Investors in cosmetics brand Kester Black say they were only told of the company’s financial hardships weeks after it entered voluntary administration, surprising those who contributed to its $2.1 million equity crowdfunding raise three years ago. The ethical beauty label secured $2.
16 million from nearly 1700 Birchal investors in October 2021 , at a valuation of $22 million. But the company behind Kester Black entered voluntary administration on July 9 , in a process that evaporated its share value. The administration was not publicised, with the brand’s online store and social media channels continuing to offer products as per usual.
The Kester Black business and assets were sold to a related entity on August 1, and creditors accepted a Deed of Company Arrangement on August 13. Hamilton Murphy, the firm handling the administration, informed shareholders of the administration via email six days later, on August 19. SmartCompany has spoken to several Kester Black investors, who say that the email, which advised them of a shareholders’ meeting on Thursday, August 22, was the first they heard of Kester Black’s financial troubles.
On social media, others say they were informed of the administration via email on August 12. SmartCompany has contacted Hamilton Murphy for comment. Positive outlook in shareholder update News of Kester Black’s administration came as a surprise to some investors, as the company provided largely positive updates on its financial performance in the months leading to its administration.
A February 2024 shareholder update, seen by SmartCompany , suggested strong year-on-year revenue growth, order volumes, and new customer numbers. “With a clear path of new product releases and re-stocking of best-selling lipsticks in the coming months, we are on track for some very healthy growth by the financial year-end,” it said. The update did reflect on the 2023 flooding that significantly damaged stock held in New Zealand, issues with sold-out stock, and the “technical challenges encountered with our accountants”.
However, it positioned the business’ growth between June and December 2023 as a “clear indicator of our strategic direction and operational efficiency”. Although investors were aware of some hardships at Kester Black, a report prepared for creditors after the company entered administration outlined significant financial challenges. The creditors’ report showed that behind the scenes, Kester Black struggled to move outdated stock, spent significant amounts of money on digital advertising to drive sales, and faced “excessive” product storage costs, among other factors.
Investors say they were told in February that they would receive a financial report for the full 2023 financial year, however, this did not materialise. Shareholder call over capacity SmartCompany understands the Kester Black shareholders’ call, conducted on Thursday, August 22, faced its own challenges. A higher-than-expected number of investors joined the teleconference, making it hard for some participants to join the call.
Not every investor could ask questions about the administration, what it meant for their investment, and what comes next. The investors who spoke to SmartCompany say they understood the risks inherent in equity crowdfunding, and acknowledge that the speculative nature of the investment was clearly outlined in Kester Black’s initial offering documents. But the nature of equity crowdfunding — which can provide first-time investors equity in private companies — means some call participants had only a basic understanding of what the administration meant for their investment.
SmartCompany understands that representatives from Hamilton Murphy representatives told participants they would be provided with a transcript of the shareholders’ call, which will be shared in the coming days. Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on LinkedIn ..
