Semantic Software Asia Pacific Limited [2021] NSWSC 785

“Stop that Co from selling shares. Right now!”

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P (who, incidentally, was the Australian corporations regulator, ASIC) commenced proceedings against a Co, and others, seeking to wind up the Co and - in the meantime - freeze the Co’s assets.

P’s evidence showed the Co had significant debts and minimal funds. The Co’s MD alleged they held funds for the Co in trust, out of reach of the Co’s creditors: [2]

The Co attracted shareholders, in part, by offering price guarantees to incoming shareholders - their shares would be bought back if they did not reach a certain price: [3]

The Co had no trading income. Its income came from issuing share capital (with buyback guarantees): [4]

The Co owned a patent portfolio and software, whose value not be realised without listing on the US stock market or being bought by a US entity: [5]

Clearly, the Co did not have the cash to support the guarantees.

Noting this, and despite the existing assets of the Co being minimal, the Court considered immediate freezing orders were needed to avoid them being further eroded: [7]

If the orders were made it would prevent the Co from conducting further fundraising activities, severing its source of funds and rendering it insolvent: [8]

The Co’s conduct in fundraising without disclosing (i) its inadequate assets to fund guarantees, or (ii) the need for a US buyer to realise its assets, were false and misleading: [6], [10]

The Court was not persuaded that it should restrain itself from making a freezing order when that would allow the Co to continue to mislead; even if the the outcome of that misleading conduct was the only source of income for the Co: [10]

Injunction granted.