Public Hearing of the Parliamentary Joint Committee on Corporations and Financial Services – August 17, 2018

Following a meeting the MP Steve Irons in January 2018:

Meeting with Steve Irons

Meeting with Steve Irons – update

issues relating to lack of ASIC action in regards to LWP Technologies were raised by Steve Irons at the public hearing of the Parliamentary Joint Committee on Corporations and Financial Services.

August 17, 2018 Public Hearing Transcript

CHAIR: I’ve got some questions for Mr Day, if you’d like to come to the table. Mr Day, I wrote to you earlier this year about an issue which I know is paramount to a lot of mum-and-dad investors around Australia. The type of activity that I wrote to you about was about a particular company called LWP Technologies, and I presented with that letter a raft of evidence that had been submitted to me by several people around Australia who’d been caught up in, potentially, losses we saw through a public company of $47 million. That company still to this day is under suspension—it has been for some time—on the stock exchange. It might be self-imposed, but it’s still under suspension. In your response to me you stated that there were privacy conditions and you couldn’t disclose what the situation was with LWP. Unfortunately, I can’t accept that as an answer, and I think that the mum-and-dad investors and people around Australia need to have confidence in our financial system and that you as, corporate cops on the beat, are prepared to pursue people, particularly the gentleman who was mentioned in a lot of correspondence which I forwarded, a Mr Corbin, who will also be reflected in our franchising inquiry. Can you give an answer to at least—and I know a lot of people are listening to my questions because I told them I was going to ask you, and they’ll be interested to hear your response about what ASIC is doing and where they’re at with it, particularly in relation to the fact that your previous response was inadequate. I’ll pass it over to you, and I might have some more questions depending on your answer.

Mr Day : Yes, we have received information from you. We’ve also received a lot of information in relation to LWP Technologies from a number of other parties, so there’s information there that we’ve been going through. As you point out, LWP’s market capitalisation was $50 million in mid-2015. It went into a trading suspension in August 2017. It’s still in that trading suspension at the moment, and, just before that trading suspension, its market capitalisation was $6 million. A range of issues have been raised with us. Those relate to certain joint ventures and certain technologies that the company was involved with and also the development of new products that were supposedly being developed by LWP as part of that. From the sort of information that’s been provided to us at the moment, the allegations surround things such as insider trading, undisclosed related party transactions, manipulation of the share price, financial reporting irregularities, and misleading statements, certainly regarding research and development claims.

So we have received a lot of information. We’re continuing our inquiries in that respect, and we’re looking at those at the moment. We’re also collecting, as I say, further information, as we need to, about that. We’re not in a position at the moment to give any further information. We don’t really want to talk about that further, as you’d appreciate, for a whole range of reasons. Our surveillance and considerations in matters such as this are confidential. And, again, we have an enforcement guidance note on our website that says why that is. There are a lot of good reasons for that. As I said, this is not a matter that we have, if you like, finalised; this is a matter that we’re still considering at this time. I would like to be able to provide you with more information at the first opportunity, but, at this stage, I don’t think I can.

CHAIR: Considering that they’ve been suspended since August 2017, surely that’s some sort of indication. And there must be some sort of time line that you can give us. What’s the expected response time when you’ll be able to say whether or not you’re going to take any action?

Mr Day : I want to be clear that, in relation to the suspension, that’s a matter for the Australian Stock Exchange. That’s not a matter for us. It’s the Stock Exchange that has put them under suspension.

CHAIR: It’s a flag.

Mr Day : It’s a flag to them, and, obviously, it is a flag to us in some circumstances as well. But, in relation to that, we expect that, within about the next four to six weeks, we’ll be close to completion of our inquiries and consideration of that matter. Certainly by the time we’re here before you again, we will be able to give you an update, but I would hope to be able to provide you with a response in that time frame.

CHAIR: I’ll definitely look forward to that, because, with the amount of money that’s involved for mum-and-dad investors, the question will be: why wouldn’t we pursue this? And I know you can’t answer that, but with these type of activities that I’ve seen, I would say that a good question will be: why won’t we pursue it if we don’t pursue it? 

