Federal Court of Australia

EVP Opportunities Master Pty Ltd as trustee for the EVP Opportunities Master Fund v Strong Room Technology Pty Ltd (Administrators Appointed) [2025] FCA 594

ORDERS

THE COURT ORDERS THAT:

1.    The originating process filed 3 June 2025 is returnable instanter.

2.    The plaintiff is, to the extent necessary, granted leave, nunc pro tunc, to commence and continue these proceedings against the first defendant, pursuant to s 440D(1)(b) of the Corporations Act 2001 (Cth) (Corporations Act).

3.    Pursuant to s 600H(1)(b) of the Corporations Act, to the extent that the plaintiff is a “subordinate creditor” of the first defendant, the plaintiff is permitted to vote in its capacity as a creditor of the first defendant at any meeting held during the external administration of first defendant.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MOORE J:

1    The plaintiff (EVP) has brought an urgent application seeking relief in the form of the orders made above.

2    The application originally sought a fourth order, pursuant to section 447A of the Corporations Act 2001 (Cth) (Corporations Act) to fix the amount of EVP’s entitlement at $10,440,969.06 despite the operation of rules 75-85 and 75-100 of the Insolvency Practice Rules (Corporations) 2016 (Cth). However, following some discussion at the hearing, counsel for EVP, Mr Stack, helpfully withdrew the application for that order, and so there is no need to say anything further about it.

3    EVP is the plaintiff in separate proceedings in this Court (proceedings NSD 458 of 2025). The background to those proceedings is set out in a judgment of Derrington J making freezing orders against various parties: EVP Opportunities Master Pty Ltd as trustee for The EVP Opportunities Master Fund v Strong Room Technology Pty Ltd (Receiver and Manager Appointed) (Administrators Appointed) [2025] FCA 548. In February 2025, EVP made an equity investment of some $10.4 million in Strong Room Technology Pty Ltd (Strong Room). Derrington J concluded (at [8] – [9]) that EVP had a reasonably arguable case that its investment in Strong Room was procured as a result of significant and, ostensibly, wilful misinformation, and that various directors of Strong Room engaged in conduct which was deliberately misleading for the purposes of inducing EVP to invest a significant sum of money in Strong Room. Derrington J also concluded (at [13]) that there was at least some arguable basis for contending that EVP retained ownership in the monies that passed to Strong Room.

4    Strong Room is in voluntary administration. It has various creditors, including EVP. The circumstances giving rise to the present application are as follows. An (adjourned) second meeting of creditors is fixed for 5 June 2025. On 15 May 2025, Maddocks Lawyers, acting for two creditors (Pharmarix Pty Ltd and Morton Court Pty Ltd), wrote to the solicitors for the administrators, copied to the solicitors for EVP, stating that “it is apparent the EVP’s claim arises and relates to its purchase of shares in the Company”, and stating as follows:

In those circumstances, and based on the information currently available, our clients consider that it is likely that EVP’s claim in the administration of the Company is a subordinate claim within the meaning of section 563A(2)(b) of the Corporations Act 2001 (Cth). Accordingly, pursuant to section 600H of the Act, EVP is not entitled to vote in its capacity as a creditor during the administration of the Company unless it seeks and is granted leave by the Court to do so.

We seek confirmation as to whether the Administrators have considered whether the EVP Amount is a subordinated claim within the meaning of section 563A(2)(b) of the Act. If so, and if it is the case that the Administrators intend to admit EVP to vote at any creditors’ meeting of the Company for the full EVP Amount, please provide the basis upon which the Administrators have reached the view that EVP should be admitted to vote on that basis.

Our clients reserve all of their rights, including as against the Administrators.

5    That letter prompted the solicitors for EVP to write to the solicitors for the Administrators (but not to Maddocks Lawyers) by letter dated 23 May 2025 seeking clarification as to what the Administrators proposed to do at the second meeting of creditors, including whether the Administrators intended to admit EVP to vote and whether the Administrators intended to treat EVP’s claim as a subordinate claim within the meaning of s 563A of the Corporations Act. On 29 May 2025, the solicitors for the Administrators responded to the solicitors for EVP (but again not to Maddocks Lawyers) in a somewhat complicated way, indicating that:

(a)    to the extent that EVP’s claim is non-proprietary, if EVP was not issued with the shares it purchased, the Administrators intend to admit it in full for the sum of approximately $10.4 million and mark it “objected to”;

(b)    to the extent that EVP’s claim is non-proprietary, if EVP was issued with the shares it purchased, the Administrators consider that the claim is a “subordinate claim” that is caught by s 563A of the Corporations Act, and EVP will not be admitted to vote under s 600H of the Corporations Act, unless it obtains a court order; and

(c)    to the extent that EVP’s claim is proprietary, there is doubt whether it should be admitted or rejected, and the Administrators intend to admit it in full for the sum of approximately $10.4 million and mark it “objected to”.

6    On 3 June 2025, EVP approached the Court for urgent relief. The matter came before me as the Commercial and Corporations Duty Judge on the afternoon of 3 June 2025. That left very little time before the meeting on 5 June 2025. The proceedings that came before me were separate proceedings brought by EVP naming Strong Room and the Administrators as defendants. No creditors (including Pharmarix Pty Ltd and Morton Court Pty Ltd) were joined as defendants, and no creditors were notified of the application. The Administrators were represented at the hearing, but adopted a neutral position.

7    When the matter came before me on the afternoon of 3 June 2025, I expressed concern that, whilst the issue that prompted the present application had been raised by Pharmarix Pty Ltd and Morton Court Pty Ltd, those parties had not even had a response to their letter, let alone been notified of the present application, and there was no contradictor. I therefore stood the matter over to 4 June 2025 at 4:30 pm, after my hearing that day, and required EVP to notify interested creditors of both the application and the listing.

