Plaintiff v CRYPTAI PTY LTD

2 GFF seeks interlocutory orders restraining the continuation of the June Capital Raising and restraining the Company from using funds received from acceptances it has received to date for placements in the June Capital Raising. By its Amended Interlocutory Process GFF seeks:

(a) an interlocutory injunction pursuant to s 233(1) of the Corporations Act 2001 (Cth) (the Act) restraining the Company (the first defendant) until the hearing and determination of the proceeding from issuing "Offer Shares" as defined in the 26 June 2024 letter (June Offer).

(b) an interlocutory injunction pursuant to s 233(1) of the Act restraining the Company from dealing with the capital raised from the issue or purported issue of Offer Shares, save for reasonable expenditure on its legal costs of defending this proceeding and ordinary business expenses up to $10,000.

3 By its originating process GFF seeks relief under s 232, 233 and 461(1) of the Act including orders restraining the Company from issuing any Offer Shares, that the issue of any Offer Shares that has occurred be set aside and the Company repay all amounts paid for any Offer Shares; that the second and third defendants (who are the directors of the Company) be removed; and that in the alternative, the Company or the proposed third or fourth defendants purchase the plaintiff's shares for fair value.

4 By interim orders made on 5 July 2024 by consent, the Court ordered that the Company not issue any Offer Shares between 5 July 2024 and the day following the determination of this application, or a date agreed between the parties, and that during that period the Company not deal with, dispose of, or dissipate, any capital received from any of the Offer Shares, subject to expending funds on its reasonable legal costs.

5 GFF submits that there are serious questions to be tried that:

(a) The June Offer and the issuing of the Offer Shares was (and will be, if it is continued) made for the dominant purpose of diluting GFF's shareholding and not for the purpose of capital raising and accordingly, the issuing of those shares was and will be oppressive to the plaintiff;

(b) The June Offer and the issuing of the Offer Shares was (and will be, if permitted to continue) made at a price that is substantially below the true value of the Company's shares. Offering shares at an undervalue is conduct of the Company's affairs contrary to the interest of the members as a whole;

(c) The June Offer and the issuing of the Offer Shares was (and will be, if it is continued) made for the purpose of increasing the proportionate interests of the directors in the Company (Bill Koutlis, Louis Simens and shares issued to the proposed fifth defendant, a company owned by Mr Simens' wife, Danche Simens). In those circumstances the issuing of those shares was and will be oppressive to the plaintiff and contrary to the interests of the members as a whole.

6 The third-mentioned ground was not abandoned but it was not the subject of oral submissions and nor was it the focus of the application. It unnecessary to address that ground in these reasons.

7 Most of GFF's evidence was given on information and belief by its solicitor. GFF's director, Xiaosong Zhang, gave evidence limited to the question of its assets (going to the sufficiency of the undertaking as to damages). GFF also relied upon the evidence of Andrew Jones, a corporate advisor (going to the likely costs of the Company selling the shares in its primary investment). The Company relied upon the evidence of its directors Louis Simens and Bill Koutlis, and its solicitors.

8 The Company was registered on 16 April 2016. At the time of registration Koutlis (a practising accountant) was the Company's sole director. He remains a director. Gabriel Govinda was appointed a director on 16 July 2018 and resigned as director on 3 February in 2022. Simens became director of the Company on 14 February 2024.

9 Zhang is the sole director of GFF. Govinda is its sole shareholder.

10 Simens has an indirect interest in the Company. He holds 25% of the shares in SL Investors Pty Ltd, the trustee of his superannuation fund which has 4 members. Simens' wife Danche Simens is the sole shareholder of another shareholder in the Company, Kikceto Pty Ltd.

(a) Subject to the provisions of this constitution and without prejudice to any subsisting special rights previously conferred on the holders of existing shares, the unissued shares in the company are under the control of the directors.

