MQG forced sale of stake in mortgage aggregator Connective

Some MQG-relevant highlights from AFR article "Chairman ‘dishonest’, MD ‘lied’: scathing Connective decision"

The mortgage broking industry is reeling after a judgment against the country’s biggest aggregator could change ownership from Macquarie to Liberty Financial.

In a little known 13-year legal battle, Slea Pty versus Connective, and the 458-page judgment handed down in the Supreme Court of Victoria on March 22 by Justice Ross Robson, caused a collective face-palm. The judgment is epic in terms of its scale and findings. Though Connective has made it clear it will appeal against the decision, the judgment is unsettling because it finds Connective’s managing director Glenn Lees and executive director and shareholder Mark Haron were unfit to act as company directors and breached director duties.

The judgment found that Slea, which is owned by Sof Tsialtas, suffered oppression as a minority shareholder when it was restructured and a 25 per cent stake was sold to Macquarie Group “in the deal of the century” without his knowledge. “I am satisfied that [Mr Lees] and Mr Haron have engaged in a decade-long campaign to eliminate Slea as a shareholder: first by ‘starving out’ Mr Tsialtas; and later (when Mr Tsialtas managed to secure financial support), by engaging in various types of oppressive conduct, including improperly effecting the restructure and sale,” the judgment says. “After the restructure, and unbeknown to Slea, a 25 per cent interest in Group, and thus the business, was sold to Macquarie. The restructure and sale to Macquarie form part of the alleged oppressive conduct and are also critical parts of the derivative claim.”

The court ordered Macquarie to unwind its shareholding at the purchase price – $5 million – not the much higher current valuation, and granted Tsialtas the right to buy the majority shares in the company. It means the new ownership structure of Connective could be very different from what it is today with non-bank lender ASX-listed Liberty Financial looming large as a major shareholder. Liberty funded the litigation on behalf of Tsialtas and came to an agreement that it could acquire two-thirds of Connective if the case was successful and Tsialtas, who resigned from Connective in 2008 and is Liberty’s national sales manager, would retain his 33 per cent share in Connective.

Macquarie was also castigated. “I am also satisfied that the directors breached their duties as directors, by negotiating and agreeing to the sale to Macquarie without soliciting other offers, or otherwise as alleged,” Justice Robson said. “I am satisfied that, at all relevant times, Macquarie had knowledge of the matters referred to above and was therefore on notice of the breaches by the directors of their duties as directors, and should therefore be held liable as a knowing participant for any damage or loss flowing from the breaches.”

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No idea what the holding would be valued out now, but if it was a $5M initial purchase then even it's worth a lot of multiple of that the forced sale would still not really be a big deal given the size of MQG, perhaps not a good look to have been involved though.