In the matter of Aegros Ltd

1. [1]

   HER HONOUR: This is an application by Aegros Limited to set aside a statutory demand under sections 459G and 459H of the Corporations Act 2001 (Cth) by reason of a genuine dispute about the existence or amount of the debt. The statutory demand was issued by the defendant, Barclay Pearce Capital Pty Ltd, on 16 September 2021. The debt was described in the schedule to the statutory demand as unpaid fees due and payable incurred under clause 2 of an agreement dated 27 August 2020 in relation to “capital raising consulting work”. The schedule listed eight unpaid invoices, each of which were attached to the demand and rendered a fee for “1 Monthly Retainer” of $17,050. One of the invoices also included various amounts for expenses incurred in preparing a corporate video. The total amount of the demand was $139,150.

2. [2]

   The application to set aside the demand was put on two bases. First, on a proper construction of the agreement, Barclay's entitlement to the Monthly Retainer was said to have been dependent upon Barclay carrying out work aimed at assisting Aegros to raise capital. Second, Barclay did not in fact carry out such work over the period in which the invoices were rendered, such that the condition precedent to Barclay's entitlement to collect the Monthly Retainer was not satisfied. More precisely, Aegros contends that there is a genuine dispute as to both matters.

3. [3]

   In support of its application to set aside the demand, Aegros relied on the evidence of its managing director, John Manusu, and executive chairman Dr Hari Nair. In opposing the relief sought, Barclay relied on the evidence of process server Paulene Hill, chief executive officer Huynh Quang Ngoc Duy (Jared) Huynh and former Director – Corporate Finance, Timothy Wilson.

PRINCIPLES

1. [4]

   There is no dispute as to the principles. Drawing on my judgment in In the matter of Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [77] to [81], the threshold to establish a genuine dispute about the existence of a debt is a relatively low one. Black J conveyed the principles in In the matter of Gorji Property Investment Pty Ltd [2018] NSWSC 1671 at [14]:

2. [5]

   In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, the Court of Appeal (Beazley P, Meagher and Gleeson JJA) said in the context of an offsetting claim, at [30]:

3. [6]

   It is not for the Court to engage in an assessment of a deponent’s credit on an application such as this: Britten-Norman at [46]. What is called for is an assessment of the kind described by McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 (approved in Britten-Norman at [46]) (citations omitted):

4. [7]

   In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67, Dodds-Streeton JA, with whom Neave and Kellam JJA agreed put the test in the following terms, at [71]:

5. [8]

   Often cited is the judgment of Thomas J in In the matter of Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, which provides useful guidance:

6. [9]

   Drawing on my judgment in In the matter of Granite Power Ltd [2019] NSWSC 1491 at [31]-[32], where the dispute relied upon to set aside a statutory demand is the meaning of the contract, determination of the meaning may be appropriate if a “patently feeble legal argument” is put forward: In the matter of Universal Property Group Pty Ltd [2019] NSWSC 796 at [15]. However, as Barrett AJA (with whom Gleeson and White JJA agreed) cautioned in Creata (Aust) Pty Ltd v Faull [2017] NSWCA 300; (2017) 125 ACSR 212 at [26], “where the question of construction has any element of rational controversy to it, the Court must exercise particular restraint.” Barrett AJA adopted the statement of principle by Gleeson JA in In the matter of Litigation Insurance Pty Ltd [2017] NSWSC 334 at [31]:

7. [10]

   Thus, where there are clearly arguable alternatives as to the meaning of a term and related questions of construction, this of itself gives rise to a genuine dispute within section 459H(1)(a) and no attempt should be made to determine the question in an application to set aside a statutory demand: Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192 at [47] per Barrett J. More recently in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60, White JA held at [90] (emphasis added):

FACTS

1. [11]

   Barclay is a corporate advisory and equity firm which provides advice, trade execution and market research. Barclay assists clients with debt and equity capital raising, assists clients to list on the Australian Securities Exchange (ASX), provides clients with strategic advice, investor relations, investor communication and media relations and support, develops long-term investor relations strategies and assists in engaging investor networks and attracting potential investors through marketing communications programs.

2. [12]

   Aegros is an unlisted public company which operates Australia's second Therapeutic Goods Administration (TGA) registered plasma fraction facility.