(b) The directors may allot or otherwise dispose of the shares, issue or grant options in respect of shares, to such persons on such terms and at such times with such preferred, deferred or other special rights, with regard to dividend, voting, return of capital or otherwise, as the directors think fit.

(c) In particular, the directors may differentiate between the holders of partly paid shares as to the amount of calls to be paid and the time for payment.

(d) Subject to the provisions of the [Corporations] Act, the company may reduce the share capital of the company or buy-back the shares of the company or otherwise redeem its shares or share capital as permitted by the Act.

1. Pro-Rata Offers to Existing Holders

Before issuing shares of a particular class, the directors must offer the shares to the existing holders of shares in that class. As far as practicable, the number of shares offered to each holder must be in proportion to the number of shares of that class that they already hold. To make that offer the directors must give the existing shareholders a statement setting out the terms of the offer, including:

(a) the number of shares offered;

(b) the period for which the offer will remain open.

6 Non Pro-Rata Offers

The directors may issue any shares not taken up after the offer under clause 5 as it sees fit. The company may be resolution passed at a general meeting authorise the directors to make a particular issue of shares without complying with clause 5.

12 The Company does not generate revenue from trading operations. It is an investment vehicle whose primary investment is its shareholding in a company incorporated in the United States, Rain Neuromorphics Inc (RAIN, or RAIN.ai). Early in its life the Company commenced an ultimately unsuccessful venture seeking to 'develop a computer chip', acquiring equipment, paying contractor fees and renting premises in the USA. From at least 2020 the Company has acted solely as a passive investment vehicle focussing on cryptocurrency database sharing software. The three investments it has made so far are in early stage, pre-revenue, start-up businesses. Two investments (in Chaos Neuromorphics LLC and Blockbid Pty Ltd) were recorded at values of $155,400 and $82,973 in the Company's 2023 financial statements but on Simens' uncontested evidence, they presently appear to be of no appreciable value.

13 The value of the Company's investment in RAIN was in contest because it informs the value of the Company's shares. Neither party contended that the value of the Company's RAIN shares could be determined on the evidence on this application. The material addressed to its value was very limited. GFF contended that such evidence as there was, taken together with other evidence, was sufficient to conclude that there is a serious question to be tried that the June Offer was made at a share price significantly lower than the real value of the shares. The RAIN investment is one input to that assessment.

14 The Company holds 1,577,363 'common' shares in RAIN. According to publicly available documents RAIN's common stock was valued for RAIN's internal purposes at USD $1.04 per share in September 2022. At that value the Company's shares would be worth USD $1,640,457. There was no evidence about the basis for that valuation. The Company's June 2024 letter to shareholders in support of the June Offer authored by Simens (discussed below) stated that RAIN had been valued at USD $200 - $250m in their most recent funding series, which implied that the Company's RAIN shares were worth USD $10.96 - $13.7 million. Simens added that that valuation meant nothing unless a buyer for the shares at that price could be found, which was one of his key objectives. There was no evidence about the basis for that valuation. Simens' evidence was that since issuing the June Offer he has become aware that the implied valuation of RAIN asserted in the June 2024 letter is likely incorrect, and that in making the statement in that letter he had relied on publicly available information concerning RAIN but has no access to its financial statements (or, inferentially, other relevant material). Further, the Company has 'common stock' in RAIN. There are at least 4 classes of preferred stock ahead of common stock which, based on the September 2022 valuation, has been valued at significantly less than other stock. GFF's solicitor produced a copy of a webpage which appeared to be an analyst report stating that RAIN's valuation in August 2023 was $250m - $350m. There was no evidence about the basis for that valuation.

15 It was common ground that a primary objective of the Company is to achieve a liquidity event for the Company's RAIN shares by selling them at an acceptable price, whenever such an opportunity arises. I accept that under the directorship of Koutlis and Simens, the Company intends and is seeking to be in a position to take advantage of any opportunity to sell its RAIN shares at the right price, and accordingly to make a return to its shareholders.

