Just over a year ago, David Brown and Martin King said they were worth almost half a billion pounds between them. Now they’re bankrupt, or will be soon enough.
On Monday and Tuesday, Mr King, 55, was at the High Court in London to face a claim against the pair for millions of pounds of unpaid debts owed by Ve Interactive, the once highly valued startup they ran until March this year. He said they had filed for bankruptcy earlier this month “when we ran out of any other options”.
His co-defendant and long-time business partner, the man who was chief executive of Ve for eight years, was nowhere to be seen. Mr Brown, 45, was apparently at his home near Bilbao, Spain, with gastroenteritis and couldn’t afford the trip to London. “He’s without funds to be able to travel at the moment,” said Mr King.
The pair no longer had lawyers and were litigants in person. Their previous solicitors, Mischon de Reya, are owed £140,000, said Mr King, and are creditors in his bankruptcy proceedings. He apologised for “this embarrassing situation” and asked the judge to halt the legal action.
“I realise I’m pushing up a mountain here,” he said, a lone figure on the right hand side of the small courtroom facing the five-strong team assembled by Bank and Clients, the small private bank that lent Ve £2m last year.
Thomas Sprange QC, who spoke for Bank and Clients, called the defendants “dishonest businessmen”. He told the judge “you can never have any confidence that Mr Brown is going to tell the truth. Never. Because every time there’s a serious document where he has to, he doesn’t.” He added that the bank would pursue fraud claims.
The two businessmen previously led Ve Interactive, an adtech startup that had a £1.5bn valuation and was one of Britain’s handful of “unicorns”. They were ousted in March, their remaining shares later wiped out when Ve was bought out of administration for £2m.
The hearing revealed surprising new details about the startup, which raised over £150m in equity and debt fundraising from nearly 600 shareholders. It emerged that last year the company transferred hundreds of thousands of pounds to another business in which Mr King and Mr Brown (pictured above) held stakes even as Ve struggled to pay its own staff.
The case relates to a short-term loan from Bank and Clients to Ve Interactive that Mr King and Mr Brown arranged in October 2016. The £2m lent by the bank was to be repaid with interest by the end of March this year, plus a £1m “work fee”.
It was, said Mr Sprange, “a nice piece of business for the bank”. It was also a quick piece of business. The first meeting was on Friday 28th October and the money was in Ve Interactive’s account by the close of play on the following Monday, Halloween.
The loan was secured by personal guarantees from Mr King and Mr Brown, as Ve Interactive had convertible loan notes that meant Bank and Clients could not take security over the company without the agreement of the note holders.
Fatefully, when the pair were forced out of Ve Interactive in March by Treyew, a consortium led by shareholders Douglas Barrowman and Mark Pearson, as a condition for £3m of funding, the debt and personal guarantees remained. Mr King called it a Hobson’s choice: “Sign these forms or your staff don’t get paid.”
In April, Treyew bought Ve Interactive out of a pre-pack administration for £2m. Mr King and his partner were left on the hook for the debt, and now he was in a courtroom trying to defend himself against a top barrister.
Mr Sprange argued that the defendants’ had agreed to the personal guarantees, and that they had misled the bank about their wealth. He asked for a summary judgement in Bank and Clients’ favour, which means the case would not go to a full trial, and a worldwide freezing order on the pair’s assets.
Over the two-day hearing, Mr Sprange would repeatedly accuse Mr King and Mr Brown of dishonesty about the assets they disclosed to the bank, including Ve shares, property, directors’ loans, vehicles and shares in Thinkers HQ, a sister business to Ve that was legally separate but closely linked.
He also said they had failed to use the loan for the purposes they had claimed — working capital, payroll and domain costs — and cited records for the bank account into which the money was received.
Those records showed a £240,000 payment to Thinkers HQ soon after the loan money was received. Mr King said this was to cover Thinkers’ payroll and said the company had provided maintenance staff to Ve.
Mr Sprange said that Thinkers HQ had been valued at £15m in Mr Brown’s representations to the bank. “Yet they need to prop it up to keep it alive with the loan monies some few days later,” he said. Thinkers HQ is now in liquidation.
The bank statement also showed a £100,000 ‘personal guarantee fee’ payment to Mr King, which he said was to cover legal costs relating to a separate case he was involved with at the time, and £100,000 payment to Mr Brown. This was to cover costs Mr Brown had incurred in securing the Ve.com domain, said Mr King.
There was also a £23,000 payment to Travioor, a business owned by Mr Brown’s girlfriend, who was once an employee at Ve. Travioor’s UK arm is also in liquidation.