CHAIR: Mr Day, I have another question which will lead into my colleague’s questioning. You might not be able to answer this but can you update us on the position of the insolvent trading investigations for franchise retail brands. Sean Corbin, Bruce Dwyer and Bill Velkovski, who were all involved in the franchise retail brands, were all subjects of misconduct complaints in relation to LWP Technologies. How can investor and franchise retail brands be expected to make an informed decision to invest when they are not aware of the complaints about LWP? And are the new phoenixing regulations that the government’s introduced going to assist in investors being able to make those informed decisions?

CHAIR: Do you mean in relation to the franchising reforms? Was that were you referring to just then The franchise retail brands?

Mr Day : Yes.

CHAIR: No, I’m talking about the new phoenixing for directors.

Mr Day : The complaints that might exist, they are complaints. Complaints that are made to ASIC are generally kept confidential but we have a guide about when it is that we will make public comment on those things. As at the moment, that’s all they are. That said, in relation to the complaints that might exist, as a matter of public record, there may in fact be a blog that exists in relation to the issues that some people have with Mr Corbin. So I think an open accessible by all the public search could identify those. But our circumstances are that the complaints made to ASIC are not public in that respect. The nature of them certainly is not public and you would understand why there’s value in that. So, in relation to that, I think the answer would be no. We are aware of the other relationships that Mr Corbin has, to other organisations, and those are things that we obviously would be taking into consideration.

LWP Technologies AGM

On 28 June, 2018 LWP Technolgies held its Annual General Meeting.

The Chairman’s address to Shareholders confirms our view that there has been a systematic regulatory failure by both the ASX and ASIC in allowing the many instances of misconduct to go unpunished and to take little or no action against the directors involved.

LWP Technologies – A Regulatory Failure

In his address, the Chairman confirms that ASIC is making investigations into this company.  This investigation is on the back of a Shareholder meeting with Steve Irons and subsequent update of ASIC Investigates LWP Technologies.  This is the first time that the company itself has acknowledged that an investigation is ongoing.  This investigation would not have occurred without pressure from shareholders and the assistance of MP Steve Irons.

The Chairman also confirms that despite Milestone shares being issued to the vendors and shareholders of EcoPropp which included former LWP directors Siegfried Konig and David Henson, key steps to formalise the proposed Joint Venture had not occurred.  Representatives form Hallmark Minerals in India visited Australia to discuss the Joint Venture with LWP Technologies and advised they wished to withdraw.   If these key steps, including formulation of a Joint Venture company and certain investment milestones, have not occurred then just what was the $933,000 of expenditure for this Joint Venture actually spent on?

At LWP’s May 2015 EGM, a variation to Milestone 3 was approved:

In the July 2015 announcement regarding the agreement with Hallmark Minerals that triggered Milestones 2 and 3, a Heads of Agreement is referred to, not a Joint Venture.

This is a key difference as a Heads of Agreement is a non binding agreement that is a preliminary step to a Joint Venture.  According to company announcements, the Joint Venture agreement was not finalised until some 12 months later.  Subsequent company announcements have highlighted that conditions precedent to this agreement were never completed.  In addition, by using an incorrect VWAP to calculate the number of shares to be issued through these milestones, in excess of $400,000 of shares were incorrectly issued to vendors and shareholders of EcoPropp.  The independant director to the EcoPropp transaction was former LWP director Sean Corbin.

Complaints were submitted to ASIC in early 2016 regarding the incorrect awarding of Milestone shares as well as the wrong price being used to calculate the number to be issued.  This was also reported to the ASX a number of times throughout 2016 with no action taken other than a remedial sale of shares by Siegfried Konig and David Henson requried.

Advice from the ASX at the time was that it was up to the company to determine whether these Milestones had been completed.

