ASIC forced iSignthis to redo European demerger plan

ASIC has forced payments company iSignthis to rewrite its demerger prospectus to reveal a number of risks relating to its operations.

John Karantzis, iSignthis chief executive officer.

Controversial suspended payments company iSignthis has been forced by the corporate regulator to reissue a prospectus for the proposed demerger of its European business, revealing the company is registered in the tiny EU jurisdiction of Cyprus, may never list on an overseas exchange and that shareholders will not have the protection of Australian securities law.

In a trove of demerger documents issued on Wednesday, including articles of association and a memorandum of association translated into Greek, iSignthis laid out the spin off plans for its European arm, ISX Financial EU, as well as a number of key financial, operational and personal disclosures demanded by the Australian Securities and Investments Commission.

Then there is the $6.6m loan extended by iSignthis to the European business that can be paid in part or whole over the next 10 years. In the absence of a subsisting event of default, iSignthis has no right to require early repayment.

The risk factors associated with the demerger run for 20 pages.

A highlight is that the newly spun off company, located in Nicosia, Cyprus, could see its biggest shareholder and boss banned from running Australian companies with details in the replacement prospectus that ASIC is seeking declarations and pecuniary penalties against John Karantzis and seeking orders that he be disqualified from managing Australian corporations.

The investor document also highlights the civil proceedings brought by the corporate regulator against iSignthis CEO and major shareholder Mr Karantzis in relation to involvement in alleged breaches by iSignthis of its continuous disclosure obligations, alleged false and misleading representations under the Corporations Act and Mr Karantzis’s alleged breaches of his director’s duties.

Controversy, court battles and actions by numerous regulators is not new for iSignthis and wouldn‘t be a complete shock to its shareholders. The payments and anti-money laundering technology company’s shares listed on the ASX and rocketed almost 10-fold before being suspended from trade in late 2019 and have been frozen ever since.

Mr Karantzis responded by taking legal action against the ASX, claiming damages of just under $500m, and also invested in the National Stock Exchange to help fund a rival securities exchange in Australia. iSignthis and Mr Karantzis have also faced accusations of misdeeds by ASIC as well as by the ATO over claims of a $10m tax bill.

His latest corporate manoeuvre is to hive off the European payments arm of iSignthis into an unlisted public company, called ISX Financial EU, or ISXFEU, with a pro-rata distribution to iSignthis investors.

The supplementary prospectus said at some point the company will seek to list on an overseas exchange, although this also might never happen.

“Once ISXFEU has demerged, ISXFEU will be an unlisted public company. ISXFEU will then commence preparations for admission to a regulated securities exchange although the time frame for this is not yet determined.”

Based in Nicosia shareholders in iSignthis who receive stock in the European arm will not have the protection of Australian securities law.

“ISXFEU will not be subject to ASX Listing Rules, other exchange listing rules or relevant Australian law,” the prospectus reads.

The prospectus details how on August 30 ISX Financial EU issued a convertible note to iSignthis, under which iSignthis advanced $6.6m to its European arm which can elect to repay the loan in part or in whole at any time over the period of 10 years.

In a tweet posted on Wednesday Mr Karantzis thanked the corporate regulator for reviewing and waving through the replacement prospectus.