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[2025] NSWCA 244
respondent. Appeal dismissed with costs. The primary judge’s order for judgment in the sum of $2 million plus interest remained in place.
The appeal concerned how to value a technology start-up after the Companies’ business had been taken and later returned. The trial judge rejected both sides’ expert valuations. The Court of Appeal held that a recent, informed investment can help show a start-up’s minimum value, even if the investment is speculative and the business’s future remains uncertain. Axiom’s $2 million loan to fund Fletch’s acquisition and operation of the business was an important transaction. The Court found the evidence adequately supported a value of at least $2 million and dismissed Mr Birch’s appeal. It also held that the Business Sale Agreement’s price-adjustment provision was irrelevant because that agreement had been set aside.
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2,571 words · generated 06/10/2026
Birch v Bunbury [2025] NSWCA 244 is an appeal about the assessment of damages after a start-up business was acquired through a transaction the primary judge had found involved unconscionable conduct. The appeal was limited to the damages order. The findings that Mr Seymour breached fiduciary duties and that Mr Seymour and Mr Birch engaged in unconscionable conduct were not challenged ([15]).
8 cited instruments linked from this judgment.
The business was operated through 1derful Pty Ltd and The 1derful Group Pty Ltd. It used proprietary technology and relied on an agreement with Mastercard that, subject to regulatory approval, could support branded debit and credit cards with instalment and hybrid payment features ([4]). By mid-2023, the Companies faced serious financial difficulties. They had defaulted on a loan from PI Lorica Pty Ltd (PIL), faced unpaid creditors, and were dealing with a winding-up application ([5]–[7]).
Mr Birch had previously assisted the Companies with capital raising. In June 2023, he and Mr Seymour developed a plan to acquire the business through a special purpose vehicle, Fletch Capital Pty Ltd. The primary judge described steps including acquiring the PIL debt at a discount, demanding payment on very short notice, taking control of the assets, selling the business to Fletch without marketing or a valuation process, and appointing a receiver after the assets had been transferred ([9]). Axiom Properties Ltd, through a subsidiary, held most of Fletch’s shares and agreed to provide Fletch with an initial $2 million loan ([9]).
The business was sold to Fletch for $757,273, subject to an adjustment if a later valuation showed a higher value. No such valuation was performed. The primary judge ultimately set aside the Business Sale Agreement ([13(e)], [26]). The Companies elected to have the business returned and to receive compensation for its loss of value while outside their control ([16]–[17]).
At trial, both parties called valuation experts. The plaintiffs’ expert, Mr Davies, estimated a present enterprise value exceeding $29.7 million. His analysis depended on projected future revenue, adjustments and discounts. The defendants’ expert, Mr Kompos, valued the business at $69,000, later revised to $107,000, using earnings and an insolvency discount ([19]–[20]). The primary judge rejected both approaches because important assumptions were not adequately supported, and because each analysis had problems dealing with the start-up’s prospects and financial condition ([21]–[23]).
The primary judge relied instead on Mr Seymour’s statements to creditor representative Mr Kopp that the business was worth at least $2 million. The judge found that amount adequately supported a damages assessment, while expressing some concern that it might understate the business’s potential ([24]). Mr Birch appealed. The Court of Appeal dismissed the appeal with costs ([41]).
Ball JA, with Mitchelmore JA and McHugh JA agreeing, treated the question as one of the value of the business on 3 October 2023, when it was transferred to Fletch. It was common ground that the returned business had no value by the time it was transferred back ([18]).
The Court began with the proposition that value is a question of fact ([27]). It referred to the general market-value conception: what fully informed, freely contracting parties would offer and accept. The Court did not, however, treat valuation as a task that must always be performed through expert modelling or an earnings multiple. For a business whose value lies in its ability to produce income, future cash flows or maintainable earnings may be useful. But they are not the only methods, and may not be the best methods for a start-up ([28]).
That qualification mattered because both experts used future earnings approaches, but the primary judge had found problems with the assumptions needed to make either approach work. Mr Davies relied on projections without supporting evidence, and there was no rational evidentiary basis for adjusting those projections. Mr Kompos relied on current recurring revenue without adequately accounting for possible future growth in a start-up. There were also separate problems concerning Mastercard, the Companies’ financial risks, insolvency, personnel and customer assumptions ([21]–[23]).
The Court accepted that Mr Birch had substantial arguments against relying on Mr Seymour’s statements alone. The statements were opinions, the evidence did not establish the assumptions behind them or Mr Seymour’s relevant specialised knowledge, and the statements were made in discussions intended to persuade Mr Kopp not to obstruct the transaction. The Court observed that such statements may raise a question under Evidence Act 2005 (NSW), s 79 ([29]). But it did not need to resolve the appeal by treating those statements as the sole or decisive proof of value.
Instead, the Court considered actual transactions occurring around the valuation date: Axiom’s $2 million loan to Fletch, Fletch’s payment of $700,000 for the PIL debt of $942,326, and the purported sale of the business to Fletch for $757,273 ([30]). It regarded at least the first two as arm’s-length transactions between sufficiently informed participants ([31]). The purpose of Axiom’s loan was to enable Fletch to acquire and provide working capital for the business. The Court inferred that Axiom expected the loan to be repayable from the business, and that its investment decision reflected a view that the business was worth at least $2 million ([31]).
The Court also relied on the participants’ access to information and capacity to make enquiries. Axiom was a publicly listed company. Mr Birch had knowledge from his previous capital-raising work, and Mr Seymour had learned about the business while developing the plan. Mr Seymour had also met with Mastercard, putting him in a position to assess whether the relationship might continue ([31]). The Court acknowledged that the investment was speculative because the business carried substantial uncertainties, including uncertainty about Mastercard. It held that speculation did not, by itself, make the transactions irrelevant to value ([38]).
