Investors in Damian Kelly’s Peak Invest pub fund are taking him to task in the NSW Supreme Court, seeking more than a million dollars be repaid even after the portfolio sold at more than 1.5 times book value.
A former investment banker, Kelly began building the collection in 2015, Pub Invest growing to own Surry Hills’ Crown Hotel, Parramatta’s Rose & Crown, Wollongong’s Corrimal Hotel and finally the North Nowra Tavern.
The dispute with investors began late 2020, with shareholder and director Rowan Hookway voicing concerns about overpayment of management fees and bonuses in the OpCo-Propco set-up.
Wexted Advisory were appointed as Administrators after creditors voted to liquidate the fund’s assets.
HTL Property was appointed to broker the assets, which went on to sell for a combined $127 million – finding tight yields, and representing a massive premium to their official valuations.
In July of this year, Kelly joined CBRE as a director in its hotels team.
But the dispute was not finalised, and last month shareholders in the OpCo for three of the pubs, including Rowan and his brother Scott Hookway, brought a directions hearing against Kelly and his wife, and Pub Invest.
According to an amended statement of claim, which the AFR reports it obtained, the plaintiff demands relate to unauthorised bonuses said to have been paid to Kelly’s Pub Invest group, cash withdrawals, loans and advances to Kelly allegedly not repaid, and losses incurred due to alleged breaches of his director duties.
Shareholders claim they did not provide the necessary approval for Kelly to arrange management agreements paying up to $600k annually, nor bonus payments of more than $340k in the 12 months of January 2019 to January 2020.
It is also alleged that although Kelly was removed as a director of three of the OpCos, he still had access to finances and shuffled around $376k into an account of Pub Invest, then to a personal account.
In his defence, Kelly has rebuked the claims he did not have consent for the management agreements, and that all funds had been used appropriately, benefitting the pubs. He says other amounts in question were repayment of loans he fronted the pubs.
Kelly also states that the questioned bonuses were repaid, although the amounts are still in dispute.
He maintains that the appointment of administrators was not warranted, pointing to Wexted’s own statement that all operating companies in the group were solvent.
While the portfolio sell-down proved a timely boon for its investors, disagreement seems to pivot on how the investments may have fared had the assets been fully optimised, presumably with funds potentially used elsewhere.
All four pubs were announced to market in January, led by the Rose & Crown, with 24-hour licence and 30 EGMs, and future benefit from the billions of dollars being spent in nearby development and infrastructure.
The following month news emerged that an investigation by Liquor & Gaming NSW found a host of breaches, and that the matter was referred to both the Independent Liquor & Gaming Authority (ILGA) and NSW Police.
Accusations centred on allowing poker machine players credit, and debit withdrawals from the bar’s EFTPOS machine, loaning thousands of dollars to players from the pub’s safe, and providing patrons with free alcohol, as well as other breaches of both liquor and gaming laws.
A decision by ILGA cited fines of $107,358 to senior management and the Rose & Crown. Both Kelly and Jason Marlow, proprietor of the management company, were issued reprimands as close associates.
The Rose & Crown Hotel went on to sell for $42 million to Warren Livingstone’s Highclere Hospitality.
The case continues in the NSW Supreme Court.
