Irexchange offers to refund investors after legal action, ASIC scrutiny

Sue Mitchell
Feb 10, 2019
AFR
Online grocery marketplace Irexchange has offered to refund money from investors in its $17.5 million initial public offering after revealing it is facing legal action and the Australian Securities and Investments Commission is examining its prospectus.
In a supplementary prospectus lodged late on Friday, Irexchange chairman Andrew Reeves said ASIC had told the company it would perform a “due diligence surveillance” following allegations from an investor that the prospectus is misleading.
“In this regard, the company anticipates receiving a request from ASIC to provide records evidencing the due diligence conducted in relation to the prospectus and this supplementary prospectus,” Mr Reeves said.
As reported in The Australian Financial Review a week ago, Irexchange convertible noteholder James Baillieu is suing the company, its advisers and four former and existing executives and directors, alleging misleading and deceptive behaviour, after unsuccessfully demanding the company return his $1 million investment.
Mr Baillieu has alleged the company made false representations about customer numbers when he invested $1 million in August 2017 and alleges it is making false claims about active customer numbers in the prospectus. He contacted ASIC last week setting out his concerns after filing a $1 million claim in the Federal Court in Melbourne.
In the supplementary, Irexchange stuck to its claim that it has on-boarded more than 600 retail stores (not 600 retailers) and clarified the number trading regularly.
Market disrupter
By the end of January, it had signed up 622 retail stores, 19 of whom had ordered weekly for at least the last four weeks. Another 119 had ordered in each of the last three rolling 35-day periods, and another 99 had made at least one order in the last 60 days.
The start-up is aiming to disrupt the grocery, liquor and pharmacy wholesaling markets by enabling independent retailers and pharmacies to order stock directly from suppliers through an online trading platform, bypassing wholesalers such as Metcash.
Irexchange does not believe the Baillieu litigation constitutes adverse circumstances from the point of view of an investor, in which case it would be bound under section 724(1)(d) of the Corporations Act to refund money received from subscribers to the $17.5 million IPO.
However, the company, which intends to defend the Baillieu claim, said it would voluntarily repay all money received as at the date of the supplementary prospectus. The offer, which was originally due to close February 7, has been extended until February 18.
If the offer is successful, Irexchange, which has raised about $40 million from investors over the past few years, will be valued at $74.3 million. The company plans to use the funds to expand into new states, new channels including pharmacies and China cross-border e-commerce and to attract more suppliers.