Mr Sprange directed much of his fire at the absent Mr Brown. He noted that Mr Brown’s attempt to complete an individual voluntary arrangement, wherein a debtor agrees with their creditors to pay back all or some of their debts over time, failed because he did not disclose a personal guarantee on a £5m debt.
Mr Sprange said Mr Brown had not told the bank that his home in Spain, which was offered as security, was jointly-owned with his girlfriend. When this was discovered, Mr Sprange said, Mr Brown told the bank his girlfriend would not consent to the security. “I’m not surprised she won’t consent since he didn’t tell her he was hocking it for the purposes of a personal guarantee,” said the barrister.
He highlighted an email from December 2016, in which Mr Brown wrote to his associates, including Mr King, “Between us girls, I’m holding stock for my ex, some that was going to Martin and other management. However, this is not what is being portrayed to external shareholders.” Later in the conversation, Mr Brown instructed Ve’s in-house lawyers to send Bank and Clients whatever share ownership information they had, “errors or not”.
Then there was a letter Mr Brown’s lawyers Mischon de Reya sent to the FT in May, in which it was stated that he had not taken a salary, expenses or used a company credit card for the two years up to the administration in April. This was “directly contradicted”, said Mr Sprange by bank statements for October and November 2015 that showed a £1m payment to Mr Brown. Mr King said this related to share sales.
Those same statements showed nearly £2m going to Mr King, who said they were a personal loan to him from Mr Brown from the proceeds of a sale of Mr Brown’s shares. “Maybe the way in which those funds were actually transferred to me was a shortcut rather than him transferring them to his Swiss account and then transferring them to me,” said Mr King.
Mr King tried his best to reply to the tsunami of accusations. He read from his laptop or from hastily scribbled notes, and struggled with the folders of evidence prepared against him by Bank and Clients. At first, he failed to spot the bundles sitting behind him and asked to be provided copies. The judge had to repeatedly remind him to stick to the evidence and specific claims. By the time the hearing closed it was unclear if he had made things better or worse.
“I’m an honest business person,” said Mr King, who resigned as a director of Ve in September 2016. He told the court that they had given the bank a “full and frank” disclosure of their assets in difficult and hurried circumstances. He said they had relied on others to “cross the Ts and dot the Is”. He said they had been led to believe the bank would take security over the company.
As the second day wore on, he became indignant about the accusations directed towards him. He jabbed his fingers on the desk and objected angrily to Mr Sprange’s “glib and fancy footwork”. “Calling me a liar, calling me a fraudster, is just not correct,” he said.
Mr King railed against Smith and Williamson, Ve’s administrators, and said there was an ongoing court action to remove them from the administration and seek damages. He fumed about Douglas Barrowman, who he described with a variety of epithets. “There’s a phrase: god don’t like ugly,” he said at one point. And he took aim at King & Spalding, Bank and Clients’ solicitors, for their role in the March transaction when Ve was taken over, asking why they had not used the opportunity to take security over the company.
He acknowledged that Ve’s corporate governance was not perfect. “We were riding a unicorn bare back, if you would like,” he said, but denied that he or Mr Brown were hiding any money. If they had hidden wealth, said Mr King, “we would not have allowed that takeover to have happened”.
And if Bank and Clients wanted to pursue fraud claims: “Bring it on, because I’ve got nothing to hide”.
The judge is due to return his judgment next week.
Ve Interactive, the unicorn that hates venture capital — FT Alphaville
Ve Interactive: Part Two — FT Alphaville
Is Ve Interactive really a unicorn? — FT Alphaville
Pearls of wisdom from the boss of tech unicorn Ve Interactive — FT Alphaville
Welcome to Ve Interactive, Stuart Chambers — FT Alphaville
British adtech unicorn Ve Interactive is in for a tough ride in 2017 — FT Alphaville
Former ARM chairman delays joining board of tech ‘unicorn’ Ve Interactive — FT Alphaville
Tech unicorn Ve Interactive struggles to pay salaries, but insists it’s raising fresh cash– FT Alphaville
Boss of troubled tech unicorn Ve Interactive steps aside — FT Alphaville
Ve Interactive, a “unicorn” no longer — FT Alphaville
UK tech start-up Ve Interactive looks to survive administration — FT.com
Ve Interactive: The rise and fall of a tech unicorn — FT Alphaville
Ve Interactive might not have actually owned its US branch — FT Alphaville
High Court restricts assets of former Ve Interactive boss — FT Alphaville
Cost-cutting drive at former unicorn Ve Interactive hits fifth of UK staff — FT Alphaville
Ve Interactive owed almost £10m by companies linked to founder — FT Alphaville
Another blow for the former boss of Ve Interactive — FT Alphaville