8    When the matter resumed before me at 4:30 pm on 4 June 2025, there was evidence before the Court that:

(a)    the Administrators had identified various creditors who may have an interest in the matter (including Pharmarix Pty Ltd and Morton Court Pty Ltd);

(b)    at approximately 5:00 pm on 3 June 2025, an email had been sent by EVP’s solicitors to the legal representatives of various of the creditors, including Maddocks Lawyers, but also including Arnold Bloch Leibler, Mills Oakley and K&L Gates, providing notice of the hearing, as well as copies of the originating process, the evidence and the written submissions; and

(c)    Maddocks Lawyers and K&L Gates had responded, acknowledging that they were now aware of the proceedings. The email from Maddocks Lawyers observed that “considering the short notice period” their clients did not propose to appear.

9    There was no appearance from any other creditor at the resumed hearing. However, notice having been given, the absence of opposition gives additional comfort for the making of the orders.

10    Section 563A of the Corporations Act relevantly provides as follows:

563A    Postponing subordinate claims

(1)    The payment of a subordinate claim against a company is to be postponed until all other debts payable by, and claims against, the company are satisfied.

(2)    In this section:

claim means a claim that is admissible to proof against the company (within the meaning of section 553).

debt means a debt that is admissible to proof against the company (within the meaning of section 553).

subordinate claim means:

(a)    a claim for a debt owed by the company to a person in the person’s capacity as a member of the company (whether by way of dividends, profits or otherwise); or

(b)    any other claim that arises from buying, holding, selling or otherwise dealing in shares in the company.

11    Section 600H of the Corporations Act relevantly provides as follows:

600H    Rights if claim against the company postponed

(1)    A person whose claim against a company is postponed under section 563A is entitled:

(a)    to receive a copy of any notice, report or statement to creditors only if the person asks the administrator, the restructuring practitioner or liquidator of the company, in writing, for a copy of the notice, report or statement; and

(b)    to vote in their capacity as a creditor of the company, at a meeting ordered under subsection 411(1) or during the external administration of the company, only if the Court so orders.

(2)    In this section:

external administration includes the following:

(a)    voluntary administration;

(b)     a compromise or arrangement under Part 5.1;

(c)     administration under a deed of company arrangement;

(ca)     restructuring;

(cb)     restructuring under a restructuring plan;

(d)     winding up by the Court;

(e)     voluntary winding up.

12    In Re SurfStitch Group Limited (2018) 124 ACSR 234; [2018] NSWSC 164, Brereton J considered whether an order similar to the order sought in the present case should be made in favour of a subordinate claimant for the purposes of a second creditors’ meeting in a voluntary administration. Brereton J observed, at [7], that the object of s 600H include reducing the costs and improving the efficacy of external administration, and that the rationale for excluding subordinate claimants from decision-making, unless the court otherwise orders, was that if they have no real financial interest, they should have no say in decision-making. His Honour observed, at [8], that it followed that a relevant consideration for the purpose of deciding whether an order should be made under s 600H entitling a subordinate claimant to vote, is whether the claimant might reasonably be considered to have a real financial interest in the external administration of the company. In that case, the view of the administrators was that it was likely that there would be a surplus in the liquidation. Brereton J held (at [9]) that as there was likely to be a surplus, the subordinate claimants have a real financial interest in the administration, and accordingly there should be an order that subordinate claimants be entitled to vote.

13    In Ingram, in the matter of 5Star Sinai Limited (administrators appointed) [2018] FCA 734 (Ingram), Farrell J was dealing with a case in which various claimants had advanced money to subscribe for shares in two companies. As in the present case, it was unclear whether the claimants had in fact received shares for the investments, and therefore it was unclear whether they were simply ordinary creditors. On either view, it appeared likely that the claimants would receive something in the way of recoveries, either in whole or in part. It was contended that, having regard to the terms of s 563A(2), orders should be made under s 600H to put beyond doubt the entitlement of the claimants to vote at the second creditors’ meeting. Farrell J observed (at [49]) that the dominant issue was whether it was fair that the claimants be included in the process of decision-making at the second creditors’ meeting having regard to whether they might reasonable be considered to possess a real financial interest in the external administration, and concluded that it would not be fair that the claimants be excluded, and therefore that an order under s 600H should be made.

14    I propose to follow the course adopted by Brereton J and Farrell J. In the present case, it is not yet entirely clear whether EVP’s claim will be a subordinate claim. It may have a proprietary claim. It may have a claim as an ordinary creditor. However, there is a reasonable possibility that its claim will be subordinated by virtue of the operation of s 563A. That includes because EVP may be a shareholder and also because, as discussed by Farrell J in Ingram, the meaning of “otherwise dealing” in s 563A may potentially be broad enough to include a person who applies for shares (whether or not they received them). Consistently with the approach adopted by Farrell J in Ingram, if EVP otherwise has a sufficient interest, then in my view an order ought to be made to put the entitlement of EVP to vote beyond doubt.

15    The analysis conducted by the administrators reveals that, depending on what occurs in the administration, there may well be a surplus available to EVP, even if EVP’s claims are subordinated and even if EVP does not have a proprietary claim. The modelling indicates that whether there is such a surplus may depend upon decisions taken at the second creditors’ meeting, including whether to enter into a proposed deed of company arrangement. In those circumstances, EVP has a sufficient interest in the matters to be decided at the creditors’ meeting to justify an order pursuant to s 600H that it be permitted to vote in its capacity as a creditor of Strong Room at any meeting held during the external administration of Strong Room.

16    I therefore make an order in the terms sought.

Associate:

Dated:    5 June 2025