The agreement

1. [13]

   On 27 August 2020, Aegros and Barclay executed an agreement in the form of a signed engagement letter, which provided:

2. [14]

   It will be seen that Barclay was appointed to undertake a range of services of which advising and assisting Aegros with capital raising was but one. As to Barclay’s entitlement to be paid, the agreement set out a fee structure as follows:

3. [15]

   Importantly, Barclay was only entitled to charge a Monthly Retainer on completing Tranche 1. The parties agree that Tranche 1 – and indeed Tranche 2 – were completed in October 2020. Although clause 3.10 does not provide that Barclay's entitlement to the Monthly Retainer was conditional upon anything other than having completed Tranche 1, Aegros contended that the clause should be construed as making entitlement to the Monthly Retainer conditional upon carrying out work in relation to capital raising. Such a construction does not sit well with the fact that, following Tranche 1, Barclay may not be required by the client to embark on Tranche 2 or Tranche 3: clauses 3.8 and 3.9 each refer to those tranches only being raised "if required". That is, on Aegros’ construction if Aegros did not “require” Barclay to raise further tranches of equity and debt then, notwithstanding clause 3.10, Aegros would not be obliged to pay the Monthly Retainer even if Barclay were performing other services as described in the agreement.

4. [16]

   However, it may not be necessary to deal with whether Aegros’ construction of the agreement is plausible or patently feeble as it is perfectly clear that Barclay did continue to carry out work in relation to capital raising throughout the period in which invoices were rendered.

Tranche 1 and Tranche 2

1. [17]

   Tranche 1 was completed on 13 October 2020, as was Tranche 2. According to the term sheet used for the capital raise, the funds were to be used to undertake a clinical trial, alter Aegros’ existing TGA-approval to include production of a novel Covid-19 hyperimmune and for working capital.

2. [18]

   On 29 October 2020, Barclay issued the first invoice for the Monthly Retainer, which was promptly paid on 2 November 2020. In November 2020, Barclay began preparing promotional videos for Aegros. Barclay’s second invoice for the Monthly Retainer was issued on 11 November 2020 and paid on 3 December 2020. The third invoice was issued on 11 December 2020 and not paid until 9 March 2021. These invoices were the only ones paid by Aegros; the remaining invoices were issued from January to August 2021 and are the subject of the statutory demand.

Problems with ASX listing

1. [19]

   In December 2020, the ASX informed Aegros that an application to list the company on the ASX would likely be declined given the early stage of Aegros’ business operations, including that the clinical trial had not yet commenced, nor the good manufacturing practice (GMP) inspection and licence upgrade required for manufacture, nor any application to the TGA nor advice sought from the TGA, and Aegros’ limited operating and financial history. ASX recommended that Aegros consider very carefully whether it wished to proceed with its application to list. Obviously enough, a number of matters needed to be attended to before Aegros could list on the ASX.

2. [20]

   In January 2021, Aegros informed Barclay that it wished to complete another capital raise that month of $2 million to $3 million. According to Barclay’s note of the meeting, Mr Wilson asked how these funds were to be used as well as how the funds already raised had been spent. Mr Manusu agreed to provide information ahead of their next meeting “in which we will discuss the strategy moving forward”.

3. [21]

   In January 2021, Barclay also began publishing promotional material about Aegros, using the videos it had made. Barclay published articles on its LinkedIn profile, website, YouTube channel, Twitter profile and Facebook profile.

Harsh words

1. [22]

   On 3 February 2021, a meeting took place between representatives of Aegros and Barclay which, on any version of events, was a difficult meeting. On Mr Manusu's version of events, a "tirade" was delivered by one of Barclay's representatives, who accused him of fraud and said, “In my eyes, your relationship with [the defendant] is well and truly over … however, if you agree to pay out our convertible note holders right here and now I will not report you to ASIC”. The Barclay’s representative then "stormed out" of the meeting. The remaining two Barclay representatives apologised for their colleague and said they wished to continue the relationship with Aegros if at all possible. Mr Manusu said, “You will have to come back to us with a plan of how to make this work.”

2. [23]

   Barclay’s contemporaneous file note of the meeting records:

3. [24]

   Clearly enough, Barclay was reluctant to embark upon a further capital raise until Aegros could explain to potential investors how it has used the funds raised in Tranche 1 and Tranche 2, and how it intended to use the additional capital now sought to be raised. Aegros also had to get its accounts in order.