The transaction did not have to reflect perfect knowledge. “Full information” meant accurate information needed to decide what price to pay or accept, not certainty about every future event ([38]). The Court found no evidence that the relevant decisions were based on wrong or inadequate information about the business’s value. It concluded that the transactions adequately supported a minimum value of $2 million ([38], [40]).
The Court rejected the argument that the Business Sale Agreement’s price adjustment defeated the loss finding. That agreement had been set aside, making its adjustment provision irrelevant to the damages assessment ([26]). In any event, the provision could only increase the purchase price if a valuation was higher, and Fletch had effectively determined the original price ([39]).
The judgment presents itself as applying established valuation principles, not replacing them with a new statutory or common-law test. It cites earlier authorities for the proposition that value is a question of fact and for the general willing-buyer, willing-seller approach ([27]). It then explains how that approach can operate in the particular context of a start-up company.
Before this decision, the judgment’s account of the applicable approach already allowed for valuation by reference to future cash flows or maintainable earnings where suitable. The Court’s point is that such methods are not mandatory. Where a start-up’s revenue history offers a poor guide to its potential, a close-in-time investment by an informed investor may be more informative ([28]).
The judgment’s practical contribution is its application of that principle to a contested damages assessment. The Court did not say that any investment fixes a business’s value, or that a loan automatically establishes the value of the underlying business. It considered the purpose and timing of Axiom’s loan, the acquisition it funded, the knowledge and sophistication of the participants, and the absence of evidence that their decisions rested on relevant misinformation ([31], [38]). Those features supported the Court’s conclusion that the transaction was a good indication of minimum value in this case.
The Court also clarified what it meant by “full information” in this setting. Market participants need accurate information relevant to the price decision, but they need not possess perfect information or know the future with certainty ([38]). That is important for start-ups, whose prospects may be uncertain even where investors have made informed decisions.
The judgment does not displace the need to scrutinise a transaction’s circumstances. It expressly accepted that a single person’s willingness to pay does not necessarily determine value, although an informed person’s actual payment is a strong indication of a minimum value ([36]). The value conclusion remained fact-specific.
At [27], the Court stated: “The value of an asset is a question of fact.” In plain English, a court determines value from the evidence in the particular case. The judgment does not make expert evidence the exclusive route to that determination.
At [28], the Court said that for start-up companies, a better guide “may be the amount that an informed investor is willing to invest in the business for a particular share of it”, provided the investment occurred near the valuation date. The word “may” is important. The Court identifies a possible and sometimes useful indicator, not a formula that automatically determines value.
At [29], the Court accepted that Mr Seymour’s statements, considered alone, raised real concerns. It noted that the statements were opinions, that the evidence did not establish their basis or his relevant expertise, and that their purpose was to persuade Mr Kopp not to interfere with the transaction. In plain English, the Court did not endorse a general practice of proving value by relying on unsupported statements made during commercial negotiations.
At [31], the Court linked Axiom’s loan to the purpose of funding Fletch’s acquisition and working capital. It inferred that Axiom expected repayment from the business and had assessed the business as worth at least the amount invested. The reasoning depends on the surrounding circumstances and on the Court’s assessment that Axiom and the other participants could evaluate the business.
At [38], the Court explained that “full information” does not mean “perfect information”. It means accurate information that a buyer and seller need to make a price decision. In plain English, uncertainty about future events does not necessarily make an investment transaction useless as valuation evidence, provided the relevant decision-makers had accurate information about the material facts.
At [40], the Court stated that the availability of a potentially more reliable way to prove damages does not mean that it is the only permissible way. In plain English, a damages assessment can stand on an adequate evidentiary foundation even if another method might have produced a more precise estimate.
The decision is most relevant where a court must value a start-up or early-stage business at a historical date and conventional earnings-based expert valuations depend on uncertain projections. It may be useful where actual investment or acquisition transactions occurred close to the valuation date and evidence is available about the transactions’ purpose, participants, information and commercial context.
The reasoning is particularly pertinent where an investor funded a vehicle to acquire and operate the business, rather than making an unrelated or purely speculative investment. Here, the Court connected Axiom’s $2 million loan to the acquisition and working capital needs of the business ([31]). It also considered the knowledge and ability of the participants to make enquiries, and whether there was evidence of relevant misinformation ([31], [38]).
The case also addresses valuation where a business has material risks. The Companies faced serious financial difficulty and uncertainty about Mastercard. The Court did not treat those risks as irrelevant; it acknowledged the speculative nature of the investment. It concluded that the risk did not, by itself, negate the transaction’s evidentiary value ([38]).
The judgment is less directly supportive where the alleged market transaction is not at arm’s length, occurred at a materially different time, involved a participant without adequate information, or was not genuinely connected with acquiring or funding the business. The Court’s reasoning relies on the particular characteristics of the transactions before it. It does not establish that the face value of any loan or investment must be treated as the value of the business.
The decision may also arise where a party relies on informal statements about value. It cautions that such opinions may have limited weight without evidence of their factual basis and the speaker’s specialised knowledge ([29]). The result here rested on the transactions and surrounding evidence, not on a broad rule that statements of value are independently sufficient.
The judgment supplied for this analysis contains no later judicial decisions discussing or applying Birch v Bunbury. It was decided on 6 November 2025, and the text gives no account of subsequent treatment. No claim about its acceptance, limitation or development by later courts can therefore be grounded in this source.
Within Birch itself, Ball JA cited existing valuation authorities for the general principles and applied them to the evidence before the Court ([27]–[28]). The judgment refers to the primary judge’s two decisions in the 1derful proceedings as the procedural history and source of the findings under appeal, not as later treatment of Birch ([3], [15]).
For research purposes, the propositions to track in any later treatment are the non-exclusive status of earnings-based methods, the potential use of a recent informed investment as a start-up valuation indicator, and the judgment’s contextual definition of “full information” ([28], [38]). The judgment itself does not state how later courts will apply those propositions in different industries or transaction structures.
