Nuix wins $183m court fight with former CEO Eddie Sheehy over IPO claims
Former Nuix chief executive Eddie Sheehy is considering his options after losing a years long fight with the company over an alleged $183m claim for shares.
ASX-listed tech stock Nuix has won a $183m court battle after the Federal Court found its former chief executive was not entitled to cash out his options in the business when it hit markets in 2020.
The Federal Court found although former chief executive Eddie Sheehy held 453,273 options in the business, after winning an earlier NSW Supreme Court case, he was not able to exercise them.
Shares in Nuix leapt on the news, climbing 43.65 per cent, or 39c, to close at $1.30.
Justice John Halley said Mr Sheehy’s attempt to force Nuix to honour 453,273 options in the business should be precluded as there was no sale of the business when the company listed on the stock exchange.
“There are two fundamental and insurmountable hurdles to the claims Mr Sheehy seeks to pursue in these proceedings,” Justice Halley said.
Mr Sheehy had sought to argue a 2008 deal with Nuix entitled him to strike options if the business were sold.
But Justice Sheehy said there had been “no breach of that agreement” and Nuix’s conduct had not been oppressive and did not constitute “unconscionable conduct”.
Mr Sheehy has not established that there was any lack of good faith or that no reasonable board could have come to the decision that the number of Nuix shares that would be issued on the exercise of the Remaining 2008 Options would not, by reason of the Share Split, be 50 times the number of options exercised.
“Mr Sheehy has not established that there was any lack of good faith,” Justice Halley said.
“Mr Sheehy knew or ought reasonably to have been aware of Nuix’s approach to the effect of the Share Split on options, but he failed to raise in the 2018 Proceedings its application to any exercise of the Remaining 2008 Options and his entitlements under the 2008 Option Agreement.”
Mr Sheehy had taken Nuix to court, arguing it should have applied a 50:1 share split to his options, in a move similar to that applied to other option holders in the business ahead of its market listing.
He said this would have given him 22.7 million shares in the business when it hit ASX trading boards in December 2020.
The former CEO had argued Nuix failed to honour his options, which he had forced the firm to recognise in an earlier fight in the NSW Supreme Court.
Nuix said it was pleased with the judgment, noting there was “no requirement for Nuix to amend its options register and Mr Sheehy is not entitled to any monetary compensation from the company”.
Mr Sheehy, who left Nuix in 2017 after falling out with its chairman Tony Castagna, claimed the company continued to record his options in the business and even allowed him to sell some in a 2016 deal to investment bank Macquarie.
Nuix was forced to record his 453,273 options, but claimed they could not be exercised as the deadline they could be exercised under had passed in 2010.
Mr Sheehy and Dr Castagna clashed in 2016 after he was hit with charges relating to allegations he attempted to avoid paying tax.
Dr Castagna was jailed in 2018 but released in 2019 after he was acquitted on appeal.
Mr Sheehy had claimed Nuix had block him selling the shares, which could have yielded as much as $183m if sold.
Nuix listed at $5.31 in a highly anticipated IPO, which saw shares quickly climb to a high of $11.16 in late January.
However, shares have since tanked after Nuix faced repeated earnings downgrades and missed targets.
Nuix had warned of a major financial hit if it lost the case, placing its shares in a trading halt early on Tuesday ahead of the Federal Court’s decision.
The company told investors it was halting trade because “the outcome of the proceedings and its potential effect on Nuix may be material to the value of Nuix‘s securities”.
The court ordered both sides to confer regarding costs, Nuix flagged in its full year earnings it had spent $13.79m on legal costs in the period fending off Mr Sheehy case as well as regulatory action from the Australian Securities and Investments Commission.
Mr Sheehy is understood to be considering his options.
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