4. [25]

   As to the capital raise, the note records that Aegros said it had about $6 million in “soft commitments” from people who wished to put money into Aegros; Aegros wanted to raise about $10 million in early March 2021, with the rest of the $4 million to be raised by Barclay. The note indicates that Barclay’s capital raise was after, or perhaps alongside, Aegros’ raising of $6 million. Consistent with the former, Mr Wilson said that Barclay was not prepared to commit to raise the $4 million until Aegros had obtained a firm and binding commitment on the $6 million.

Moving on

1. [26]

   Whatever was said at the meeting, the parties resumed a working relationship the next day and continued to work together in the months which followed, endeavouring to address the various obstacles which lay in the path of another capital raise. Mr Manusu says that he met with his internal management on 4 February 2021 and they agreed to let Barclay’s representatives see what they could do to repair their relationship with Aegros. Emails followed as to how the parties would continue to work together. Mr Manusu sent an email to Barclay: (emphasis added)

2. [27]

   Further conciliatory emails were exchanged including from Mr Wilson on 8 February 2021:

3. [28]

   Dr Nair responded:

4. [29]

   One particular problem was that Aegros needed to complete the audit of its accounts. Barclay contacted Aegros' auditor to endeavour to progress this task. On 3 February 2021, the auditors informed Barclay that the bulk of the information which the auditors had requested remained outstanding; Barclay offered to assist. The auditor provided Barclay with further details of their efforts to get information from Aegros and Barclay repeated, "We will do our part to move things along". It is apparent that Barclay did so by raising the matter with Aegros and seeking thereafter, as corroborated by a large amount of contemporaneous material, to assist in the completion of the audit. That matter seems to have dragged on for months.

5. [30]

   Aegros’ commitment to raise $6 million went nowhere. On 22 February 2021, Aegros advised that its “new investor” was a foreigner planning to invest $5 million to $6 million, and Aegros was meeting with them on 23 February 2021. On 24 February 2021, Aegros advised that it would draw-down on its R&D facility until the new investor contributed capital. On 3 March 2021, Aegros advised that it had drawn down $1 million on its R&D facility and was meeting with its new investor “later today”, that the investor was “performing due-diligence”, required a board seat, and the end of next week (viz. by 12 March 2021) was the due date for a term sheet to be agreed to the investment. On 10 March 2021, Aegros advised that its new investor’s due diligence and legal processes would be finalised “next week”. On 17 March 2021, Aegros advised that it was working with the new investor and was hoping to have a term sheet finalised by Friday “this week” (viz. 19 March 2021) for an investment of $5 million, with further funds coming from “related parties”. On 31 March 2021, Aegros advised that documentation from the now $5 million investor should come by “mid-next week” (viz. circa 8 April 2021), that the plaintiff met the requirements for “the visa” and that the price being offered to the investor was roughly $2.30 per share in the plaintiff.

6. [31]

   On 14 April 2021, Aegros advised that the investor would now be investing through a special purpose vehicle, that Aegros was having discussions with the investor on a “daily basis”, that the deadline for the investment was May 2021, and that Aegros would go to Paddington (viz. Paddington Finance) for a further R&D facility to bridge a funding gap if necessary. On 15 April 2021, Aegros advised that the investor was an Indian national looking to invest as part of the 891 visa program and was prepared to invest $5 million at $2.30 per share and that the investment would need to occur “by May when the investor's son turns 23” and that a special purpose vehicle was being formed to make the investment in Aegros. On 28 April 2021, Aegros advised that the $5 million investor was an “ongoing process” with some “to and from” between the special purpose vehicle and immigration.

7. [32]

   On 5 May 2021, Aegros advised that a term sheet was issued to the new investor but it “needed some amendments” which were to be done by 5 May 2021, and that Aegros was hoping to have the term sheet signed “this week” (viz. by 7 May 2021). From there, the investor would have 21 days to conduct more due diligence before paying any money, and the deadline for the investment – for immigration reasons – was the end of May. On 19 May 2021, Aegros advised that the term sheet with the investor was signed and that Aegros was working on completing the share subscription form, and that the investor’s funds were coming within the next two weeks. On 26 May 2021, Aegros advised that negotiations with the investor were still ongoing, that Aegros has raised $850,000 from other high net worth individuals and received another $300,000 from the exercise of previously-issued options.

8. [33]

   On 9 June 2021, Aegros advised that its investor had agreed to terms and conditions, and a conversation would occur “today” about a share purchase plan, a signed copy of which would be sent to Barclay by the end of the week (viz. by 11 June 2021). On 30 June 2021, Aegros advised that the new investor had signed the share purchase plan and $1 million was due to be paid to Aegros by “Tuesday next week” (viz. 6 July 2021), with a further $3 million due 21-days after signing and a residual $2 million due on obtaining TGA approval.

