A SECRET deal between Funda directors Nathan Wright and Mark Owen and a company founded by a former Young Australian of the Year, who was later convicted of fraud, helped seal the fate of the Merewether lender that collapsed last year owing $10.5 million.
Details of the deal between Brad Smith's Braaap Motorcycles and small business lender Funda are laid bare in a confidential agreement signed in March 2022.
Under the deal Mr Wright and Mr Owen agreed to wipe 14 loans owed by Braaap, totalling $2.378 million, in exchange for $390,000.
The secret deal also provided for Braaap to hand over perks to Funda, with the directors each receiving a 400cc motorcycle and an electric mountain bike.
According to a report by Funda liquidator Bradd Morelli, of Jirsch Sutherland, a further three debts totalling $111,412 were also written off as Braaap was the guarantor.
Of the almost $4.1 million written off as bad debt by Funda before it was placed in liquidation in December last year, the Braaap loans made up 62 per cent.
Mr Wright and Mr Owen did not respond to the Herald's questions this week in relation to Funda's dealing with Braaap.
Mr Morelli's report said the secret deal was negotiated by a "third party".
"The directors advised that there was a lengthy settlement between the company and this borrower which resulted in an agreement being reached, which was negotiated by a third party," he said.
"At that time, this settlement was agreed to on commercial grounds."
Hunter residents who lost $10.5 million in life savings and superannuation funds in the Funda collapse are demanding to know what action was taken to recover the 14 Braaap loans before more than $2 million was written off under the confidential deal.
Mr McLachlan said he wanted to know what "avenues were exhausted" chasing the loans, before Funda gave up.
"It's almost like they washed their hands of the debt and then there's this confidential agreement which details how none of the people can ever utter a word about the deal they agreed to," he said.
"The people the money came from for the loans were never meant to hear a word about this. We never knew anything about this. You have to question what has gone on here."
Braaap is one of Tasmania's most celebrated start-ups.
It was founded in 2005 by Mr Smith at the age of 17, who went on to be named 2008 Australian Young Entrepreneur of the Year and 2010 Young Australian of the Year for Tasmania.
Mr Smith was plunged into a rebirthing scandal in 2016 when one of his businesses, Braaap Wholesale, which was liquidated in 2020, was raided by the NSW Police property crime squad, as part of Strike Force Ologhlen, following an eight month investigation.
Mr Smith, who maintained his innocence, was arrested and charged with four counts of fraud and deal in proceeds of crime knowingly conceal.
He pleaded not guilty and was eventually convicted of one charge of dishonestly obtaining financial advantage by deception and sentenced in the Sydney District Court to a community correction order for two years.
Other charges were discontinued or not guilty verdicts returned.
Braaap Wholesale pleaded guilty in Launceston Magistrates Court in March 2019 to six counts of approval for the placement of identification plates and three counts of importation of vehicles requiring modification and was fined a total of $25,000.
During sentencing Magistrate Ken Stanton said Braaap Wholesale failure to have motorbikes fitted with specified parts was not deliberate.
The court heard that in 2016 Braaap Wholesale imported 82 motorcycles from overseas on a number of conditions set out by the federal Infrastructure Department, including the road bikes not be fitted with identification plates until approved and the bikes be destroyed or exported if they don't comply with Australian standards.
Less than three weeks after getting approval to import the road bikes Mr Smith wrote to the department to have the vehicles released so he could fulfil an ongoing contract with another company.
A number of motorcycles were sent to a NSW company without identification plates, despite the department not granting Mr Smith's request.
Braaap Wholesale was liquidated and deregistered by the Australian Securities and Investment Commission (ASIC) in January 2021.
Funda creditors, who knew nothing of the secret loan deal with Braaap until recently, are demanding to know what action was taken by Mr Wright and Mr Owen to chase the almost $2.5 million debt.
The secret deed was signed by Mr Smith for Braaap Motorcycles and Mr Wright and Mr Owen for Ownright, trading as Funda, in March 2022.
Mr Wright and Mr Smith both grew up in Tasmania.
The deed was signed just months before Mr Wright wrote to Funda's major individual lenders telling them the business had been "facing heavy head winds for quite some time now".
In the July 2022 email Mr Wright detailed Funda's precarious financial position.
"With a combination of the last couple of years COVID-related impacts and legacy bad dealings from many years ago, our debt to equity, not to mention profitability, is upside down," Mr Wright wrote.
"We have worked towards many options to move forward, as it is the only way out, but come up with nothing suitable as yet ..."
To those who received the directors' projections that they planned to build Funda into a $60 million empire by 2021, the news came as a shock.
Richard and Marlene Lloyd, who lost more than $2.1 million from their super fund, said they want answers.
Mr Lloyd said he'd like to know what due diligence was carried out by Funda before loaning money to Braaap.
"It's clear that Mr Smith had some issues with part of his business and I'd like to know if Funda loaned the money before or after this happened," he said.
"We're talking about millions of dollars in loans here and we'd like to know what investigations were carried out before such large amounts of money were handed over. On what grounds were these 14 loans made?"
Funda, a fintech touted as an alternative to the big banks, was the brainchild of Mr Wright and Mr Owen, both of Merewether.
It worked by sourcing a bank of cash from private lenders, which it then used to provide loans to small businesses and individuals.
Mr Owen was until recently the treasurer of Merewether Surf Life Saving Club and Mr Wright was a club member of 15 years and former rescue boat captain.
Past and present Hunter surf club members are among dozens of creditors who have lost millions.
When questioned previously about the liquidations, Mr Wright and Mr Owen said they too were victims.
Both men blame the collapse on the pandemic and the broader economic conditions facing Funda, pointing to competitors that also struggled.
Mr Smith did not respond to the Herald's requests for comment.
