Magnis signs on insolvency and commercial litigation lawyers as battery factory feud concludes

Court documents give an insight into the wealth of Magnis board briefings and warnings ASIC will rely on as it seeks to prosecute the company and its chair Frank Poullas.

Magnis director Giles Gunesekera, left, and chairman Frank Poullas, right. Picture: John Feder

Magnis Energy Technologies has called on the help of an insolvency and commercial litigation firm as it faces off with the corporate regulator, as court documents show the former $700m market darling has concluded a battery factory feud with former business partners.

Documents show Magnis has secured Polczynski Robinson to represent the company as it faces down with the Australian Securities and Investments Commission in the Federal Court, over claims the company and its chair Frank Poullas repeatedly misled the markets.

ASIC alleges Magnis knew its American battery gigafactory Imperium3 New York was failing, churning out thousands of dud cells while chewing up millions of dollars, but told investors otherwise.

Magnis and Mr Poullas repeatedly made assurances to shareholders over 2022 and 2023 iM3NY would turn a corner and deliver rivers of revenue, despite concerns allegedly being raised among senior members of the ASX-listed firm.

Court documents show Magnis moved to appoint Polczynski Robinson on Wednesday, more than a month after Mr Poullas secured his own legal representation from William James lawyers.

Polczynski Robinson tout themselves as the “go to law firm” for legal disputes, with the firm a known player in insolvency disputes.

However, sources close to Magnis assured The Australian the firm’s appointment was tied only to contesting ASIC’s legal dispute.

This comes as Magnis faces questions over its financial future, with the company’s accounts showing just $28,000 in the bank in March, with a tapped-out lifeline to a high-cost corporate lender and cash directly lent by shareholders.

Magnis’s $4.6m loan, signed in December, sees the company facing 66 per cent interest a year, having been extended five times since its initial due date of March 1.

The company was also sitting on $338,000 in debts from other shareholders, having tapped supporters for an interest-free unsecured lifeline. Magnis lost its long-term lawyers K&L Gates in April over unpaid legal bills.

Despite this Magnis supporters have told The Australian key shareholders have been assured a lifeline is near at hand, but no announcement has been forthcoming with the company due to rule off its full-year accounts in the coming days.

Magnis chairman Frank Poullas. Picture: Britta Campion

At its peak Magnis secured the backing from thousands of retail investors, wooed by the promises of a clean-energy empire built on the back of graphite and batteries.

A deal with carmaker Tesla, leaked to the media ahead of the market, saw many more pile in.

But the empire is crumbling, with the company suspended from trade since December and lenders in control of its flagship battery factory iM3NY since November after Magnis’s subsidiary ran up huge unpaid bills with almost $US100m ($150m) in debt.

Magnis attempted to engineer a boardroom coup at iM3NY, with Mr Poullas and fellow directors Claire Bibby and Giles Gunesekera moving to replace the leadership of the factory.

But the manoeuvre triggered months of litigation in the US, after lenders stepped in to take back control of iM3NY warning that Magnis’s boardroom offensive was in breach of debt deals.

Papers filed with the Delaware Chancery Court reveal Magnis and its business partners, Charge CCCV, agreed to close their court dispute “without prejudice”, with both sides to bear “its own costs, fees and expenses”.

This may prove challenging for Magnis given its parlous finances and the legal costs demanded in its fight with ASIC.

On Wednesday, ASIC flagged it would revisit its court claims against Magnis, foreshadowing more evidence from the regulator as it ratcheted up its case against the company and Mr Poullas.

Federal Court Justice Lisa Hespe gave Magnis until August 2 to respond to ASIC’s case, noting Mr Poullas must give notice what defence he would seek to rely on“, except insofar as it would tend to incriminate him or expose him to a civil penalty”.

Court documents also reveal the bundle of evidence ASIC has warned it will rely on as it pursues Magnis over its breaches of market disclosures.

These include an urgent and confidential warning sent to Magnis on January 13 last year, 10 days after the company published an update to the market touting the qualification of cells from iM3NY.

On the same day Magnis also spruiked its appointment of HSBC “to assist funding the huge expansion in the coming years”, noting “the process has yielded interest”.

The documents show that despite talking up the prospects of iM3NY in January, Magnis’s board was presented with a number of documents that month, including a “note to David and Duncan” – Magnis’s CEO David Taylor and secretary Duncan Glasgow – on January 30 “subsequent to the iM3NY situation presentation to the board”.

ASIC claims Mr Poullas and Magnis were aware of the issues at iM3NY from at least January 25 last year, with the regulator alleging the board resolved to not disclose the issues at the company to investors.

The court documents show just eight months later Magnis’s board was told of a hiring freeze at iM3NY, weeks before lenders moved in to seize control of the company. Magnis and Mr Poullas did not respond to requests for comment.