EVP takes legal action against StrongRoom AI’s founders and administrators, freezing assets to try and get their $10.4 million back

EVP has lodged legal action in the Federal Court of Australia in a bid to recoup the $10.44 million it invested in Melbourne startup StrongRoom AI.

The Sydney venture capital firm headed to court in Brisbane on Monday afternoon to seek an urgent order freezing assets worth up to $10,440,969 million against 13 defendants, including the company, its administrators appointed on Friday, receivers called in shortly before the administrator,and five board members, including cofounders Max Mito and Christopher Durre, and UK-based Peter Bruce-Clark, from fellow investor Kalytix, who was named StrongRoom’s global president two years ago.

Justice Roger Derrington granted the freezing order sought by the EVP Opportunities fund on Monday, with 13 defendants cited, including  Member Benefits Australia, the company StrongRoom acquired using the $17 million raise, led by EVP. Member Benefits, Pharmarix – the parent company of two pharmacies in Drouin (pop. 3800), 90km east of Melbourne, and another company, Morton Court, have each had assets frozen up to $6.52 million in value. Court documents list director Divesh Sanghvi as a related party for service involving the 11th and 12th defendants, Pharmarix and Morton Court. Sanghvi, who’s been on StrongRoom’s board for two years, is also CEO of Member Benefits Australia.

The defendants were due to be served with notice of the freezing orders, and the allegations put by EVP and Saul’s affidavit by 6pm Monday by email, or 5pm, April 1, in person.

The matter has been adjourned for hearing on Thursday, April 3, at 10am, in the Federal Court in Brisbane.

Justice Derrington has frozen the disposal of assets including three properties in Melbourne – in Malvern East, Hawthorn and Glen Iris, an ANZ bank account in Strongroom’s name and any funds controlled by the voluntary administrator or receiver.

The order also requires five defendants  Mito, Durre, and fellow directors Bruce-Clark and Sanghvi, as well as shareholder and former director Dr Takamichi Mito, to disclose their assets – unless doing so may prove wrongdoing.

EVP’s legal action comes after StrongRoom AI’s board placed the startup in the hands of administrators last Friday.

Misha Saul, the head of EVP’s Opportunities Fund, made the investment and joined StrongRoom’s board on February 26.

Two directors, both shareholders, had resigned a few months earlier – US-based Gail Marcus and Melbourne-based Craig Nossel, leaving six directors. Neither were named as defendants.

The latest extraordinary turn of events comes after Sydney accounting firm HLB Mann took charge of Strong Room Technology Pty Ltd’s books on Friday when its board concluded the startup was potentially insolvent and placed the company in voluntary administration.

It happened just after lenders Paddington Street Finance called in Walsh & Associates as receivers for StrongRoom’s banking assets.

Paddington Street, part of the Sherman Group, lend to companies, either with an annual EBITDA of $1m-$5m or for R&D Tax Incentive (RDTI) finance. The latest ATO records show that StrongRoom AI claimed $1.642 million from the RDTI in FY2022.

Sale pending

HLB started the day saying it was assessing the business with a view to open expressions of interest to urgently sell StrongRoom or it assets.

“The appointment of administrators was driven by the recent uncertainty around the ongoing funding of the business and the potential appointment of the receiver, not any aspect of operations,” HLB said.

The voluntary administrator began the day saying StrongRoom continues to trade on a business-as-usual basis “with the ongoing support of key stakeholders” as they look for a buyer.

But it appears that support did not include EVP, which was busy briefing its lawyers, boutique Sydney firm Bridges. Misha Saul signed an affidavit for EVP’s action on Sunday, ahead of the matter being heard on Monday afternoon in Brisbane.

Less than a fortnight after EVP had announced it led the $17 million raise, which valued the StrongRoom at $70 million, the VC revealed last Monday that it had called police over a “potentially serious issue”, and was warning investors in its Opportunities Fund that it was “pursuing all avenues to recover the investment”.

EVP has declined to comment further, saying it would be inappropriate as the matter is under investigation.

The VC has yet to publicly disclose the nature of its concerns, although the court order hints at potential concerns, and Victorian police will not comment for privacy reasons.

Saul, previously outspoken on Twitter, has deleted his account and EVP has deleted references to StrongRoom AI on its site.

The Opportunities Fund, which Saul joined in mid 2024, had previously invested in Deputy and Mutinex.

StrongRoom was founded in Melbourne 2017 by university colleagues Mito, Durre and Kieran Start. Its software streamlines medication tracking, dosage management, and patient adherence.

The company claimed to have $13 million in annual revenue by the end of 2024, with more than 1,500 customers, including pharmacies in Australia and the UK.

Other investors include Artesian Venture Partners, which is backed by super fund Hostplus, Boab AI, an Artesian subsidiary, Kalytix and InterValley Ventures, as well as UK-based Tyson & Blake.

The company has an extensive share register according the filings, with shareholders in Singapore, Japan, New Zealand, Sweden, the US, Australia, and the UK, but Startup Daily was unable to find records of EVP’s shareholding on ASIC records on March 27. A company is required by ASIC to lodge on new shareholders within 28 days.

Justice Derrington granted room for the administrators and receivers to be paid for the work, up to $200,000 and $25,000 respectively, as the the hearing continues.