By Daniel Arbon
Kelly+Partners chief executive Brett Kelly has been hit with multiple margin calls after pledging shares once worth $64 million as collateral for personal borrowings, raising fears the arrangement could push the stock lower.
Kelly, who founded the accounting firm in 2006 and listed it on the ASX in 2017, had transferred more than 7 million shares, representing 34 per cent of his stake, into holding accounts before a sharp decline in the firm’s share price forced him to transfer that holding to an undisclosed lender.
“The margin calls are what they are,” Kelly said. “Entered into, conscious that markets move often irrationally and doesn’t change market alignment.”
Shares in Kelly+Partners traded between $7.79 and $13.60 during the 15-month period in which the arrangements were put in place. The margin calls, disclosed to the exchange, began in March and continued into April as the stock tumbled to a low of $4.52. Shares closed at $5.03 on Tuesday.
A margin call is when a lender demands more cash or collateral after the value of assets securing a loan falls too far. In this case, no other security was provided by Kelly, and the lender took possession of the pledged shares.
Julius Baer, a Swiss private bank, has registered a claim over assets held by Kelly’s personal vehicle, but it is not clear whether it is the lender. Kelly declined to say how much he had borrowed or the loan-to-value thresholds attached to the facilities. Lenders still hold 4 million shares as security.
Pamela Hanrahan, a former Australian Securities and Investments Commission official who now a senior fellow at the Melbourne Law School, said while margin lending was not illegal, it created governance risks.
“The reason why most governance people aren’t in favour of this type of arrangement – and this is ASX’s view as well – is it creates the risk of embarrassment for that entity and for the CEO if they go into margin call,” she said. “It’s a matter for each board what they’re prepared to approve or not under their trading policy, but there’s a lot of downside risk for the company if a big chunk of stock ends up subject to margin loans.”
Kelly+Partners said its securities trading policy did not require board approval for margin lending, only that directors be notified.
Shaun Weick, a deputy portfolio manager with Wilson Asset Management, which is not an investor in Kelly+Partners, said the level of collateral pledged should raise questions for investors. The stock pledged as security against the borrowing accounted for 16 per cent of the company’s shares.
“The risk is forced selling at the worst possible time, and in small caps once the market sniffs out a forced seller, liquidity evaporates, and the secondary market bears the brunt,” Weick said. “The positive is it shows conviction, but I don’t necessarily think leverage is required to prove that.”
With a remaining stake of about 40 per cent, Kelly is still the largest shareholder of the company. The company – which has a market capitalisation of $227 million, down from a high of more than $600 million, is pursuing an ambitious roll-up strategy – targeting accounting and tax partnerships with between $2 million and $10 million of revenue.
Kelly+Partners was seventeenth on The Australian Financial Review Top 100 Accounting Firms in the last year with revenue of $135 million. The company expects to generate $164 million in 2026 and has set a goal of reaching $500 million by 2031 – a target that, based on last year’s list, would place it behind only the four largest firms and BDO in Australia.
Despite continued revenue growth and increases in the company’s preferred measure of profitability – which adds back amortisation on customer lists and other minor expenses – shares have fallen sharply.
“As for the share price, Mr Market has his moods. We’ll stay focused on the business,” Kelly said, invoking trailblazing American stock analyst Benjamin Graham’s description for irrational sharemarket price swings.
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