16 RAIN is an early start-up company. According to publicly available documents it has not generated any revenue or profit from operations. It has never paid a dividend to the Company. RAIN is not listed on any share index. The investment is illiquid. There was no evidence to establish the likelihood that the Company will be able to sell its shares at a price acceptable to it and if so, when that might be. Simens' evidence was that after the service of this application he made inquiries with RAIN as to whether it would be prepared to re-purchase the RAIN shares and if so at what price. He said that a director of RAIN told him that company is not interested in re-acquiring the shares held by the Company.

17 Witness' views expressed about the value of the investment (whether by reference to publicly available material or otherwise) were speculative. The prospect that it will achieve a profitable return for the Company and if so in what measure, is unknown. Simens holds the view (expressed as a lay person) that if RAIN is successful it may be 'worth a considerable amount'. The directors, GFF and Govinda, consider the investment potentially very valuable but also speculative.

18 In late 2023 and early 2024, because of ill health and other commitments, Koutlis' capacity to fulfill the role of sole director of the Company was impacted. He wrote to Simens on 2 February 2024 asking that he join the board to assist him with operating the Company. Simens has been involved with the Company since its commencement. Simens accepted the invitation and was appointed director on 14 February 2024.

19 Govinda had resigned as a director in November 2022. He pleaded guilty to 23 charges of manipulation of shares listed on the Australian Securities Exchanges and 19 charges of illegal dissemination of information related to the manipulation, in June 2022. He was sentenced to 2.5 years imprisonment, suspended for 5 years, on 3 May 2023. By the time of the events in issue, his criminal convictions were public knowledge.

20 On Simens' appointment in February 2024 the Company's assets were its shares in RAIN, its interests in Chaos and Blockbid which Simens understood to be valueless, and about $4.00 in cash, held in Koutlis' trust account.

21 Simens' evidence was in substance that the absence of cash reserves was relevant to the Company's ability to protect itself from threats and to avail itself of opportunities.

22 As to threats, Simens evidence was that he was very concerned that the Company had no cash reserves to draw on. He considered that that made the Company vulnerable in the event of an adverse event such as an audit, a cybercrime incident or regulatory investigations. He said that such investigations seemed 'more likely' because of Govinda's relationship with the Company. If those circumstances materialised the Company 'would need to incur costs quickly to protect its position'. I accept that at the time of the February Capital Raising (discussed below) (and also at the time of the June Capital Raising) Simens considered that Govinda's association with the Company through his shareholding in GFF and his former directorship, could pose a risk to the Company of the kind described. The evidence was, however, given in very general terms. Simens did not say how he evaluated the likelihood of the risks he described materialising, particularly in light of the fact that the Company does not trade and is a passive investment vehicle with a limited number of investments. There was no suggestion that because of Govinda's previous role as a director or because of his current association with the Company (as the shareholder of GFF which is itself a major but not majority shareholder in the Company) that the Company has been operated in any way that might provide a basis for concern should it be the subject of an audit or an investigation. As discussed below, by the time of the June Capital Raising Simens had a concern that Govinda and GFF might involve the Company in litigation and threats of litigation.

23 Further, Simens said that the Company was unable to take advantage of any potential opportunities that might arise in relation to its investments. It would need funds to pay lawyers and consultants to undertake a block trade of the RAIN shares should a buyer be found for a suitable price. He said that the Company needed to be in a position to facilitate a block trade if the opportunity arose. Simens did not say what opportunity might have been available to trade its RAIN shares or when that might arise. Simens did not say whether he and Koutlis had formed an intention that the Company should sell its RAIN shares within, say, a particular timeframe or if a particular price were offered. I infer that they did not have a specific opportunity as to time or price, in contemplation. It was not disputed that a core objective of the Company was to find an opportunity to profit from its investment in RAIN. I accept that it was the Company's intention throughout 2024 to put itself a position to take advantage of such an opportunity should it arise and that the directors intend to pursue such an opportunity. Simens said that he is in constant contact with RAIN with a view to bringing about an opportunity to sell the Company's shares, but he did not explain how his communications and relationship with RAIN were advancing or could advance the prospect of a profitable trade.

