The anticipated appointment of liquidators to online grocer Supie would allow an investigation into legal action against a key investor who withdrew her $3 million underwrite at the last minute.

Administrators have scheduled the first creditors’ meetings for November 9, at which they recommend the company be moved into liquidation. Richard Nacey, from PwC, says their immediate priorities have been stabilising the situation and managing staff and stock levels. After that they will consider wider questions.

“As liquidators we will have an obligation to look at the affairs of the company and a more detailed look at the reasons for insolvency,” he says. “It’s not something that is going to generate immediate realisations. If there is a claim there, that is something that we will look to pursue.”

Supie’s last days: The cashflow crisis behind the smiles
* The Detail: Supie’s sidelined, so what’s next?

Newsroom has been told the board made its decisions based on an “unconditional, formal underwrite” provided by the investor, and that her decision to default on the underwrite* caused the company to file for administration.

A September 19 Icehouse email to investors says Supie had secured its full capital raise ($3 million on a $6m pre-money valuation) from an investor who had agreed to underwrite the entire fundraising round. This provided Supie sufficient capital to reach cashflow break-even.

Nacey says he doesn’t yet know how the investor justified withdrawing. “I haven’t spoken to her yet,” he says.

“We haven’t commenced any investigation into the circumstances around the investment. Therefore we’re not in a position to make any comment about whether or not there is likely to be a claim there for the voluntary administrators or the liquidators to pursue.”

Supie was incorporated in 2019 and began business in 2021 as a start-up, with the aim to introduce competition into the industry, as part of its mission to ensure all New Zealanders have access to affordable, healthy food. The group of three companies, employing 118 staff, was seeking investment to service its existing customers and expand to cover three-quarters of the North Island.

“As a start-up in the early years of its life, Supie was operating in a highly competitive market. While it had achieved strong revenue and customer growth over recent years, this had not been at the scale required for sustainable profitability.”

PwC administrators’ report

But Newsroom reported this week that it had run into cashflow problems at least six months ago, and on May 3 the company asked existing investors for a minimum of $1m in commitments – immediately.

Now, that’s confirmed by an administrator’s report, prepared for next week’s watershed creditors’ meeting. It shows that founder Sarah Balle and her fellow directors first approached PwC seeking help back in late April. “They had exhausted funding options and were looking to start an insolvency process,” the administrators say.

In early May, a significant investor stumped up enough funding to keep Supie going, underwriting the outstanding amounts of the funding round. It wasn’t until Friday, last week, that the directors came back to PwC to discuss a voluntary administration process following an investor notifying that they were ceasing funding to the companies.

Of the company’s 73,000 members, only 10,000 had actually shopped with Supie in the past two years, and only 3,500 remained active.

Going into the watershed meeting, the group of three companies has 370 trade creditors, one landlord and 4,357 customer creditors.

Among the trade creditors are some of the biggest names in New Zealand groceries supply and retail: Foodstuffs, Woolworths, Fonterra Brands, Silver Fern Farms, Tegel Foods, Anzco Foods, Heinz Watties, Frucor Suntory, Kellogg, Coca-Cola Amatil, Moana Seafood, Sealord, the global food giant Mars, and all the big liquor suppliers. 

“The duopoly can deliver competitive prices, as long as they aren’t cooperating with each other – and they’re not. They hate each other. They hate each other. They compete in a way that just make your eyes water.”

Barry Brown, corporate lawyer

As a start-up in the early years of its life, Supie was operating in a highly competitive market, one of the administrators’ reports says. “While it had achieved strong revenue and customer growth over recent years, this had not been at the scale required for sustainable profitability.

“This, coupled with a key investor ceasing to continue providing funding placed the group under significant financial pressure, which resulted in the director concluding that the companies needed to enter a formal insolvency process to avoid further creditor losses.”

Corporate law expert Barry Brown says there are two circumstances in which an investor might withdraw from a capital raise: if it wasn’t fully subscribed, or if their investment was contingent on achieving specified key business metrics like revenues, costs management, gross sales or net sales.

“There will be a raft of things that say, if when we get to the final day and any of these are not happening for any reason, then we have the right to withdraw. Because it’s the old story, you don’t want to put your money into into a black hole.

“What I suspect happened is, in the last weeks, the numbers have started looking pretty horrible.”

A profit and loss statement, summarised by the administrators, show Supie’s costs rising faster than its revenue, and a slowdown in new members. Additional profit and loss statements for sister companies Bevie Ltd (which was licensed to sell liquor) and Workerly Ltd (which employed the staff and sold their labour to Supie) are consistent with this.

Supie Ltd – profit and loss

Souce: PwC/Supie Ltd management accounts

Newsroom understands Supie’s growth in orders and revenue had fallen off in the final six weeks, in which the investor was perusing the books. But the company didn’t consider that to be a condition of the $3m underwrite.

If those metrics weren’t specified as conditions, Brown says, then the liquidator’s recourse is through the courts. “If it’s as they are now telling you, let them sue the investor and get the money.”

“I have difficulty believing that any good investor will go naked, will go unconditional on a business like Supie. Any investor worth their salt will have had conditions. I think it could have been a little bit of wishful thinking on the part of the part of the directors, that it was unconditional. But show me the money. Show me the unconditional written commitment. 

“I absolutely accept, though, that when that money didn’t turn up, the directors had no choice but to say sorry, we can’t continue. I get that. As soon as they realised they weren’t going to get the capital funding, they absolutely had no choice. But blaming the supermarkets – that’s total bullshit.”

Brown has had a long career representing both supermarkets and suppliers; he rejects the tough competitive environment as a cause for Supie’s demise.

He says start-ups, and even companies that have progressed as far as Supie, require cashflow. “You’ve got to have someone supporting you with very deep pockets to get through. And so all the stuff around blaming Foodstuffs and Countdown is just noise. It means the business model was not sustainable. It required too much luck.

“The supermarkets, they negotiate hard. But I’ll tell you what, suppliers negotiate even harder. And so if Supie wanted to be in that game, they’ve got to be on their game. And they’ve got to understand that critical mass is important.

“One of the problems with New Zealand is we’re a small country of just 5 million people, right? If there was room in New Zealand for a third operator, Aldi would have been in years ago. Aldi is a good operator. They’re in Australia. But no one’s gonna come in, in such a small market. 

“The duopoly can deliver competitive prices, as long as they aren’t cooperating with each other – and they’re not. They hate each other. They hate each other. They compete in a way that just make your eyes water. At every level.”

Dr Mona Yaghoubi is an expert in investment and cash flow volatility at the University of Canterbury. She’s aware of little in the way of regulation constraining an investor pulling out of a capital raise – so it’s all about contract law.

“It may just come down to who has the stronger lawyer, to be honest,” she says. “If there were no conditions in the agreement, I don’t think the investor could easily break it, even with the slowing growth. 

“But if I was the investor, and in my contract they gave me that option of pulling out, by not writing the contract correctly, then I would also break it! If I’m not obligated by law to go ahead with the contract, and if I see a slight decline in the growth, then that’s a risk I may not want to take.”

Yaghoubi says cashflow volatility is a challenge for many start-ups and early-stage businesses, and Supie was a small player in a big, difficult market. 

“I wouldn’t use them because I’d rather to go to the supermarket – I’m not like an online shopping type of person. And many other people are like that as well. And some customers might put an order in this week, but not need anything next week, so I think that in this case cashflow could be really volatile.”

Clarification: This article has been updated to make clear the $3m was an underwrite, rather than investment of the full amount.

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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