Atlas Credit Partners strips Magnis of its control of the iM3NY board

Magnis Energy Technologies was stripped of control of its key battery ‘gigafactory’ after lenders swooped last week but failed to disclose the loss to the market, court documents reveal.

Magnis (US) managing director Hoshi Daruwalla (left) and chair Frank Poullas arrive for the AGM. Picture: John Feder

Magnis Energy Technologies has been stripped of control of its key battery “gigafactory” Imperium3 New York (iM3NY) after lenders swooped on the company last week.

Court papers reveal Magnis has admitted to a judge in the Delaware Chancery courts that “Imperium3 is under the control of the lender” but failed to reveal the change to the markets.

Instead Magnis has stuck to carefully worded statements suggesting the lenders who advanced a $100m, intellectual property-backed loan to iM3NY were intending to “change the composition of the board” of iM3NY and “take control of its operating and financing activities”.

But documents reveal Atlas Credit Partners has stripped Magnis of its control of the iM3NY board, removing all but one of the directors, and appointing two of their own.

Only Charge CCCV director Shailesh Upreti, who is currently locked in a legal battle with Magnis, has retained his seat on the board.

Magnis chair Frank Poullas and directors Claire Bibby and Giles Gunesekera have been dumped from the board of the battery factory Magnis has spent almost six years building.

Magnis, which listed in 2005, has ridden the wave of interest in alternative energy sources, pledging to build an empire of battery factories and offering investors an opportunity to buy into an integrated energy supply chain.

A Magnis spokeswoman said Magnis had not announced the changes to the board as they were “under legal review and thus we are unable to make any comment”.

Magnis first signed a deal to build the joint manufacturing site in May 2017, inking an agreement with partner C4V to exclusively use the company’s technology in North America.

The company has poured money into the project, with Magnis claiming iM3NY would deliver annual revenues of $1.8bn by 2027.

But the court papers filed on Monday in Delaware reveal Magnis subsidiary iM3NY “no longer controls its only meaningful asset”.

However, Magnis claims it “has already established contact and commenced discussions with the two new directors that were appointed … and is hoping those discussions will bear fruit”.

Magnis has warned the fight with C4V over control of iM3NY may prove ruinous. It kicked off in November after Mr Poullas and Ms Bibby allegedly conspired to organise a video meeting of the board in which they muted the microphones of other directors before ramming through several motions.

In a note to the judge, Magnis lawyer K&L Gates partner Steven Caponi warned a trial between C4V and Magnis “would generate only a pyrrhic victory” where both sides “spend their scarce resources fighting over control of a company that at this moment does not control its only meaningful asset”.

“The parties cannot afford to fiddle while Rome burns,” Mr Caponi noted.

Magnis director Claire Bibby.

The loss may mark a turning point for Magnis, which controls 73 per cent of iM3NY, amid claims the company may be insolvent without the gigafactory on its books.

C4V, which has gone from Magnis’s linchpin technology partner to ardent enemy, warns Magnis is “effectively insolvent” and has resisted recapitalising iM3NY.

In October Magnis disclosed it had $14m in cash and negative $1.1m in equity, with $150m in loans.

Magnis, which owns 73 per cent of iM3NY, has talked up the potential of the battery factory, which Mr Poullas has previously said had a “potential value” of $4bn.

At the company’s annual general meeting in Sydney last week Magnis North American managing director Hoshi Daruwalla noted iM3NY was facing some “funding challenges” but was targeting $1m in sales a month in ­December.

But documents filed by C4V claim iM3NY is rapidly running out of time to find funding to survive, “a fact Magnis readily acknowledged last week”.

“C4V understands that iM3 will run out of cash by approximately January 15, 2024,” the documents state.

“In the three weeks since its purported coup, Magnis has refused to discuss the only financing proposal available to iM3, and it has not advanced a competing proposal.”

C4V claims Magnis moved to block a $US48m ($72m) capital injection into iM3NY and has instead proposed its own rescue package,which has yet to emerge.

The documents note Magnis was warned Atlas Credit Partners intended to “exercise certain contractual rights to replace Imperium board of directors” in a note sent on November 29.

But Magnis did not reveal a new round of loan breaches until midday on December 1, the day after the company’s AGM in Sydney,which saw Mr Poullas re-elected as chair.

The announcement, distributed on December 1 and signed off by Magnis’ board, said it had “recently” become aware of the alleged breaches, which came after notice of an earlier round was fired off by Atlas Credit Partners.

Magnis told investors Atlas Credit Partners had warned it intended to “change the composition of the board” of iM3NY and “take control of its operating and financing activities” but did not disclose directors had been dumped.

When asked why the company had only disclosed the notice of breaches on December 1, after receiving them earlier, a Magnis spokeswoman said the firm acted appropriately.

“Magnis learned of the Lender’s intentions on 30 November (AEST),” she said.

Shares in Magnis have collapsed more than 13 per cent since the company revealed the latest round of breaches on Friday.

The latest fight over iM3NY comes as Magnis is facing an investigation by the Australian Securities & Investments Com­mission in Australia, which is closely watching the company’s market conduct and disclosures.

ASIC has called on Magnis in recent weeks to hand over documents after launching its investigation in July, examining “suspected false or misleading statements and breaches of continuous disclosure obligations by Magnis”. The ASX is also closely watching Magnis's market disclosures. An ASIC spokesman declined to comment.