The decision leaves open how close in time an investment must be to the valuation date to provide a useful guide. At [28], the Court requires that the investment occur “at a time close to” the valuation question, but does not define a period or prescribe a test for temporal proximity.
It also leaves open how courts should measure the effect of investment terms. Axiom’s funding was a loan to Fletch, and the Court inferred that the loan could be repaid from the business. The judgment does not set out a general method for separating the value of the business from other sources of repayment, security, guarantees, strategic benefits, or terms specific to the investor.
The meaning of “full information” is described in general terms, but its application will depend on the transaction. The Court said it means accurate information needed to decide price, not perfect information ([38]). It did not catalogue which categories of information will ordinarily be necessary, or specify how a court should deal with a participant who knows some information but has not made every enquiry available.
The judgment also does not resolve the wider evidentiary question raised by Mr Seymour’s statements. It notes that bare market-participant opinions may not obviously satisfy Evidence Act 2005 (NSW), s 79, and that their weight may be difficult to assess without knowing their factual basis ([29]). The Court’s reliance on actual transactions meant it was unnecessary to determine the ultimate weight of those statements standing alone.
Finally, the Court did not prescribe when a court should prefer investment evidence over earnings-based modelling. It explains that a start-up investment may be a better guide and that damages need not be proved by the single most accurate available method ([28], [40]). The decision is a fact-specific illustration of those principles, not a complete valuation framework for all start-ups.
This is general legal information, not legal advice. Zoe can make mistakes. Before acting on, relying on or using this analysis, have it checked by a qualified Australian lawyer.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Birch v Bunbury [2025] NSWCA 244
Hearing dates: 29 September 2025
Date of orders: 6 November 2025
Decision date: 06 November 2025
Before: Mitchelmore JA at [1]
McHugh JA at [2]
Ball JA at [3]
Decision: Appeal be dismissed with costs.
Catchwords: DAMAGES – assessment of damages for statutory unconscionable conduct and breach of fiduciary duties in acquisition of company – valuation of start‑up company – where primary judge rejected expert valuation reports from plaintiff and defendants – whether primary judge erred in relying on statements by defendant to creditor as to the value of the company
Legislation Cited: Australian Consumer Law, ss 21, 22
Australian Securities and Investments Commission Act 2001 (Cth), s 12CB
Evidence Act 2005 (NSW), s 79
Cases Cited: Blacktown City Council v Concato (No 4) [2020] NSWSC 9
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54
Hall v Busst (1960) 104 CLR 206 at 220-221; [1960] HCA
In the matter of 1derful Pty Limited [2024] NSWSC 1414
In the matter of 1derful Pty Limited (No 2) [2024] NSWSC 1670
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; [1998] HCA 69
Pages Property Investments Pty Ltd v Boros [2018] NSWSC 986
Payne v Commissioner of Taxation (Cth) (1934) 51 CLR 197; [1934] HCA 7
Spencer v The Commonwealth (1907) 5 CLR 418; [1907] HCA 82
Category: Principal judgment
Parties: Michael Birch (Appellant)
Luke Bunbury (First Respondent)
St Jean CF Pty Ltd (Second Respondent)
1derful Pty Ltd (Third Respondent)
The 1derful Group Pty Ltd (Fourth Respondent)
Representation: Counsel:
A Cheshire SC with DA Pittavino (Appellant)
RJ Boadle (Second to Fourth Respondents)
Solicitors:
SMB Law (Appellant)
Gillis Delaney Lawyers (Second to Fourth Respondents)
File Number(s): 2025/21338
Publication restriction: None
[This headnote is not to be read as part of the judgment]
Through two companies he controlled, 1derful Pty Limited (1derful) and The 1derful Group Pty Limited (1derful Group) (together, the Companies), the first respondent, Mr Luke Bunbury, established a business in 2021 using proprietary technology, and relying on an Agreement with Mastercard, which would, subject to regulatory approval, permit particular businesses to provide branded debit and credit cards that had instalment and hybrid payment options.
By mid-2023, the Companies were in serious financial difficulties. In April 2023 one of 1derful’s creditors, brought an application to wind up 1derful in the Supreme Court of Victoria. The Companies had a number of other creditors who had also not been paid. On 25 May 2023, Mastercard wrote to Mr Bunbury asserting that 1derful was operating in breach of the Mastercard rules and obligations and demanding payment of $871,000. Mastercard subsequently suspended the Agreement and outlined a “pathway” for 1derful to resume its membership.
Mr Birch (the appellant), who had previously assisted the Companies to raise capital, advised Mr Bunbury that in view of the winding up application it would be impossible for the Companies to raise further capital. In that context, in late June 2023, Mr Birch and Mr Jack Dahan, who Mr Birch had introduced to Mr Bunbury and who also had previously assisted the Companies to raise capital, approached Mr Craig Seymour, a management consultant, to develop a strategy to delay or to set aside the winding up process so that the Companies could complete a proposed capital raising.
Mr Seymour and Mr Birch developed a plan, without Mr Bunbury’s knowledge, to acquire the Companies’ business. To execute the plan, Mr Seymour and Mr Birch established a special purpose vehicle, Fletch Capital Pty Ltd (Fletch). Fletch then acquired the debt the Companies owed to PI Lorica Pty Ltd (PIL) at a discount, and demanded the debt within a very short period of time, knowing (through Messrs Seymour and Birch) that the Companies could not pay that debt within that time. Fletch then purported to exercise the power of controller to sell the Companies’ business to itself without marketing or taking any steps to identify the value of the business. Fletch carried out several other steps, culminating in the appointment of a receiver to the Companies knowing that no assets remained in them so that no steps could easily be taken to recover those assets.
