‘Capital raising is dead’: Failed fintech Sargon has its finances put under microscope

A former board director of failed superannuation fintech venture Sargon said he was assured the company’s founder, Phillip Kingston, could find $31 million to complete its purchase of a trustee service business even after a critical capital raising was deemed “dead”.

Stephen Conroy, a former minister in the Rudd and Gillard Labor governments and a one-time Sargon director, and Fiona Borelli, the former company secretary, gave evidence about the venture’s finances in the Federal Court on Tuesday morning.

The Federal Court is examining the finances of Sargon, founded by Phillip Kingston (pictured in 2019).Credit: Arsineh Houspian

Kingston was bankrupted in December over a $154 million debt to financier China Insurance Group Finance Company, a lending arm of state-backed China Taiping. The matter is back before the Federal Court as liquidators question witnesses about Sargon’s finances, including allegations of potentially trading while insolvent.

Conroy, who joined Sargon in April 2019, was questioned about his knowledge of the company’s acquisition of Diversa, a trustee service business. The court heard that in October 2019, Kingston emailed Conroy and other board members about the best-, worst- and middle-case scenarios to raise capital from stockbroker Wilsons for the Diversa transaction the following month.

The email noted the best-case scenario was raising $21 million from Wilsons, the middle-case was raising $10 million and the worst-case scenario was being unable to receive any funds from the stockbroker.

When asked by barrister Michael Rose, acting for liquidators Joseph Hayes and Andrew McCabe from Wexted Advisors, whether he thought those funding scenarios were achievable, Conroy responded: “Based on this representation [from Kingston], yes.”

However, on November 20, 2018, investment banker Matthew Kibble emailed Kingston, Conroy and other board members: “In terms of Wilsons, capital raising is dead.” Kibble noted the terms of the sale had been amended so Sargon would pay a deferred purchase price of $31 million by May 2020.

“The discussion at that board meeting also discussed what was represented by Kingston … to draw on payments made to Taiping,” Conroy told the court. “Representations made by Kingston was $15 million could be redrawn and available to the company.

“There was a small amount of money that would need to be raised that was indicated around the board table would be raised.”

When asked if he had taken any steps to independently verify Kingston’s claims about available funding sources, Conroy said he relied on the founder’s assurances.

Former federal Labor minister Stephen Conroy was also a former board director at Sargon. Credit: Andrew Meares

Sargon went into administration on January 29, 2020, following a loan repayment demand from China Taiping.

Borelli, who was married to Kingston until they separated in 2020, said she had not turned her mind to Sargon’s solvency until it went into receivership in January that year. She said she did not recall any discussions at board meetings in which concerns were raised about the company’s finances.

“I can’t recall [when I turned my attention to the company’s solvency] because it wasn’t an acute concern until receivers were appointed,” Borelli said. “No circumstances I was aware of that would give me [rise for concern].”

She said she could not remember if she had turned her attention to the company’s financial viability after share purchase variation agreements with Diversa were entered into, but said she was not concerned about Sargon’s solvency in December 2019.

Sargon had more than $55 billion in assets under trusteeship and supervision and had billed itself as offering the “next-generation trustee cloud infrastructure”. It attracted several high-profile people to its board, including Conroy and former Crown Resorts executive chairman Robert Rankin.

According to an April 2020 administrators report, Wexted identified three years of rapid expansion, and reliance on equity funding and debt to meet working capital requirements and interest repayments as the reasons for Sargon’s failure. The report was based on preliminary information and early investigations.

The administrators report stated Sargon might have been potentially insolvent from October 2019 following the accrual of quarterly interest payments due in September 2019 under the Taiping note. It also noted the directors might have defences available, including that “the director had reasonable grounds to expect, and did expect, that the company was solvent at that time and would continue to be solvent if it incurred the debt”.

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