24 Simens' evidence was that in view of those circumstances, on 21 February 2024 the Company issued to its shareholders (as required by clause 5 of its constitution) a pro-rata entitlement offer for a placement of 66,675 fully paid ordinary shares at a price of $6.25 which sought to raise, after costs, the sum of $390,000 (the February Capital Raising and the February Offer).

25 The letter to shareholders accompanying the February Offer said relevantly that the Company aimed to 'grow value for all', and the proceeds sought to be raised were to be used to establish 'adequate insurances to protect all shareholders', to 'pay legal and consultants', to pursue further opportunities if/as they become available and for 'general working capital'. It listed the Company's three current investments. The entry for RAIN read as follows:

Investments Cryptai ownership Investment valuation range

Rain.ai 5.711% US$250m.

26 Simens' evidence about how the February Offer price was struck was that Govinda had suggested to Simens that 'he believed the company might be worth $4 million'; that it was difficult to know what the Company might be worth because he had 'no visibility on RAIN's circumstances and could not properly determine the value of the Company's interest in RAIN. On that basis he and Koutlis agreed on a value of $5 million for the capital raise, and at a $5 million valuation the Company's 800,100 shares were each worth $6.25. The analysis was unsophisticated and appeared to have been largely based on Govinda's suggestion to Simens. Correspondence from consulting firm Emerald Capital (discussed below) suggested that Emerald might have contributed to the Company's adoption of that value, but neither Simens nor Koutlis gave evidence to that effect. I conclude that the value adopted for the February Capital Raising was a simplistic assessment made by the directors on very limited information.

27 Simens said that if the RAIN investment was successful (meaning, I infer, if an opportunity to sell at an acceptable price could be found) that 'selling the Rain shares for the best possible price could incur costs of up to $400,000 if we needed to engage consultants to sell them for us'. Simens said that it would be prudent for the Company to raise that amount of money. He did not give a basis for that estimate of the costs to sell the shares. GFF relied on the evidence of Jones, a director of Alloy Consulting and corporate advisor with Here Capital Pty Ltd. Jones has professional experience working with stockbrokers and venture capital firms raising capital and advising ASX listed companies including preparing them for listing. His opinion was that typically service providers for transactions placing shares are renumerated on a commission basis on settlement of a sale (rather than charging a significant upfront fee) and that their rates vary but are usually no more than 3% to 4% of the settlement amount, but some advisers may charge more. I prefer the evidence of Jones, on the basis of his experience. Simens did not establish that he had any relevant experience or give the basis for his costs estimate.

28 The Company engaged consultants Emerald to assist it with the February Capital Raising.

29 In response to the February Offer existing shareholders accepted offers to a value of $331,031.24. New investors accepted offers to a value of $80,000 (a total of $411,031 in acceptances). 98.6% of the 66,675 shares offered in the February Capital Raising were subscribed at the offered price of $6.25.

30 None of the shares in the February Offer have been issued (as discussed below).

31 The February Offer was made to GFF. It did not participate.

32 Simens' evidence was that once the February Offer was issued the relationship between Govinda and the Company and Simens began to break down.

33 In response to receiving the February Offer Govinda wrote to Simens on 22 February 2024, as follows:

Mate. Just got the email. You realise I legally own the majority of your Crytai shares right?

Fuck around & Find Out.

34 Simens evidence was that he took the words, 'Fuck Around & Find Out', as a threat. Govinda also wrote, by email on 22 February, that he had received a phone call from 'Louie's mate' threatening to murder Govinda. Simens denied involvement in any such threat. The emails were hostile in their tone. I accept that Simens felt threatened by the emails.