Two companies, controlled by Mr Seymour and Mr Birch respectively, each held five shares in Fletch. The remaining 70 shares were held by Axiom Properties Ltd, a publicly listed company, through a wholly owned subsidiary, Axiom Investment Holdings Pty Ltd (together, Axiom). Axiom had agreed to provide Fletch with initial capital of $2 million in the form of a loan.
The primary judge, Black J, found that in carrying out the plan, Mr Seymour breached fiduciary duties he owed the Companies, and that both Mr Seymour and Mr Birch engaged in unconscionable conduct in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) or s 21 of the Australian Consumer Law in connection with the sale.
Both the plaintiffs and the defendants at trial led evidence from experts on the calculation of the Companies’ loss. Both analyses depended on the application of a multiple to future maintainable earnings. The primary judge rejected both approaches for different reasons. In essence, the primary judge formed the view that neither approach provided a rational basis to assess the true value of the Companies. Instead, his Honour found that the view expressed by Mr Seymour to Mr Kopp, a director of one of the Companies’ creditors, that the value of the business was at least $2 million, provided an adequate foundation for concluding that the value of the business was at least that amount.
The appellant raised multiple grounds of appeal directed to the appropriateness of the primary judge’s reliance upon Mr Seymour’s statements to Mr Kopp as a reliable indicator of value. First, Mr Birch contended that the plaintiffs could have called reliable expert evidence on the question of value. Second, Mr Birch contended that the statements were not reliable because neither the assumptions on which they were based nor the knowledge, experience and expertise of Mr Seymour in relation to making assessments of value were established. Third, that Mr Seymour did not make the statements for the purposes of expressing his opinion on value but rather for the purpose of ensuring the transaction would proceed.
The Court (Ball JA, Mitchelmore and McHugh JJA agreeing) held, dismissing the appeal:
(1) The value of an asset is a question of fact. Approximating a business’ value by estimating its future cash flows will not always be the best method of determining value. In the case of start-up companies, for example, a better guide to the value of a business may be the amount that an informed investor is willing to invest in the business for a particular share of it, provided the investment occurred at a time close to when the question of value arises. Accordingly, the primary judge was not required to rely on expert valuation reports: [27]-[28].
Payne v Commissioner of Taxation (Cth) (1934) 51 CLR 197; [1934] HCA 7; Hall v Busst (1960) 104 CLR 206; [1960] HCA 84; Blacktown City Council v Concato (No 4) [2020] NSWSC 9; Pages Property Investments Pty Ltd v Boros [2018] NSWSC 986, cited.
(2) Mr Seymour must have learned about the Companies’ business in the course of formulating the plan with Mr Birch. Both were sophisticated businessmen who could make whatever enquiries they thought were appropriate for the purposes of pursuing the plan to acquire the Companies’ business. Moreover, Mr Seymour met with Mastercard and consequently was in a good position to make an assessment of whether an agreement could be reached with Mastercard for it to continue to provide services in connection with the business. It was in that context that Mr Birch and Mr Seymour together with Axiom (a publicly listed company) invested in Fletch and Axiom lent Fletch an initial amount of $2 million. That was a market transaction which provided a good indication of the minimum value of the Companies’ business: [31].
(3) In relation to the transaction itself, the precise reasoning process engaged in by the participants is irrelevant to the question of value. What is relevant is the decisions they made, provided those decisions were based on full information. There was no evidence in this case that the decisions made by Axiom, Mr Birch and Mr Seymour were based on wrong or inadequate information relevant to the value of the business. “Full information” in this context does not mean perfect information. Rather, it means accurate information that the buyer and seller need to make a decision about what price to pay or to accept for the asset. For those reasons, the relevant transactions are a good indication of the minimum value of the business at the time: [38].
MITCHELMORE JA: I agree with Ball JA.
McHUGH JA: I agree with Ball JA.
BALL JA: This is an appeal by the third defendant in the Court below, Mr Michael Birch, against the following order made by the primary judge (Black J) on 3 July 2025:
“7 Judgment for the Third Plaintiff and Fourth Plaintiff against the First Defendant, Second Defendant, and Third Defendant, jointly and severally, in the sum of $2 million plus interest under s 100 of the Civil Procedure Act 2005 (NSW).”
That order, among others, was made following the delivery of two judgments by the primary judge: see In the matter of 1derful Pty Limited [2024] NSWSC 1414 (PJ1) and In the matter of 1derful Pty Limited (No 2) [2024] NSWSC 1670 (PJ2). The first of those, delivered on 8 November 2024, dealt with extensive claims made by the plaintiffs against the defendants arising from the sale of the business carried on by the third plaintiff, 1derful Pty Limited (1derful), and the fourth plaintiff, The 1derful Group Pty Limited (1derful Group) (together, the Companies), to the first defendant, Fletch Capital Pty Ltd (Fletch). The claims included claims that the second and third defendants had breached fiduciary duties they owed to the Companies and that the first to third defendants had engaged in unconscionable conduct in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) or s 21 of the Australian Consumer Law (ACL) in connection with the sale. The second judgment, delivered on 23 December 2024, dealt with the orders that should be made in the light of elections made by the plaintiffs following delivery of the first judgment. As is apparent, the only order that is the subject of appeal is the order for the payment of damages.
In 2021, the first respondent, Mr Luke Bunbury, established through the Companies a business using proprietary technology, and relying on a licence agreement with Mastercard, which, subject to regulatory approval, would permit particular businesses to provide branded debit and credit cards that had instalment and hybrid payment options. Mr Bunbury was a director and the chief executive officer of the Companies. He and his wife each held 17,500 shares in 1derful Group. A further 10,000,000 shares of the 13,130,540 shares issued by 1derful Group were held by the second respondent, St Jean CF Pty Ltd (St Jean). Mr Bunbury and his wife each owned 50% of the shares in St Jean. 1derful Group owned all the shares in 1derful.