9. [34]

   On 7 July 2021, Aegros advised that the new investor was having problems with his visa and this was threatening the investment, “which is why the initial payment has not been made”, and that Aegros “is getting impatient with this investor and has threaten[ed] to tear up the agreement if the issues [aren’t] sorted by the end of the week”. Furthermore, “[l]osing” the new investor was a setback but Aegros had drawn down another $750,000 from the R&D Facility and also expected an R&D refund in August of $4.6 million which would be used to pay back the R&D facility and also go towards working capital. On 14 July 2021, Aegros advised that “after several delays” it had procured an oral agreement from their investor that morning and the share purchase plan would be signed that day, with the first $1 million being paid by 19 July 2021.

10. [35]

    On 21 July 2021, Aegros advised that the term sheet for the $6 million investment has been signed (again). On 22 July 2021, in response to an email from Mr Wilson, Aegros advised that the “first funds will flow on Monday” (viz. 26 July 2021). On 28 July 2021, Aegros advised it expected $250,000 to be paid by the new investor today (28 July 2021), a further $250,000 tomorrow (29 July 2021), $500,000 “in 5 days” and a further $3 million by 12 August 2021. On 4 August 2021, Aegros advised that a “family dispute” had erupted which had delayed the new investor contributing capital, but this had been resolved and $250,000 would be paid to the plaintiff “either tomorrow or Friday”.

11. [36]

    According to Mr Manusu, on 12 August 2021, Mr Huynh said, “BPC is not able to move forward” and “let’s agree to temporarily pause the agreement”. Thereafter, Mr Manusu had no significant involvement with Barclay. Matters appear to have come to a head in September 2021, when Barclay learned that Aegros had retained another consultant, Pulse Market, to raise funds. A letter of demand and the statutory demand followed.

12. [37]

    Through the period when invoices were rendered, Barclay continued to periodically post promotional material concerning Aegros on Linked In, Barclay’s website, YouTube channel, Twitter profile and Facebook profile. These publications remained active during the period for which the invoices were rendered. Barclay also suggested that Aegros produce an audio podcast episode. Contemporaneous emails indicate that the purpose of this material was to increase Aegros’ profile and brand awareness. Self-evidently this was directed to make Aegros appealing to potential investors and to keep existing investors informed and content.

13. [38]

    Barclay also organised and attending weekly meetings, requested information from Aegros in order to update existing investors, held meetings to update investors and drafted and settled shareholder updates for dissemination among Aegros’ investors. Barclay found one potential investor, Gandel Invest, who was interested in investing about $5 million. However, the investment did not proceed as Gandel Invest was not prepared to invest until TGA approval had been received.

14. [39]

    Mr Manusu and Mr Wilson agreed that at no point did Barclay and Aegros put in place any plans for Barclay to commence another capital raise over and above Tranche 1 and Tranche 2. Mr Wilson said to do so would have been problematic given Aegros' delays in obtaining TGA approval, the lack of clarity around Aegros' use of the funds already raised and Aegros' resistance to providing Barclay and its investors with documents recording their progress in obtaining TGA approval or achieving other significant business milestones.

15. [40]

    No dispute was raised at the time as to Barclay’s entitlement to render invoices for the Monthly Retainer. On 12 April 2021, Mr Wilson sent an email to Mr Manusu: (emphasis added)

16. [41]

    Mr Manusu’s response, contained in an email dated 13 April 2021, was as follows:

17. [42]

    On 7 June 2021, Barclay sent another email to Mr Manusu, Dr Nair and company secretary Leighton Hopper, attaching unpaid invoices, noting that the invoices remained outstanding and requesting payment as soon as possible. Mr Hopper promptly replied that Mr Manusu “will shortly call you to discuss payment schedule.”

Submissions

1. [43]

   Aegros submitted that Barclay did not perform its overarching obligation under the agreement to carry out work aimed at assisting Aegros to raise capital. Properly construed or by way of an implied term, until and unless Barclay had done so, there was no obligation on Aegros to perform its reciprocal obligation to pay for those services: J D Heydon, Heydon on Contract (2019, Lawbook Co) at [21.260], and Burton v Palmer [1980] 2 NSWLR 878 at 895; Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 450. Aegros submitted that the terms of the agreement were directed to raising capital. Properly construed, each of Barclay’s obligations was for the purpose of raising capital. An officious bystander would have thought it was obvious that, if Barclay did not provide services to that end, it would not be entitled to payment. Further, the failure to perform amounted to a breach of the agreement; Barclay expressed an unwillingness to perform its overarching obligation to raise capital. There was no obligation to perform its reciprocal obligation to pay for the services that were not provided and in breach of the agreement.

