StrongRoom administrators back sale of business after alleged attack from creditor

A StrongRoom AI creditor made “vehement and consistent” attacks against its administrators, who worry it could defeat an attempt to sell the business.

Strongroom AI CEO Max Mito CEO and director Divesh Sanghvi.

The administrators of StrongRoom AI say they had no choice but to turn to court after allegedly enduring “vehement and consistent” attacks from a creditor they fear could sue as they try to push through the sale of the failed tech startup.

HLB Mann Judd partners Todd Gammel and Matthew Levesque-Hocking returned to the Federal Court for the second time in two weeks, seeking judicial direction that they are protected in a decision to refuse to put a deed of company arrangement before creditors at a second meeting.

The court heard last week Federal Court judge Michael Lee refused to make orders sought by the administrators, saying the DOCA proposal was a commercial decision for creditors to make.

But the parties returned to court on Wednesday and the issue was relitigated.

Barrister Nicholas Mirzai, acting for the administrators, told the court the “most advantageous” path for creditors is to sell the company to a business that was identified via an open sale process. The bidder is already operating StrongRoom, and has agreed to take on the risk of defending separate and ongoing litigation against the company.

“(The) proposed agreement is a better outcome for creditors outside of liquidation and a better outcome than the proposed deed of company arrangement,” he said.

Mr Mirzai said the party, whose name is being kept confidential, has no reason to continue operating a StrongRoom license, leaving creditors in the lurch if an alternative deal is pursued.

One creditor, InterValley Ventures, was making “vehement and constant” complaints and Mr Mirzai said the court should infer it may sue if the sale goes ahead.

Lawyers for InterValley denied this and said it was up to the creditors to decide the company’s fate.

Federal Court judge Roger Derrington previously granted freezing orders requested by Sydney based venture capital group EVP, which made fraud allegations against StrongRoom. Justice Derrington froze about $10m worth of assets.

Mr Mirzai said if the sale does not go through, “(the business) will cease and there won’t be a business to sell”.

He agreed with Justice Derrington’s summary of his argument that the EVP litigation amounted to “a big claim hanging over the head of the company”.

StrongRoom AI was founded by Max Mito, Christopher Durre and Kieran Start in a bid to solve Australia’s $10bn a year problem of people refusing to take prescription medication.

It partnered with about 1200 independent pharmacies across Australia via the Platform Alliance Group to use artificial intelligence to lift medication adherence rates.

HLB was appointed in early April.

Originally published as StrongRoom administrators back sale of business after alleged attack from creditor