By mid-2023, the Companies were in serious financial difficulties. On 31 January 2023, 1derful had entered into a facility agreement and a general security deed with PI Lorica Pty Ltd (PIL) to borrow $322,000 for a period of two months at an interest rate of 36%. 1derful’s obligations under the agreement were guaranteed by 1derful Group and Mr Bunbury and the obligations of the Companies were secured by charges given by them over all their assets. By an amended loan agreement dated 2 March 2023, the amount of the loan was increased by $261,000. By 31 March 2023, 1derful had defaulted in repaying the increased loan amount.
On 24 April 2023, Think Grow Pty Ltd (Think Grow), one of 1derful’s creditors, brought an application to wind up 1derful in the Supreme Court of Victoria (an earlier application by another creditor had been dismissed). The Companies had a number of other creditors who had not been paid including CK Advisory Group Pty Ltd in its own right and as trustee for CK Investment Trust trading as Fifo Capital Northern Beaches (FIFO Capital). The evidence suggests that FIFO Capital was owed approximately $700,000. That loan was apparently the subject of a second ranking security, although neither the relevant loan agreement nor the security appears to be in evidence.
On 25 May 2023, Mastercard wrote to Mr Bunbury asserting that 1derful was operating in breach of the Mastercard rules and obligations of a principal member, which entitled Mastercard to take action, including termination of membership, and demanding payment of an outstanding amount of $871,000. Mastercard subsequently (on 31 July 2023) suspended the Mastercard agreement and outlined a “pathway” for 1derful to resume its principal membership activity with Mastercard.
On 19 June 2023, Mr Birch, who had through a company in which he had an interest, MDC Trilogy, previously assisted the Companies to raise capital, advised Mr Bunbury that in view of the winding up application it would be impossible for the Companies to raise further capital. In that context, in late June 2023, Mr Birch and Mr Jack Dahan from Hennessey Capital Partners Pty Ltd, who Mr Birch had introduced to Mr Bunbury and who also had previously assisted the Companies to raise capital, approached Mr Craig Seymour, a management consultant, to develop a strategy to delay or to set aside the winding up process so that the Companies could complete a proposed capital raising. Mr Seymour and Mr Birch had been friends since childhood.
“… a plan for Fletch to acquire the Companies’ business by, first, acquiring at a discount the debt of PIL owed by the Companies; then demanding payment of the debt within a very short time, knowing (through Messrs Seymour and Birch) that the Companies could not pay that debt within that short time; then purportedly exercising the power of controller to sell the Companies’ business to itself without marketing or taking any steps to identify the value of that business; then transferring the shareholding held by 1derful in 1derful Lending to Fletch, to allow it to obtain its Australian credit licence, and then causing that Australian credit licence to be reissued to 1derful Lending under the changed name of APL Lending Pty Ltd (‘APL Lending’); and finally appointing a receiver to the Companies knowing that no assets remained in them so that no steps could be easily taken to recover those assets.”
Fletch had been established as a special purpose vehicle to carry out the plan. Two companies, controlled by Mr Seymour and Mr Birch respectively, each held five shares in Fletch. The remaining 70 shares were held by Axiom Properties Ltd, a publicly listed company, through a wholly owned subsidiary, Axiom Investment Holdings Pty Ltd (together, Axiom). Axiom had agreed to provide Fletch with initial capital of $2,000,000 in the form of a loan.
Importantly for present purposes, in connection with his retainer, Mr Seymour had several discussions with Mr Mathias Kopp, a director of FIFO Capital, principally it seems to ensure that FIFO Capital would not seek to recover its own debt immediately. One of the conversations occurred on 16 August 2023. According to Mr Kopp, who was not cross-examined, during that conversation Mr Seymour outlined the plan to him, and told him that “$2 million would go into the SPV [special purpose vehicle]”, that Mr Seymour was meeting with Mastercard the following day and hoped to negotiate, if Mastercard received their payment of $1 million, repayment of the $1 million by way of “incentive payment”, and that there was “a $1.2 million R&D claim to be lodged [with the government] as well”.
Mr Kopp and Mr Seymour had a further telephone conversation on 28 August 2023 in which Mr Seymour told Mr Kopp that he expected Fletch to acquire the PIL debt the following day. Mr Kopp asked whether that would cause a problem for FIFO Capital. Mr Seymour replied that the outcome for FIFO Capital would be no different than in a liquidation and that “The debt owing to [PIL] was $912,000. If the valuation comes back at $2 million, then there would be enough money to pay FIFO Capital”. The reference to a “valuation” here appears to have anticipated what became the sale price adjustment mechanism in the Business Sale Agreement referred to at [13(e)] below. Later the same day, they had another conversation in which Mr Seymour said in response to a statement by Mr Kopp that FIFO Capital would only get paid if the valuation of the assets were greater than $2 million that “Yes, that is correct. But the assets are worth at least $2 million every day of the week”. Mr Kopp says in his affidavit that later, in the same conversation, Mr Seymour said:
“I have done a back of the envelope valuation exercise and, let me tell you, that is not far off what happens in the insolvency world anyway, and I can’t see this being worth less than $2 million. So the customers are worth something, the strategy is worth something, the credit license, the agreements, there is the code.
…
If I was advising a purchaser, which I am not, if they had $2 million and I would not advise someone to go into this with only $2 million, but if they had $2 million, I would advise them to get control of the assets, pay [PIL] $1 million and stand in their shoes, pay Mastercard $1 million, get $1 million back, pay FIFO and get on with it, that way you don’t have to account to anyone.”
Mr Kopp also said in his affidavit, in response to evidence given by Mr Seymour, that “Mr Seymour had made several statements to me during the months prior to October 2023, that FIFO Capital would be repaid and that 1derful was worth at least $2 million”.