2. [44]

   Aegros submitted that, following the meeting on 3 February 2020, Barclay’s mistrust was not resolved and fatally infected their dealings such that Barclay decided not to raise further capital for Aegros. By its email of 8 March 2020, Barclay imposed conditions on what Aegros had to do before Barclay raised any further capital for Aegros. These conditions were not met and it is said that Barclay did no work in relation to raising capital as a result. The work done promoting Aegros, such as videos, Tweets, Linkedin profiles and Facebook were said not to constitute work done under the agreement, were not part of an effort to raise capital but were part of Barclay’s relationship with its investors who had already provided funds. To the extent that Barclay relied on Mr Manusu’s admissions that the amount claimed was due, the court was not bound by them: Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87 at [151].

3. [45]

   Barclay submitted that, whilst the plaintiff sought to confine the remit of Barclay’s mandate to the sole task of raising capital, Barclay was obliged to, and did, take up a far more generalist corporate advisory role as was clear from clauses 2.1 and 2.2 of the agreement and the evidence. There were certainly genuine disputes about the reasons for Aegros’ delays in obtaining TGA-approval, conducting clinical trials, obtaining an ASX-listing or providing information to its auditors, or as to Aegros’ use of funds raised by Barclay. But none of these disputes touched upon the critical issue being whether there is a genuine dispute about the existence or amount of the debt claimed in the statutory demand.

4. [46]

   Barclay submitted that it was readily apparent from the contemporaneous documents that Aegros had committed to turn some $6 million in “soft commitments” for funding into “firm commitments” by 8 March 2021, following which Barclay would raise another $4 million. The blame for the fact that the $6 million investment did not transpire could hardly be laid at Barclay’s feet where it was not responsible for ensuring that these funds were raised and where Aegros had not divulged the identity, or substantiated the existence, of the individual or individuals behind the $6 million investment.

Consideration

1. [47]

   It is not sufficient on an application of this kind for a debtor to raise a dispute which has no prospect of being accepted should the matter proceed in another Court. The Court is entitled to examine, albeit in a fairly uncritical way, whether the genuine dispute which is being suggested meets the relevant test, including to ask whether it is mere bluster or assertion, spurious or lacks the perception of genuineness.

2. [48]

   The Court is assisted in this case by a thoroughly documented commercial relationship. To the extent that the parties had given different versions of what was said at meetings, the differences do not matter where it is perfectly apparent that, whatever discomfort was experienced to the commercial relationship in the meeting in February 2021, the parties continued to work together to endeavour to get the company in a position to raise further capital.

3. [49]

   What is abundantly clear from the documents is that Barclay was endeavouring to clear hurdles which lay in the path of a capital raise. Weekly meetings were held, at which progress was discussed, including delays in GMP certification and clinical trials. Mr Manusu recalls that Barclay said investors were concerned by delays and asked what Mr Manusu could say to address investors' concerns. The parties continued to prepare updates for shareholders, provide a reconciliation of the use of the funds from Tranche 1 and Tranche 2, progress the audit and further promote Aegros. Invoices continued to be rendered by Barclay for its Monthly Retainer, which Aegros acknowledged at the time were payable. I am not satisfied that the dispute as to the underlying debt meets the description in the legislation.

4. [50]

   Having dealt with the second argument, I will return to the first, which is the construction of the agreement. I do not think it is a plausible contention that the Monthly Retainer was conditional upon Barclay performing one specific part of the plethora of services it was obliged to provide. That is at odds with the express terms of clause 3.10, the definition of “the Services” and the surrounding clauses 3.7 – 3.14. Aegros’ suggested construction has the consequence that Barclay was obliged to raise capital whether the client required it or not, and whether an attempt to raise capital was foolhardy or doomed. It is not an argument which has any real prospect of success. That is not to distract from the careful and conscientious manner in which that argument was advanced by the plaintiff's counsel.

5. [51]

   For these reasons, I make the following orders:

   1. (1)

      Dismiss the Originating Process filed on 7 October 2021.

   2. (2)

      Order the plaintiff to pay the defendant's costs of the proceedings.