate adviser David Williams, who has been engaged by Ms Rathie to complete a review of Bubs, said it was crucial to stay focused on the financial viability of the company.

“This is not about the detail of who did what and what was working and what was not. This is about when do you admit I haven’t been able to change the downward trajectory on share price,” he said.

“Change is inevitable as sometimes the end game is financial distress.

“When shareholders wrestle back control, it is always unpleasant with allegations of ‘who did or said what’. This is no time for niceties, get over it and get on with it because shareholders are bleeding financially.

“It is urgent that shareholders not be complacent, take a moment to vote your proxy forms and back the new board.”

By JARED LYNCH

REPORTER