In accordance with the plan:
(a) By a deed of assignment dated 25 September 2023, between PIL and Fletch, PIL assigned to Fletch all of its rights, title and interest in relation to the facility agreement and security deed for the sum of $700,000. By that time, the total amount owing to PIL was $942,326; (b) On 26 September 2023, PIL gave notice of that assignment to the Companies and Mr Bunbury; (c) On 27 September 2023, the winding up application brought by Think Grow was dismissed, Fletch gave the Companies notice of the assignment and demanded payment of the outstanding debt of $942,326 by 4.00 pm on that same day; (d) At 4.29 pm on 27 September 2023, Fletch gave the Companies notice that because its demand had not been met it was entering into possession and taking control of the Companies’ assets, including its business, pursuant to cl 8.1 of the security deed; (e) On 3 October 2023, Fletch, in its capacity as controller, purported pursuant to a Business Sale Agreement (the BSA) to sell to itself the assets of the Companies including their business for the sum of $757,273 exclusive of GST. Under cl 7 of the BSA, the sale price was subject to be increased to reflect any increase in the value of the assets following a valuation of them. That valuation was never undertaken. As the primary judge found at PJ1[199], the sale also took place without any marketing campaign or attempts at a sale to other potential purchasers; (f) Also on 3 October 2023, Fletch passed a written resolution purportedly as sole shareholder appointing Mr Seymour in place of Mr Bunbury as sole director of 1derful. In addition, Fletch, purportedly exercising powers under the security that had been assigned to it, transferred the shares of 1derful Lending Pty Ltd, a wholly owned subsidiary of 1derful, to itself; (g) On 13 October 2023, Fletch and PIL jointly appointed Mr Mitchell Ball as receiver of the Companies’ assets; (h) On 16 October 2023, the Australian credit licence held by 1derful Lending was reissued in the name of APL Lending, a company controlled by Fletch.
By an originating process filed on 7 November 2023, Mr Bunbury and St Jean brought, with leave, a derivative action in the name of the Companies claiming a wide range of relief against Fletch, Mr Seymour and Mr Birch arising out of what had happened.
In PJ1, the primary judge relevantly found that Mr Seymour (but not Mr Birch) had breached fiduciary duties he owed to the Companies (PJ1[231]) and that Fletch knowingly assisted in that breach (PJ1[242]). The primary judge also found that both Mr Seymour and Mr Birch engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act or the corresponding provision in s 21 of the ACL: PJ1[278], [288]. None of those findings is challenged on appeal.
As his Honour observed, as a result of his conclusions, the Companies were required to elect between potentially inconsistent remedies, such as proprietary remedies in the form of a declaration that Fletch held the whole of the business transferred to it on a constructive trust in favour of the Companies or alternatively an injunction requiring a return of the business and compensation for the loss of value of the business while it had been in Fletch’s hands.
Ultimately, the Companies elected for a remedy of an injunction requiring return of the business and compensation for the loss of value of the business. His Honour dealt with the precise form of orders that should be made in PJ2. As I have explained, the only order that is challenged on appeal is order 7, which is set out above.
Both the plaintiffs and the defendants at trial led evidence from experts on the calculation of the Companies’ loss. It was common ground between the experts, and accepted by the primary judge, that the business that was transferred to Fletch had no value by the time that it was transferred back to the Companies. The question was what the value of the business was at the time that it was transferred to Fletch – that is, on 3 October 2023.
The plaintiffs led evidence from Mr Paul Davies who expressed the opinion that the then present value of the adjusted enterprise value was in excess of $29.7 million. The primary judge summarised Mr Davies’ approach in these terms at PJ1[40]):
“Mr Davies had used revenue per customer figures and identified the number of customers falling within particular cohorts, based upon a third party’s contemporaneous projection, to derive an implied enterprise valuation by reference to the Companies’ H1 2024 projected revenues. He reached an unadjusted enterprise value of in excess of $33.7 million by that method, which he then increased by applying a control premium of 27.5% and discounted for a lack of marketability by 19.1%, and applied a further discount factor to take account of, inter alia, the risks attached to the Companies’ business to achieve present value of the adjusted enterprise value of the Companies of in excess of $29.7 million.”
The defendants led evidence from Mr George Kompos. He valued the Companies’ business at $69,000, which in a second report was adjusted to $107,000 to take account of criticisms of his earlier report. In reaching the earlier figure, Mr Kompos applied a multiple, derived from comparable company data, to the Companies’ earnings to arrive at a figure of $343,126. He then discounted that figure by 80% to take account of the fact that the Companies were insolvent as at the date of valuation.
The primary judge rejected both approaches. Both analyses depended on the application of a multiple to future maintainable earnings. In estimating the future maintainable earning of the business, Mr Davies relied on the contemporaneous projection made by a third party of 1derful’s future sales and revenue. However, there was no evidence that supported those projections and no evidence that would permit his Honour to make rational adjustments to the figure used by Mr Davies: PJ1[44]. On the other hand, Mr Kompos used 1derful’s recurring revenue at the valuation date without making any adjustment for expected future increases in revenue. The primary judge considered that that approach was particularly inappropriate when dealing with a startup company. But again, there was no information before his Honour that permitted him to make rational adjustments to the figures used by Mr Kompos: PJ1[52].
The primary judge also thought that there were other problems with both reports. Mr Davies assumed that 1derful would be able to reinstate its agreement with Mastercard. However, the primary judge concluded that “the evidence does not provide a sufficient basis to find that relationship would be reinstated while the Companies retained the business, and were in real financial difficulty” (PJ1[44]). In addition, the valuation assumed that the Companies would remain in business “in circumstances that their substantial financial difficulties suggested a probability that it would fail in the short to middle term” and there was no basis to think that a discounted figure adopted by Mr Davies “was sufficient to adjust for the substantial risk that then existed in the Companies’ business”: PJ1[44].
