Former Nuix chief seeks $183m in Federal Court action

The former chief executive of data analytics company Nuix, Eddie Sheehy, claims it could owe him up to $183m in share proceeds wrongly denied to him.

Eddie Sheehy was appointed chief executive of Nuix in 2006. He is pictured at company headquarters in Sydney several years ago. Picture: James Croucher

The former chief executive of data analytics and forensics company Nuix, Eddie Sheehy, says his one-time employer could owe him up to $183m in share proceeds that were wrongly denied to him.

Documents filed with the Federal Court by lawyers acting for Mr Sheehy include extensive valuations conducted by Lonergan Edwards & Associates, which conclude that the options Mr Sheehy claims to be owed would have been worth between $97m and $183m, taking into account price concessions for selling a substantial number of shares.

Nuix had revenues of $176m for the financial year ending June 30 and a net loss of $1.6m.

Mr Sheehy had asked for the valuation at three dates – December 8, 2020, January 28 and March 4 – because those were the periods when he says he would have sold.

In response, Nuix directors have laid out claims about Mr Sheehy’s “idiosyncratic” management style and alleged repeated disputes with executives.

Mr Sheehy was appointed chief executive of Nuix in 2006 and was granted 540,000 options in 2008. He sold some of those options to Macquarie in 2016 for $10.35m.

Shortly after that time, Nuix directors agreed to a 50-1 share split.

Mr Sheehy left the company before the split was finalised amid discord with senior figures, including chairman Tony Castagna.

“It became apparent to me that Mr Sheehy was becoming increasingly disconnected from the business and had begun to discuss transitioning out of the CEO role with me,” Nuix director Daniel Phillips, a Macquarie banker, wrote in an affidavit filed with the court.

“I was concerned … that Mr Sheehy had a highly idiosyncratic management style that was increasingly out of alignment with the size and sophistication of the business,” it states.

Eddie Sheehy left the company before a share split was finalised.

“Mr Sheehy was regularly embroiled in acrimonious disputes with other members of the senior management team which I thought was undermining the company’s success and growth.

“More generally, I was concerned that Mr Sheehy did not have the management experience to assist the company to significantly expand both domestically and internationally.”

Another senior Macquarie figure, the head of the bank’s venture capital business David Standen, writes that Mr Sheehy had “fallen out with the initial investors who thought that he had failed to sufficiently facilitate a sale of the business and lacked the experience and financial acumen to further develop the business”.

Mr Phillips and Mr Standen, a former Nuix director, said they did not believe there was a deal to give Mr Sheehy 22 million options.

In separate affidavits filed with the court, Dr Castagna claims the 2008 options handed to Mr ­Sheehy were intended to expire in 2010. Mr Sheehy and the Nuix board have, since October 2020, been at odds over whether he was owed 22.6 million shares or 453,000 claimed by the company.

While Mr Sheehy had already flagged he would be seeking significant damages from Nuix, he has never put a specific figure on what he believes he is owed.

According to documents filed with the Federal Court, Mr Sheehy repeatedly – and as early as October 2020 – requested Nuix “correct” the register of options.

“Your client’s entitlement is to 453,273 options,” the firm acting for Nuix responded one day later.

Mr Sheehy tried again to exercise his options on November 20, shortly before Nuix was listed on the ASX, but again failed. His third attempt was on January 27, when he wrote to the company with a cheque of $906,546 in a bid to be granted the 22.6 million shares “to which I am entitled”.

In preparing her valuations, now tendered as evidence, Lonergan director Julie Planinic wrote: “The ease with which a large parcel of shares can be sold on-market without substantial price concession is not only a function of its size relative to the total number of shares outstanding, but also depends on the actual trading activity in the shares.”

Nuix declined to comment.

The company has faced significant upheaval in the last year, with Mr Sheehy’s successor, Rod Vawdrey, resigning “by mutual agreement” after a disastrous float. The corporate regulator is investigating the company’s financial statements, market disclosures and prospectus from the time of the float to May 2021.

Mr Sheehy, according to his court filings, claims a 2008 deal that gave him 540,000 options to purchase unissued shares in Nuix at $2 was triggered by the company’s listing.

His departure from the company came amid worsening relations with key figures including the then Nuix chairman, Dr Castagna, whom Mr ­Sheehy urged to resign after he was hit with tax-fraud charges.

Dr Castagna was sentenced to seven years’ prison in 2018 over allegations he had attempted to avoid paying tax and wrongly declared $5.7m of his income, but was ultimately acquitted in 2019.

Dr Castagna was eventually forced to step down in November 2020 ahead of the ASX listing after Australian Federal Police confirmed it was investigating possible breaches of the Corporations Act. The AFP investigation centres on gaps in Nuix’s records concerning 300,000 share options Dr Castagna held in Nuix.

Dr Castagna’s options landed him a $79.65m windfall over his $3000 investment.

Nuix cancelled its consulting deal with Dr Castagna in May.

Nuix settled with Mr Sheehy in 2019 after attempting to extinguish his options after he left in 2017. The company told Mr ­Sheehy the 2017 share split did not apply to his options.

Tony Castagna in 2020. Picture: NCA NewsWire / Bianca De Marchi

Dr Castagna, in reference to a 2019 legal dispute with Mr ­Sheehy, notes his former chief executive had said his options were “exercisable by Eddie on the occurrence of a sale of Nuix’s business in accordance with the 2008 Options Agreement”.

“If Eddie’s proposed declaration had in anyway referred to 22 million options or that the 453,273 options might be exercisable in respect of 22 million shares, I would never have agreed to the proposal,” Mr Castagna wrote. “I also would never have agreed to the settlement if Mr Sheehy had argued or mentioned that he considered the 2008 options to be exercisable on the basis that a sale of business had occurred.”

Shares in Nuix, which listed in December 2020, had risen from a float price of $5.31 to a top of $11.05 by the end of January.

Since that time, beset with regulatory attention and the exit of senior executives, Nuix shares have fallen sharply. They are down 75.4 per cent in 12 months, and closed at $2.14 on Tuesday.

The valuation submitted by Mr Sheehy notes that even after a rout in the share price in February, his holding may have been worth $102.9m.

One date considered by Ms Planinic was March 4 – shortly after concerns were first publicly raised about the company’s financial forecasts.

“I am instructed to assume that … Mr Sheehy would have sought to sell the shares into the market as quickly as possible after this date,” she writes.