Strong Room Technology - Case Update

The Federal Court has granted leave to a creditor to vote at the second meeting despite the possibility that its claim might be subordinated under section 563A of the Corporations Act 2001 (Cth).

EVP Opportunities made an equity investment of approximately $10.4 million in Strong Room Technology, a medication management platform that utilizes AI and machine learning. EVP alleged that the investment was induced by wilful and misleading conduct by Strong Room’s directors. These allegations are the subject of separate proceedings, in which freezing orders had previously been granted.

Todd Gammel, Barry Taylor and Matthew Levesque-Hocking of HLB Mann Judd were appointed voluntary administrators of Strong Room in late March. The administrators were uncertain how to treat EVP’s claim because of ambiguity over whether EVP’s investment constituted a proprietary claim, a non-proprietary creditor claim, or a subordinated claim under section 563A of the Corporations Act 2001 (Cth):

• if EVP had not received shares and its claim was not proprietary, they proposed admitting the claim but marking it as “objected to”;

• if shares had been issued and EVP’s claim is non-proprietary, they considered the claim subordinated and excluded from voting without a court order; and

• if EVP held a proprietary claim, they still proposed marking it “objected to.” EVP applied urgently to the Court under section 600H(1)(b), seeking permission to vote regardless of its classification, as the second creditors’ meeting was imminent.

The Court concluded that it was appropriate and fair to grant EVP the right to vote even if its claim was ultimately determined to be subordinated, because it had a sufficient financial stake in the process. The Court emphasised that a key factor in allowing a subordinated claimant to vote is whether they have a real financial interest in the outcome of the administration. In this case, EVP could be financially impacted by the decisions made at the meeting, particularly regarding the approval of a deed of company arrangement.

Read the decision HERE.

Following the Court’s decision, creditors voted to liquidate StrongRoom AI.

Professionals involved:

• David Stack of PG Hely Chambers (instructed by Bridges Lawyers) for EVP Opportunities

• Mark Faraday of Henry Williams Lawyers for the administrators