REG - Deepverge PLC - Historical Related Party Transactions

DeepvergeAnnouncement

25/10/2022 07:00

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RNS Number : 9514D  Deepverge PLC  25 October 2022

 

25 October 2022

 

DeepVerge PLC

 

("DeepVerge" or "Company")

 

Historical Related Party Transactions

DeepVerge (AIM: DVRG), the environmental and life science group of companies
that develops and applies AI and IoT technology to analytical instruments for
the analysis and identification of bacteria, virus and toxins, provides the
following disclosure with regard to two historical related party transactions
("RPTs") dating back to 2018 and 2019 respectively.

Under AIM Rule 13 both of these transactions were required to have been
notified at the time each was entered into. The Board regrets the
unintentional oversight resulting in these disclosures not being made on a
timely basis and has implemented relevant, improved internal controls to
prevent this happening in the future.

Historical RPT - 2018 - Background

The original business of the Company was established in 2016 and it was
admitted to trading AIM in April 2017, at which time it owned several
businesses which had been acquired in late 2016 and early 2017. These
businesses were acquired from their owners by the Company in return for shares
in the Company. One of these parties was MediNova AG, which had sold TSPro
GmbH to the Company in December 2016 and which resulted in MediNova AG
becoming a substantial shareholder in the Company. A director and shareholder
of MediNova, Helmut Schlieper, also became a director of the Company.

Ahead of the Company's admission to trading on 5 April 2017, and as disclosed
in the Company's Admission Document, the Company (then called Integumen plc)
entered into an agreement ("MediNova Services Agreement") with MediNova AG on
27 March 2017 to provide various services to the Group (to the Company's
subsidiary TSPro) for fees of €21,000 per month. These services provided by
MediNova related to the development and commercialisation of technologies in
the oral health arena which were initially set out in a work order between the
parties dated 29 March 2017 (the "MediNova Work Order"). The MediNova Work
Order continued until 31 December 2018. The MediNova Work Order provided that
MediNova would, inter alia, assist the Company with product development,
intellectual property, media, advertising, sales, strategy, finance and
regulatory management services.

In February 2018, a further Work Order ("Further Work Order") was signed
between the Company and MediNova AG which increased the monthly payment from
€21,000 to €30,000 with effect from April 2017, and extended the
arrangement until 31 December 2020.

 

MediNova was a related party under the AIM Rules by virtue of its
shareholding, and the Company's agreement to the further Work Order
constituted a related party transaction under AIM Rule 13.  Accordingly, the
directors at that time should have notified the Nominated Adviser, should have
opined on whether the agreement was fair and reasonable insofar as its
shareholders were concerned and made a notification in compliance with AIM
Rule 13 at the time it was entered into.

 

It appears that the agreement for the Further Work Order was not presented to
the Board for consideration,, and that there was a failure by the Company to
identify the requirements of AIM Rule 13. Additionally, the Company did not
consult with its Nominated Adviser on this matter nor notify as required under
AIM Rule 13.

 

In the year ended 31 December 2017, MediNova AG charged €270,000 (£237,000)
to TSpro GmbH (then a subsidiary of the Group).

 

In the year ended 31 December 2018, MediNova AG charged €360,000 (£319,000)
to TSpro GmbH.

 

In December 2018 the Company entered into a disposal agreement ("Disposal
Agreement") whereby TSpro was sold to MediNova AG ("Disposal"). As part of the
Disposal Agreement the Group's obligations under the MediNova Services
Agreement and the Work Order were terminated, and the Group was no longer
responsible for amounts owing to creditors of TSpro. This included amounts due
from TSpro to MediNova which the Directors, based on their enquiries, have
estimated at c£223k. Under the Disposal Agreement the Company received
consideration of €1, and was released from short and long term liabilities
(owed by TSpro) of €1.34m (£1.19m). This transaction was treated as a
related party transaction under AIM Rule 13 and notified on 18 December 2018.

 

The composition of the Board of the Company has changed significantly since
the Further Work Order was signed in February 2018. Gerard Brandon and
Camillus Glover joined the Board of the Company in August 2018, with Fionan
Murray joining in May 2019 and Nigel Burton in November 2020.