On the other hand, Mr Kompos’s analysis assumed that the Companies were insolvent. That assumption, however, had not been proved: PJ1[46]. Mr Kompos also assumed that key personnel had departed 1derful at the valuation date without explaining the significance of that fact and made other assumptions concerning 1derful’s existing customers that were not correct (although Mr Kompos did make adjustments in his second report to take account of the last of these points): PJ1[48]. The primary judge also thought that Mr Kompos’s valuation was inconsistent with what occurred at the time:
“Mr Kompos’ assessment of the value of the Companies’ business was significantly less than Mr Seymour’s contemporaneous assessment of its value as not less than $2 million, to which I refer below, and also significantly less than the amount that Fletch and its (then) parent company, Axiom, an apparently informed purchaser which was assisted by Messrs Seymour and Birch who were plainly sophisticated market participants, was prepared to pay PIL to secure the opportunity to acquire the business by the exercise of security. That difference likely reflects the fact that Mr Seymour and Fletch both rightly recognised that the value of the Companies’ business to a purchaser was largely a matter of its potential and its technology rather than its then revenue and Mr Kompos’ valuation, as I noted above, had not adequately accounted for that potential.” [PJ1[57]]
“I consider that I can properly take a robust approach as to damages where the Defendants’ conduct took the business out of the Companies hands and had the result that its future performance in the Companies’ hands, which would have underpinned its then value, cannot now be known with certainty. I have not neglected Mr Cheshire’s submission that Mr Davies (whose evidence I addressed above) did not identify any difficulty in ‘working out damages’ by identifying ‘records that ought to have been available but were not.’ That submission does give sufficient weight to the real difficulty that, obviously enough, a start up company could never have records of, or know as a fact, the future growth in the revenue of a business that it was prevented from conducting. For these reasons, I accept that Mr Seymour’s contemporaneous assessment of the value of the business as at least $2 million as sufficiently reliable evidence of its then value and I adopt that figure in preference to the much higher value derived by Mr Davies and the lower values derived by Mr Kompos. I am left with a lingering unease that I should have been more robust and adopted a higher value to reflect the potential of that business, notwithstanding the then suspension of the Mastercard Agreement and the Companies’ critical financial difficulties. An appellate court may have the opportunity to address that question, and possibly the wider difficulties in the valuation of start-up technology companies, if an appeal is brought from this judgment.”
“6 The primary judge erred in holding that the Third and Fourth Respondents had suffered loss when there was a mechanism for the price to be adjusted in accordance with the value of the business.”
Ground 6 can be put to one side. The mechanism for adjusting the price was contained in the BSA. By order 2 of the orders made on 23 December 2024 by the primary judge, “[t]he Business Sale Agreement of 3 October 2023 between the Third Plaintiff and Fourth Plaintiff and the First Defendant is void and is set aside”. Consequently, it was irrelevant to the assessment of damages.
The value of an asset is a question of fact: Payne v Commissioner of Taxation (Cth) (1934) 51 CLR 197 at 206-207 (Gavan Duffy CJ, Evatt and McTiernan JJ); [1934] HCA 7; Hall v Busst (1960) 104 CLR 206 at 220-221; [1960] HCA 84 (Fullagar J); Blacktown City Council v Concato (No 4) [2020] NSWSC 9 at [80] (Campbell J); Pages Property Investments Pty Ltd v Boros [2018] NSWSC 986 at [26] (Lindsay J). Generally speaking, the value of an asset is the price at which a willing but not anxious seller and a willing but not anxious buyer knowing all the facts relevant to their decision to sell and to buy would exchange the asset. As McHugh, Hayne and Callinan JJ said in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 514; [1998] HCA 69, referring to the judgments of Griffiths CJ and Isaacs J in Spencer v The Commonwealth (1907) 5 CLR 418 at 431-2, 441; [1907] HCA 82:
“[T]he value of what in fact was acquired is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it.”
It follows that the minimum value of an asset is the price that a willing but not anxious fully informed purchaser is willing to pay for it.
Where the value of an asset consists solely of its ability to generate income – such as a business – and there is no relevant market transaction by which value can be assessed, it will often be possible to approximate value by estimating the future cashflows of the business and determining the present value of those cashflows or by applying a multiple to estimated maintainable earnings. But they are not the sole or always necessarily the best methods of determining value in the sense stated earlier. In the case of start-up companies, for example, a better guide to the value of a business may be the amount that an informed investor is willing to invest in the business for a particular share of it, provided the investment occurred at a time close to when the question of value arises.
There is considerable force in the points made by Mr Birch that the mere statement by a market participant about value ought to carry little if any weight. Statements of that type are statements of opinion that do not obviously satisfy the requirements of s 79 of the Evidence Act 2005 (NSW) (that is, that it is a statement based on the person’s specialised knowledge). Moreover, it is impossible to assess the weight of the opinion without knowing the facts on which it was based. Taken alone, the statements made by Mr Seymour to Mr Kopp fall into that category. Moreover, as Mr Birch points out, the statements made by Mr Seymour were not directed at informing Mr Kopp about the value of the Companies’ business but were directed at persuading Mr Kopp not to take any steps to prevent the sale of the business to Fletch from proceeding.
That, however, is not the end of the matter. As at the date the value of the business is to be assessed, there were transactions consisting of the following:
(a) The provision of a loan to Fletch of $2 million by Axiom; (b) The payment by Fletch of $700,000 to acquire the debt of $942,326 owed to PIL; (c) The sale by the Companies (controlled by Fletch) of the business carried on by the Companies to Fletch for $757,273 exclusive of GST.