The chairman also mentions social media in his address.  In this instance social media and the ability to share information and research has been crucial in getting to the point we are now at where ASIC is investigating.  ASIC does not take the decision to investigate based on rumours and innuendo, they rely on facts and evidence.  LWP blamed the share price performance on social media a number of times:  in February 2016 where there was a sell off by shareholders who had discovered the illegal director trading using shell companies which preceded the trading suspension in April and also in July 2017 where LWP again blamed social media for the sell off following shareholders uncovering serious issues with the Graphene battery Joint Venture.  Not long after, the photos of the ice cream machine laboratory surfaced.

The Chairman is correct in his reference to ASIC Information Sheet 152: Public Comment.  ASIC do not make public comment on investigations and at this stage, all we know is that they are investigating.

ASIC Investigates LWP Technologies

We have previously provided updates regarding a meeting held with Federal MP Steve Irons, Chair of the Joint Parliamentary Committee on Corporations and Financial Services that oversees ASIC.

On 23 January, a meeting was held with Steve Irons to discuss the issues surrounding the conduct of the directors of this company.

Meeting with Steve Irons MP

Subsequently, Steve Irons confirmed that he had met with James Shipton, ASIC chairman, to raise these issues in person.  He handed over a detailed report into the business dealings of LWP Technologies and the conduct of LWP directors both past and present.

Meeting with Steve Irons MP – Update

We can now confirm that ASIC has commenced investigations into LWP Technologies with Steve Irons receiving a preliminary report from ASIC.  Steve now intends to meet again with James Shipton to discuss the issues raised in more detail.  Further updates will be provided in due course.

 

 

Meeting with Steve Irons – Update

Previously we updated that a former LWP shareholder, representing past and current shareholders, met with Steve Irons MP – Chair of the Parliamentary Joint Committee on Corporations and Financial Services.

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Steve Irons has now confirmed that he has met with ASIC chairman James Shipton, discussing this company and handing over documentation on behalf of shareholders.  This included a detailed report into the business dealings of LWP Technologies, the conduct of LWP directors both past and present, and a brief on the recent developments involving ex director Sean Corbin at Franchise Retail Brands.

We look forward to a further update following this meeting.

Sean Corbin – Phoenix Rising

It looks like ex-LWP director Sean Corbin is up to his old tricks again. His latest escapade bears all the hallmarks of director phoenix activity.
Illegal director phoenix activity.

Word came through this week that Corbin’s Franchise Retail Brands has been placed in administration. The foul stench that is now lingering has all the hallmarks of a Corbin swiftie.

Previously, we wrote about the shady early days of Franchise Retail Brands which was created by ex-LWP directors Corbin and Siegfried Konig using LWP shareholder funds in an undisclosed related party transaction which the ASX ordered to be reversed. Corbin and Konig disputed this ruling despite being the donor, advisor and receiver of these funds under 3 different entities.

A recent Courier Mail article (Franchise Retail Brands in Liquidation) reveals that Franchise Retail Brands closed the doors owing more than $500,000 to creditors. Of note is the fact that some of the Mexican outlets had gone to a new Franchising operation. It just so happens that Corbin recently registered a new Franchising operation – Phoenix Franchising.

Illegal Phoenix Activity

Illegal (e.g. fraudulent) phoenix activity generally involves company directors deliberately trying to avoid paying the company’s creditors. In this way, the directors seek to avoid paying any creditors including employees through the failed company’s liquidation.

To carry out a Phoenix operation, pre insolvency advisers, or “facilitators”, manipulate the corporate system by installing “dummy” directors in companies to shield the real directors from liquidators, creditors and the Australian Taxation Office (ATO), and were even able to backdate those appointments in the Australian Securities and Investments Commission’s (ASIC) system to make it appear the dummy director had been in place for much longer.

Dummy Directors

Directors Sean Corbin, William Ehmcke and Bill Velkovski were replaced with Blagoja Velkovski and Bruce Dwyer as directors of Franchise Retail Brands shortly before being placed into administration. William Ehmcke was replaced just one day before the administration event.

Assets stripped

Several of Franchise Retail Brands former Mexican outlets look to have moved to Corbin’s new Franchising Venture, leaving the $500,000 owed to creditors and investor losses in excess of $5 million in his wake.