 

The current Board has reviewed the evidence that has been available to it.
However, as TSpro is no longer part of the Group, the current Board has not
been able to access all the information that may have been available to assess
and justify the terms of the Further Work Order at the time it was entered
into. Whilst the current Board presumes that there would have been bona fide
reasons for entering into the Further Work Order, the lack of detailed
information has made it impossible to confirm this. All the current Board
members are independent of MediNova AG.

 

For the period April 2017 to December 2018, €630k (c£556k) was charged by
MediNova AG to TSpro, of which €441k (£390k) would have been due under the
MediNova Services Agreement (with the balance of €189k (c£165k) charged as
a result of the Further Work Order).

 

The Directors estimate that €247k (c£223k) remained outstanding (from TSpro
GmbH to MediNova AG) at the time of the Disposal, and was effectively written
off as part of the Disposal. In addition, the Group was no longer responsible
for paying any additional monthly charges resulting from the extension of the
period covered under the MediNova Services Agreement to 31 December 2020.

 

As such, to the extent that the Further Work Order resulted in increased
charges to the Group, in practice these were not physically paid (and were
written off as part of the Disposal). Given that the Further Work Order in
practice did not result in an increase in cash costs to the Group the current
Directors (all of whom are independent) consider, having consulted with SPARK
Advisory Partners, its nominated adviser, that the terms of the Further Work
Order were fair and reasonable insofar as its shareholders are concerned.

 

 

Historical RPT - 2019 - Background

 

On 1 January 2019 the Company entered into an agreement ("the Agreement") with
Mrs Dagmara Brandon, the wife of Mr Gerard Brandon, the Company's Chief
Executive, to provide professional services relating to administration and
management of the Group's intellectual property portfolio.

 

The remuneration for provision of these services was at a tariff of €2,500
per month, with a notice period (by either party) of two months. This
engagement was intended to provide short term support to the Company. The
expectation at the time was that the arrangement would be temporary and there
would not be ongoing work that would necessitate a longer engagement. The
Company was invoiced for work undertaken in January 2019 for €1,250, in
April 2019 for €2,500, in each of May, June and July 2019 for €1,250 per
month). Ross Andrews and Camillus Glover the independent directors at the time
(as Gerard Brandon was not regarded as independent) considered and approved
this engagement at the time it was signed. The Nominated Adviser was not
consulted at this time.

 

As time progressed Mrs Brandon's support was used more consistently and since
August 2019 the Company has paid  €2,500 per month for her services. There
have been no variation to the terms of the Agreement.

 

As at 30 September 2019, the aggregate of (i) the amounts already due to be
paid to Mrs Brandon for services provided since 1 January 2019 and (ii) the
minimum additional amounts that would be contractually due to Mrs Brandon in
relation to the two months' notice period exceeded the threshold for treating
these transactions as related party transactions under AIM Rule 13, using the
principle of the aggregation of transactions with the same party in AIM Rule
16.

As such, under AIM Rule 13 these transactions were required to have been
notified as at that date.

The composition of the Board of DeepVerge has changed since the Company
entered into the Agreement (in January 2019), with Fionan Murray joining the
Board in May 2019 and Nigel Burton in November 2020.

 

Notwithstanding the original approval of the then Board in December 2018 the
current Board, excluding Gerard Brandon who is not considered independent,
("Independent Directors") have considered the terms of the related party
transaction having consulted with the Company's nominated adviser in
compliance with AIM Rule 13.  The Independent Directors consider, having
consulted with SPARK Advisory Partners, its nominated adviser, that the terms
of the Agreement are fair and reasonable insofar as its shareholders are
concerned.

 

 

 

Enquiries:

 

 DeepVerge plc                          Ross Andrews, Chairman   +44 (0) 1904 40 4036

 SPARK Advisory Partners Limited        Neil Baldwin             +44 (0) 113 370 8974

 (Nominated Adviser)

 Turner Pope Investments (TPI) Limited  Andy Thacker/James Pope  +44 (0) 20 3657 0050

 (Broker)

 

 

Market Abuse Regulation (MAR) Disclosure

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER
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ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED.  ON
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