Mattress maker Sleeping Duck’s investor tells court his reputation attracted big-name retail interest

Online mattress retailer Sleeping Duck is going head to head with its angel investor, Adir Shiffman, in a Victorian Supreme Court trial in which he claims to have been frozen out.

Sleeping Duck founders Winston Wijeyeratne and Selvam Sinnappan at their warehouse in Mulgrave, Melbourne. Picture: David Geraghty

Retail giants Adairs and Temple and Webster expressed interest in buying shares in a start-up mattress e-tailer after an angel investor leant his “brand and reputation” to boost its value, the Victorian Supreme Court has heard.

But venture capitalist Adir Shiffman says its founders, Selvam Sinnappan and Winston Wijeyeratne, froze him out of his formerly “active” role in the company in November 2020 in favour of Prateek Bandopadhayay, who eventually received shares in the company Sleeping Duck, and diluted his stake in the business.

Dr Shiffman is seeking a shareholding of 20 per cent – and on the first day of a Victorian Supreme Court trial his barrister, Michael Borsky, KC, told the court he was “promised” shares and options in that range, amounting to more than $60m based on a $300m valuation of the company.

Catapult Group International executive chairman Adir Shiffman. Picture: Wayne Taylor

“Dr Shiffman helped to transform Sleeping Duck from a struggling small-time business into a very successful and valuable business,” Mr Borsky said. “He did (so) with an active involvement with the management and direction of the business, as was agreed from the outset of his involvement and investment.

“Later he was excluded … was not allowed to realise his investment. And exacerbating that was the dilution of his shareholding and the impairment of his ability to exercise his options by a secret arrangement which used company funds to assist the fourth defendant to acquire shares in the company.”

The court heard that Mr Sinappan and Mr Wijeyeratne leveraged from Dr Shiffman’s “brand and reputation”. Various emails and messages were used in evidence to demonstrate his involvement in the company, including mentoring, developing marketing ideas and staff recruitment strategies.

Mr Borsky said that from late 2018 to mid 2019, Dr Shiffman worked for the company based on “trust”.

“He was prepared to roll up his sleeves and do what was necessary,” he said. The court heard a number of valuations conducted priced the business in about 2020 – about the time of Covid-19 lockdowns – upwards of $300m, including VCF Capital Partners and Morgans which valued the company at “north of $300m”.

Bedding and homewares store Adairs expressed an interest in acquiring 40 per cent of the company at about $128m, which implied an enterprise value of about $310m, the court heard.

Online retailer Temple and Webster similarly showed an interest and were “comfortable taking a minimum stake” while there were also talks with Qantas to partner with the brand so customers could earn and redeem loyalty points with Sleeping Duck.

None of the partnerships eventuated. Dr Shiffman first identified Sleeping Duck, whose main competitor is online mattress and furniture store Koala, as a potential investment in October 2017. But their business relationship deteriorated, and from about November 2020 Dr Shiffman was “progressively” excluded from his active role in managing the company.

A message shown in court, between Dr Shiffman and Mr Wijeyeratne in October, detailed just how much the partnership soured.

“In 2019 you told everyone at the Xmas party how much I believed in you and Sel when the business was basically dead, and I invited you guys to a very personal event of mine and introduced you to my whole world,” Dr Shiffman said.

“In the intervening period I've been the same guy, but now it seems I’m basically irrelevant and inconsequential for you. When you chose to boot me out in preference for Prateek (Bandopadhayay) some months ago … we all agreed I’d become passive as part of a sell down.”

Dr Shiffman, Mr Sinappan and Mr Wijeyeratne were all in court on Monday. The case is set to resume on Tuesday, although a judicial mediation offer is available for parties as well.