 

It is hard to work out whether Corbin is incredibly stupid or confident that his network of associates enabling such activity and the toothless tiger reputation of ASIC will allow him to carry on.

A complaint has been made to the regulator in anticipation that they will realise that this is more than just the gripes of a few malcontent’s. So over to you ASIC.

ASIC are you there?
Hello?

Meeting with Steve Irons MP – Chair of the Parliamentary Joint Committee on Corporations and Financial Services

On 23 January 2018, a former LWP shareholder, representing past and current shareholders, met with Steve Irons MP – Chair of the Parliamentary Joint Committee on Corporations and Financial Services. This committee monitors and reviews the activities of ASIC. Steve Irons had previously raised this issue on behalf of shareholders with Kelly O’Dwyer MP, Minister for Revenue and Financial Services, and agreed to this follow up meeting to discuss LWP Technologies and the failings of ASIC and to see if he could assist through his role as Chair of the committee overseeing ASIC.

General issues raised included the history of the directors involved and their long history of questionable business dealings that have gone unchecked by ASIC, the general lack of accountability of ASIC and their inability to step in when there is evidence of misconduct and the lack of regulatory action despite more than 2 years of complaints made by shareholders.

Steve Irons was impressed with the work undertaken by shareholders and conceded that better scrutiny by ASIC in regards to corporate governance is required.

The outcome of this meeting was positive with Steve Irons confirming that he will raise this issue with ASIC directly when he meets with them on 24 January and again next week when he meets with James Shipton, the ASIC chairman.

LWP Technologies – Finalisation of Graphenera Court Proceedings

LWP has recently finalised its Court Case with VVV Technologies over the failed Graphenera Joint Venture.

Previously, ex-LWP Technologies director Siegfried Konig had dismissed the company lawyer and self represented – failing to address the serious issues with the case raised at the previous hearing and as a result, full costs were awarded to VVV Technologies.  According to court documentation sighted, the full cost submission by VVV Technologies came to an amount $134,678 however an objection was lodged by LWP Technologies and a settlement amount of $95,000 was agreed to by both parties as per the ASX announcement released on 1 December.  The reasons for the objections are unknown.

Court documentation also suggest that Konig has continued treating shareholders, and the new management team, with contempt by failing to notify the new management team of the costs submission and witholding information from the new management team.

From the Affidavit of David Clarke, LWP Company Secretary:

Konig had the Order of Costs statement sent to his personal address on 13 October 2017 yet only made LWP management aware of this document nearly 3 weeks later on 2 November – which is the same day his employment was terminated.  Was this the straw that finally broke the camels back and led to Konig being shown the door by the new team?

 

LWP Cancellation of Only Commercial JV

In typical LWP fashion, yesterday’s twin announcements about terminating their business arrangements with Hallmark thus cancelling their only commercial project as well as initiating an independent legal review of the companies undertakings raises more questions than it answers.

Recent announcements confirm that LWP have not acted in line with their continuous disclosure obligations.  The termination of their only commercial deal leaves them with no way to produce any proppants having also recently decommissioned their Clontarf pilot plant.  LWP raised funds for the Pune plant in 2015 and raised further cash in 2016 with the Lanstead funding arrangement but now find themselves with little cash and facing the prospects of a hefty ATO bill for making a erroneous R&D rebate application.

The numerous breaches of the ASX Listing Rules and the Corporations Act have been well documented so shareholders can only hope that this is a truly independent review.  This is independent in the meaning of “free from outside control”, not independent like LWP’s Independent Test Results which were done by their own Chief Scientist.

LWP Technologies – A Regulatory Failure and Corporate Governance Disgrace.

Although the circumstances leading to the initiation of the legal review remain a mystery, the ASX has had a number of meetings with LWP over their appalling corporate governance record and their complete disregard for the ASX Listing Rules.  This also ties in with ASIC’s new Industry funding model where regulated entities wear the cost of investigation instead of the regulator.