Failed Mako owes Spark $26m

Two creditors revealed; US operation still running. UPDATED Spark comments on NZX disclosure, business continuity concerns.   Technology Editor Chris Keall talks about Mako on NBR Radio and on demand on MyNBR Radio.

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LATEST: Mako receiver in sale talks

UPDATED with Spark comment second paragraph and end of story. 

Two separate sources close to Mako Networks' receivership tell NBR the network security company owes Spark $26 million and Inland Revenue close to $200,000.

Spark's threshold for disclosing a material development to the NZX is $25 million. Crorporate relations GM Andrew Pirie tells NBR his company is comfortable with its carrying value assigned to the debt — which is under the disclosure threshold due to provisions made over the past two years. Spark will not say what value the debt is being carried at, other than that it is below $26 million. However, NBR undertands it will hold Mako's feet to the fire for the full amount.

The Auckland-based network security company fell into hock with Spark over several years as the telco (also a Mako anchor customer and the former employer of the company's two co-founders) helped to bankroll research and development and expansion costs.

On Friday morning, Stephen Khov of Waterstone Insolvency was appointed liquidator of Mako Networks and Mako Networks Holdings. On Friday afternoon, he handed over the company to a receivers Brendon Gibson and Neale Jackson of KordaMentha.

Earlier this morning Mako sent NBR a statement saying:

Last week Mako Networks was advised of an unexpected and immediate disruption to sales, which had been supporting business operations. That advice led to the directors appointing a liquidator over its New Zealand companies.

The immediate and most regrettable consequence is that 39 skilled and committed staff have lost their jobs [after being dismissed by the liquidator].

Following that, the companies’ only secured creditor [Spark], holding a general security deed over Mako Network Holdings Limited and Mako Networks Limited, appointed receivers for significant debts incurred during development of product and early sales, debts which were otherwise not due to start being repaid until 2016.

In an earlier interview, Mako director Bill Farmer told NBR his company had spent around $25 million on R&D (including around $5 million from a Crown agency now part of Callaghan Innovation), helping it to secure a $4 million contract with Chevron in the US, with an $8 million BP contract pending in North America. Mr Farmer claims a $30 million deal is in the pipeline with an un-named party in the same market.

The company was making a loss but he hoped 2016 would be "our turnaround year."

Business as usual in US
An independent observer tells NBR it is still too early to say if Mako could be sold. The source noted that although Mako's NZ headquarters has been shut, with the loss of 39 jobs, Mako's San Francisco operation (home to most of the balance of the company's total 50 staff) is still operating. With the help of reseller partners, it is still possible – though by no means certain – that a substantial pipeline of US deals could be signed.

Waterstone Insolvency forwarded NBR's queries this morning to KordaMentha, which has yet to comment in detail.

Mako said in a statement, "Customers will continue to receive service as all agreements with them contained business continuity provisions, which have now been triggered, and all servers, implementation and support are handled directly by Mako’s distribution partners. The directors will continue to seek ways of resolving the receivership to allow a restructured business to pursue the substantial and proven commercial opportunities it has uncovered in North America."

Spark reacts
Mr Pirie confirms his company was behind the appointment of KordaMentha's Neale Jackson as Mako's receiver.

"Spark has had a business relationship with Mako going back several years which included leasing technology hardware to Mako. In early 2014, we showed our support to Mako by agreeing to a number of measures including a debt restructuring and a repayment holiday for a period of two years on debt owed by Mako to Spark,"  Mr Pirie says.

"Unfortunately, 18 months on, Mako’s financial position has deteriorated to the point that Mako directors have decided Mako cannot continue normal business operations. It is disappointing to see an innovative New Zealand technology company struggle in this way.

"We have made provisions against this receivable in our last two financial years and are comfortable with the carrying value."

Mako also previously provided technology for the SecureMe service offered to a range of enterprise, corporate and business customers through our Spark Digital and Spark Business brands, Mr Pirie says.

"As previously disclosed, in 2014 we brought the SecureMe service in-house, located within our Auckland CBD data centre. This included the acquisition of rights to relevant intellectual property from Mako and the transfer of a small number of highly trained staff to Spark Digital, to facilitate in-house delivery of the SecureMe service.

"This means the SecureMe service is effectively ring-fenced from the rest of Mako’s operations and the receivership will not have any impact on the delivery of SecureMe services to Spark customers," he says.

LATEST: Mako receiver in sale talks

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