35 Simens said that he understood from things Govinda had said that Govinda expected to be consulted on matters relating to the operation of the Company. The Company did not consult Govinda regarding the February Capital Raising. As Simens explained, Govinda was no longer a director of the Company and nor was he a director of the shareholder GFF.

36 On 17 March 2024 GFF issued to the Company a transfer notice pursuant to clause 32 of the Company's constitution, whereby it sought to dispose of 44,000 shares at $6.25 (the same price as offered for subscriptions in the February Offer). The Company engaged Emerald to assist with the placement of GFF's shares during March and April 2024. Six existing shareholders elected to acquire, in total, 32,532 of those shares at $6.25. The process of the share sale has not been completed.

37 On 1 and 2 May 2024 Govinda wrote to Koutlis stating that he wanted to send the Company 'the Cryptai cryptocurrency that was created in 2018', asking Koutlis to set up a wallet for receipt. Koutlis responded saying that he had no idea about tokens and no relevant records. He said that he would not set up a wallet. Govinda replied saying that he was entitled to 'an issuance' of 70,000 shares because he purchased tokens for the Company, 'conditions of which were agreed upon by myself as founding director, Louie as co-agreeor (sic) to terms, and yourself via being made aware of the terms and conditions at the time and agreeing to the terms via not disagreeing.' Simens' evidence was that neither he nor Koutlis had any knowledge of the basis on which Govinda asserted an entitlement to receive shares and that the Company had no records concerning the cryptocurrency or the alleged entitlement. Simens' letter to shareholders in support of the June Capital Raising (discussed below) stated that Govinda had threatened him and the Company with legal action around this time. He did not address such threats in his evidence.

38 On 23 May 2023 the Company received a notice from the Commonwealth Bank that it had decided 'for commercial reasons' to close the Company's accounts. Koutlis sent a copy of the bank's notice to Govinda who responded,

Hi Guys,

This is all my fault. CBA are closing all accounts where I'm a shareholder in the company, following my ASIC hearing a month ago.

Don't waste your time trying to appeal, Cryptai really doesn't need a bank account anyway.

I'll just pay any annual ASIC fees directly from now on, just email me the invoices etc.

39 Simens' evidence was that the Commonwealth Bank, IMB and ANZ banks have each so far declined to deal with the Company. I infer, given the statements in Govinda's email, that the Commonwealth Bank likely closed the Company's account because of its association with Govinda. There was no evidence of the communications between the Company and the other banks mentioned. The June 2024 letter to shareholders (discussed below) described Simens' view about what would be required for banks to be prepared to deal with the Company. It is not possible to conclude, on the limited evidence on this issue, that the Company will not be able to open an Australian bank account in the future. I accept that the directors of the Company perceive that it is at risk of not being able to open an Australian bank account because of its association with Govinda. I observe, however, that the evidence as a whole indicates that the directors (and not Govinda) have control of the Company, despite their anxieties about Govinda, who is neither a director of the Company nor a director of GFF.

40 The Company conducted a further capital raising in June 2024 with the intention of raising $1,125,000 by offering 1,500,000 shares at a share price of $0.75.

41 Simens gave evidence about how the offer price was reached.

42 Simens referred in his evidence to the fact that Emerald had been engaged to assist the Company in the February 2024 capital raising and with the placement of GFF's shares. He said that, 'through its engagement with Cryptai in connection with the February offer and the GFF transfer notice, Emerald became aware of a range of further issues which caused it significant concern as to the share price the company was seeking to raise money at and the present risks which had been disclosed to potential investors. Emerald advised the Company that it needed to disclose these issues to potential shareholders before the capital raise was completed because it could be material to their investment decision'. Simens set out the risks that Emerald had advised the Company it ought disclose to shareholders, namely:

(a) The fact that the Company's investment in RAIN is highly speculative. RAIN has a high implied valuation but there is no guarantee that the Company can raise any value in the shares at the implied valuation or indeed any other valuation unless the Company can find a buyer who is willing to pay that price;

