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Former Guvera CEO Darren Herft reveals plans to launch Dragonfly Music as he is grilled in court over company’s collapse

A new music business could rise from the ashes of stricken streaming firm Guvera, it has emerged, as liquidators of the failed company strive to unravel the circumstances behind its demise that left shareholders out of pocket.

Former Guvera boss Darren Herft

Guvera’s former chief executive Darren Herft, who was also the boss of private equity group AMMA which raised funds for Guvera, was yesterday quizzed in Sydney’s Federal Court during the first day of a public examination into the company’s operation and subsequent failure.

Herft was questioned for almost five hours in proceedings instigated by liquidators Deloitte.

At one point, the hearing was interrupted as Guvera founder Claes Loberg took a seat in the public gallery. He was asked to leave on the grounds that he too will be questioned at a later date.

Asked by Registrar Chuan Ng why he was present, Loberg said: “I’m here to see what’s going on.”

He was then asked to leave, which he did without objection.

It emerged at the start of the afternoon sitting that three directors – Herft, former AMMA executive Adam Bloom and Guvera director Warwick Berman – are proposing to recapitalise the business with a plan on the table to launch Dragonfly Music.

Asked by Deloitte barrister Ben Katekar whether that has happened, Herft confirmed nothing had been officially launched but added: “The products are ready and there is initial testing being done.”

Invited to explain the product, Herft said it would entail the “redeployment of brand channel technology” that had formed part of Guvera’s previous product offering.

The difference this time is that music playlists would not form part of the content, he said.

“They [the brand channels] will contain music-related content but it won’t be a playlist of songs,” Herft told the court. “There is a wide variety of other services that Guvera could have provided in the music services area….it could be music news for example that we could pull from different partners on a daily or weekly basis or as regularly as a brand would like.”

He said he had become involved in the company again on “day-to-day” matters since April as executive director, although he stressed it was not trading.

Later, Katekar probed Herft on loans and repayments owed by Guvera Limited during 2015 as he attempted to illustrate that the parent company of Guvera Australia – one of its subsidiaries which ultimately went to the wall – did not have enough money to meet its obligations in the 18 months before the ASX rejected Guvera’s IPO in June 2016.

“By February 2015 Guvera Limited was under financial strain,” Katekar suggested.

Herft disagreed.

Katekar produced email exchanges with Sony, Warner, Omniphone – a music content hosting company – and tech firm Lenovo which he claimed highlighted Guvera’s inability to honour repayments.

In explanation, Herft claimed Lenovo had not met its targets and was therefore not entitled to the money, while the Sony issue was likely to have surrounded non-financial negotiations. Meanwhile, Guvera was in “dispute” with Omniphone – which concerned $3.8m – “which is kind of a good reason not to pay”, Herft said.

In relation to Warner, Katekar told the hearing that the entertainment giant threatened to withdraw content if it was not paid. He produced an email in which one of Guvera’s directors, Phil Quartararo, said the company needed to protect deals but added “we can only spend what we have”.

“That was in response to what you had written which said ‘Guys we are not in a position to close this’,” Katekar put to Herft.

Herft said there was nothing in the emails to suggest Guvera could not afford to pay.

“It may have been financial, but I’d suggest it was more to do with the contract,” he said. “Bear in mind a lot of these contracts we were paying a long time in advance.”

Herft was also asked about an outstanding debt of $584,000 owed to the Australian Performing Rights Association (APRA) and the Australian Copywriters Council (AMCOS). He said he was aware of the issue but insisted there was “a lot more history to that”.

He explained the bodies had “graciously” provided free access and then “out of the blue decided to send us a very large bill”.

The court heard that in one email sent to one of its partners chasing payment, Herft had apologised and said it been “smashed” by a $20m loss in unfavourable exchange rates.

Earlier, Katekar painted a picture of financial struggles for Guvera from the outset as the start-up looked to raise money from investors linked to accountancy firms who worked with AMMA.

In one P&L statement covering August and September 2010, Guvera Limited generated zero in sales while its subsidiary Guvera Australia reported sales of $98,000 and a loss of $992,000.

The consolidated group loss was almost $3.3m.

The loss in 2011 amounted to $10.3m, Katekar said as he questioned Herft about several financial proposals and agreements, including one for him and Loberg to hand over 500,000 shares each to one individual in exchange for a $2m investment.

The barrister also highlighted the minutes of a meeting from 2010 in which it noted “how directors were closely monitoring the company’s solvency position”.

Herft told the court that in 2010/11 Guvera had been stung after hedge fund Och-Ziff had backed out of an agreed deal to provide $10m of funding. He said Guvera had decided not to chase Och-Ziff after being advised it could take years and cost millions in legal wrangling.

Several times during proceedings Herft told the court that emails and financial statements produced in isolation “could mean anything”.

During increasingly tetchy exchanges with Katekar, Herft said he would need to refer to complete email chains or source other documents to give fuller and more accurate answers to specific questions.

He also objected after Katekar asked if directors had plotted to transfer the debt to Guvera Australia in order for the parent company to survive.

“Or did it just turn out that way?” Katekar asked.

Katekar withdrew the remark before Herft said: “That’s not a fair question”.

The examination will resume on March 16 when Herft is expected to be questioned for at least another full day.

Several other former Guvera directors will also give evidence during the hearing, including Loberg and company secretary Ken Hostland.

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