Three B.C. investors face a potential boardroom booting later this month in a dispute with the co-founder and CEO of Vancouver-based Payfirma.
The boardroom battle has already resulted in a defamation suit and legal efforts to stop a special shareholders meeting.
“How did it come to this?” asked Richard Powers, a corporate governance expert at the Rotman School of Management at the University of Toronto, after poring over a stream of heated public statements exchanged between the CEO and his board.
It’s a case that amounts to a classic “clash of personalities,” according to Powers.
Payfirma CEO Michael Gokturk, who co-founded the payments processing company in 2011 and owns 9.29% of its shares, told Business in Vancouver he’s been inundated with calls from shareholders since launching a campaign to remove three early investors from the board.
“Your investment in Payfirma is at risk,” Gokturk wrote in a September 20 letter to shareholders. “Three of our six directors, [Hardy Capital chairman and Coastal Contacts Inc. founder] Roger Hardy, [Mosam Ventures founder] Marc Levy and [Peer 1 Hosting founder] Lance Tracey, have drawn a line in the sand and obstructed our efforts to advance a transaction that would move Payfirma toward liquidity.”
Gokturk urged shareholders to vote to remove Hardy, Levy and Tracey ahead of an October 24 general meeting and replace them with Toronto lawyer Paul Pathak, who would join Gokturk, Hootsuite CEO Ryan Holmes and BluePay executive chairman John Rante on the board.
The public criticism drew a sharp response from the trio, who asserted in a joint letter the next day that they’ve invested $3.5 million into Payfirma.
“In contrast, Mr. Gokturk, together with Messrs. John Rante and Ryan Holmes, have brought negligible value to Payfirma,” the opposing trio said in a release.
On September 26 Tracey filed a defamation suit against Gokturk, Holmes and Rante.
According to court documents, the board had struck a special committee over the summer to consider a reverse takeover from an unnamed third party with an unspecified going-public transaction to follow.
Gokturk said the three board members wouldn’t allow him to advance the transaction to the point it could be presented to shareholders to either accept or reject it.
“This sort of self-dealing and entrenchment, at the expense of our investors, is not appropriate and not something that I support,” Gokturk told shareholders after accusing the opposing directors of trying to “seize control” of the company.
In a second letter to shareholders, Gokturk said Tracey was pushing for a rights offering “backstopped” by Tracey himself.
“Such a program would increase Mr. Tracey’s ownership in [Payfirma] and dilute the shareholdings of those existing shareholders,” he said.
Tracey disputed this in the lawsuit, stating the proposal was not insisted on. Instead, he said he was floating other financing options during the last board meeting.
Hardy told BIV he was “appalled” by Gokturk’s statements against him and the other board directors.
“Frankly, we are quite puzzled by Mr. Gokturk’s unrestrained personal rampage and personal conduct, particularly given the fact that the three independent directors have supported the company for many years now and have at all times made ourselves available for consultation as board members.”
Hardy added that the defamation suit and a petition to the courts to postpone the October 24 special meeting is an attempt to hold Gokturk and “his cohorts accountable for making such false and misleading statements.”
The defamation suit claims Gokturk’s statements were “prepared and delivered” with the approval of Holmes and Rante.
In an email to BIV, Gokturk said he doesn’t mind if the three board members attack him.
“That’s the job I signed up for, but attacking people like John [Rante] and Ryan [Holmes] who were there for Payfirma every step (and misstep) along the way is an extraordinary level of low,” he said.
Gokturk has hired Kingsdale Advisors to help him wage a proxy battle he estimates will cost about $50,000.
Meanwhile, the defamation suit claims Payfirma generated $3.8 million in revenue in 2016 and is projecting $4.8 million in revenue in 2017.
“It is very difficult to remove a sitting director – almost impossible. Moral suasion is usually your best avenue or best vehicle for getting rid of somebody,” Powers said.
“Talk to them and say, ‘Listen, things aren’t working out. We’d like to get someone else on. Would you take a pass?’”
The defamation suit claims Holmes told Hardy on September 19: “‘Roger, you will never do another angel financing in this town again if you don’t step off the Board,’ or words to that effect.”
Powers said while it appears best practices for corporate governance were in place leading up to the dispute, it was unfortunate it spilled into the public.
“Most boards work toward a consensus, and the fact that they couldn’t reach a consensus and chose to go public and air their dirty laundry puts a black mark on each of their reputations as directors,” Powers said.
None of the allegations in Tracey’s lawsuit have been proven in court.
Note: story updated to reflect Roger Hardy is also the chairman of Hardy Capital.