At least the first and second of those amount to market transactions, in the sense that they were at arm’s length between sufficiently informed participants. It is reasonable to infer from those transactions that the value of the business was at least $2 million reflecting the amount of the initial loan from Axiom. It is plain that the purpose of that loan was to enable Fletch, a special purpose vehicle, to acquire the business carried on by the Companies and to provide working capital for that business. Consequently, at the time that Axiom advanced the money, it must have thought that the loan could be repaid from the business. That is, Axiom invested in the business on the basis that it was worth at least $2 million (and probably more). Axiom is a publicly listed company that in acquiring shares in Fletch and making a loan to it was able to make its own assessment of the value of the Companies’ business. Moreover, both Mr Birch and Mr Seymour must have had extensive knowledge of the business, even if they did not know all the details of its operation. Mr Birch must have acquired that knowledge in the context of the capital raisings he had been involved in. Mr Seymour must have learned about the business in the course of formulating the plan with Mr Birch. Both were sophisticated businessmen who could make whatever enquiries they thought were appropriate for the purposes of pursuing the plan to acquire the Companies’ business. It is apparent from Mr Seymour’s discussions with Mr Kopp that he (Mr Seymour) at least met with Mastercard and consequently was in a good position to make an assessment of whether an agreement could be reached with Mastercard for it to continue to provide services in connection with the business. It was in that context that Mr Birch and Mr Seymour together with Axiom invested in Fletch and Axiom lent Fletch an initial amount of $2 million. That was a market transaction which provided a good indication of the minimum value of the Companies’ business.
Mr Cheshire SC who appeared for Mr Birch, and Mr Birch in his written submissions, advanced several arguments against the conclusion of the previous paragraph.
First, Mr Cheshire pointed out that the primary judge did not rely on a market transaction for the conclusion he reached. Rather, he relied on the statements made by Mr Seymour to Mr Kopp. Moreover, the respondents did not file a notice of contention seeking to support his Honour’s conclusion on the alternative basis.
An argument based on the actual transactions was raised in the respondents’ written submissions (although not one that pointed specifically to the loan). In addition, the relevance of what actually happened to the question of value was debated in oral argument before this Court. It was not suggested that Mr Birch was prejudiced by the fact that the issue had not been raised previously. As Mr Cheshire accepted, in those circumstances, the absence of the notice of contention was not fatal.
Moreover, although the primary judge did not rely specifically on what occurred as evidence of value, it is plain that he thought that what occurred and Mr Seymour’s involvement in what occurred were relevant to the question whether Mr Seymour’s statements about value should be accepted; and his Honour referred to the amount that Axiom, Mr Birch and Mr Seymour were willing to pay to acquire the debt owed to PIL as a reason for rejecting Mr Kompos’s valuation.
**********
Birch
Bunbury [2025] NSWCA 244
(1991) 174 CLR 64
(1960) 104 CLR 206
(1998) 196 CLR 494
(1934) 51 CLR 197
(1907) 5 CLR 418
Appeal dismissed with costs. The primary judge’s order for judgment in the sum of $2 million plus interest remained in place.
The primary judge found that Mr Seymour and Mr Birch developed a plan, without Mr Bunbury’s knowledge, to acquire the Companies’ business. As the primary judge explained, the plan was developed and modified, and steps were added to it, over time. The primary judge described the plan in the following terms (PJ1[193]):
Second, Mr Cheshire suggested that the fact that one person is willing to pay a particular amount for an asset does not necessarily determine value. That much may be accepted. But the fact that an informed person is willing (and does) pay a particular amount is a strong indication that the asset is worth at least that amount.
Third, Mr Birch in his written submissions suggests that there was no evidence that Mr Seymour had any relevant expertise in valuation, of what assumptions he made in his assessment of value or of what analysis he undertook to arrive at his conclusions in relation to value. In addition, Fletch accepted under the BSA that there would be an adjustment in the purchase price for the business following a formal valuation.
These points, of course, were directed at the primary judge’s reliance on the statements made by Mr Seymour, not at the relevance of the transaction itself. In relation to the transaction itself, the precise reasoning process engaged in by the participants is irrelevant to the question of value. What is relevant is the decisions they made, provided those decisions were based on full information. There is no evidence in this case that the decisions made by Axiom, Mr Birch and Mr Seymour were based on wrong or inadequate information relevant to the value of the business. Plainly, having regard to the nature of the business and the uncertainties associated with it, the investment was a speculative one. And the investment was a speculative one because of the uncertainties associated with the business, including the position that Mastercard would ultimately take. But that fact alone does not affect the question of value. “Full information” in this context does not mean perfect information. Rather, it means accurate information that the buyer and seller need to make a decision about what price to pay or to accept for the asset. Axiom, Mr Birch and Mr Seymour must have been aware of the risks involved in acquiring the business. Nonetheless, Axiom chose to lend $2 million to Fletch and Fletch chose to pay $700,000 to acquire control of the business. For the reasons I have explained, those transactions are a good indication of the minimum value of the business at the time.
Nothing follows from the fact that the price for the business ($757,273 ex GST) was to be adjusted following a formal valuation. Under cl 7 of the BSA, the price could only increase if the formal valuation was greater than the price that Fletch paid. There was no possibility that part of the purchase price would be repaid to Fletch. In any event, the price paid by Fletch to the Companies for the business itself was not a reliable indication of value, since that price was essentially determined by Fletch.
There is a suggestion in some of the submissions made on behalf of Mr Birch, that it would have been possible to determine a more accurate value of the business by adopting the approach to valuation used by Mr Davies but using appropriate assumptions. Whether that is so is open to some doubt. It would still have been necessary to make assumptions concerning future earnings of the business, which on any view would involve a substantial degree of guesswork. Depending on the assumptions that were made, it would also be necessary to discount the resulting figure for risks associated with the business, such as the risk that Mastercard would not reinstate its contract. Again, the selection of appropriate discounts would involve the Court taking a broadbrush approach that may amount to little more than guesswork. But in any event, the fact that there may have been some more reliable way for the respondents to prove their damages does not mean that that is the only way in which damages could be proved. For the reasons given, the actual transactions entered into by the parties provide an adequate foundation for the conclusion that the damages were at least $2 million.