(b) The fact that Govinda, who has been convicted of market manipulation, is a major shareholder of the Company;

(c) The fact that because of Govinda's conviction the Commonwealth Bank closed its bank account and it has been unable to open another account with a different bank. A Company that does not have and cannot open a bank account is a material risk for investors. The Company has used the trust account held by Koutlis' accounting firm but that is not a sustainable arrangement. The Company's inability to open a bank account would need to be disclosed to investors;

(d) The fact that Govinda's conduct towards Simens since the February Offer (which Simens regards as aggressive) was such that Simens considers that it has imperilled his relationship with the Company;

(e) The fact that Govinda's aggressive conduct towards the current board represents a real and material risk for any third party investor that the Company will be drawn into expensive disputes such as these proceedings, and potential risks of litigation by Govinda or GFF. Simens said that Govinda's demand for 70,000 shares was a material risk of further disputation that would have to be disclosed to shareholders.

43 Simens' evidence was that Emerald told the Company that if it did not disclose those matters it was 'considering its legal position to prevent the capital raise from closing'.

44 Simens said that in light of those circumstances it was Emerald's advice that the price of $6.25 was inflated. Simens said that he and Koutlis decided that the Company should take Emerald's advice and that, 'we revised the share-price down to $0.75 which we viewed as properly reflecting the risks identified by Emerald.' The directors' reasons for setting a share price of $0.75 were not otherwise identified. Koutlis did not address the formulation of the share price in his evidence.

45 Emerald's written advice to the Company (given by email) was produced during the hearing and relied upon by the plaintiff. Its engagement letter was also produced during the hearing. Emerald was engaged to advise in relation to and facilitate the June Capital Raising. It was to be paid an upfront fee of $18,000, with commissions paid on placement of shares. The engagement terms provided for 'shortfall' (shares not placed) to be taken up by persons associated with Emerald. Those shortfall shares (if any) would be taken up by Emerald's director John Zamboni personally or otherwise 50% would be placed by the Company's directors, and 50% would be taken up by JJ (WA) Investments Pty Ltd or Emerald.

46 JJ (WA) was an existing shareholder in the Company at the time of the February Capital Raising and June Capital Raising. In February 2024 it held 15.99% of the Company's shares (the second largest shareholder behind GFF). After the June Capital Raising it held 24.41%, making it presently the Company's majority shareholder. JJ (WA)'s sole shareholder and director, Zamboni, is one of Emerald's four directors. Emerald's relationship with JJ (WA), through its common director, was not disclosed in the defendants' evidence. I put to counsel for the defendants that Simens' evidence read as though Emerald was an independent adviser to the Company. Counsel properly accepted that the evidence, although it read that way, conveyed the 'wrong tone' and that Emerald was not an independent adviser. When asked how I should characterise Emerald's advice and its role, it was submitted that Emerald was both an adviser, albeit not independent, and a 'disgruntled shareholder'. I infer that the latter description referred to Emerald's unhappiness with the February Capital Raising process and the $6.25 share price. As it happens, Emerald is not itself a shareholder in the Company but shares a director with one of the Company's shareholders.

47 Emerald's director Zamboni wrote to Simens and Koutlis on 23 June 2024 (3 days before the June Share Offer was communicated to shareholders) saying in substance that:

(a) Emerald was concerned that the price of $6.25 was inflated;

(b) Govinda's criminal conviction, which was public knowledge, had prevented the Company from retaining a bank account. The Company could not rely on using Koutlis' trust account and without a bank account the Company 'could no longer function and operate' and that 'this is a massive risk' of which shareholders were unaware. It must be disclosed;

(c) Govinda's threats to Simens had jeopardized the Company's future. Without Simens the Company was of lesser value. That risk had not been disclosed but must be disclosed to shareholders;

(d) Govinda's claim for additional shares in lieu of the alleged cryptocurrency generation presented a risk of the Company being sued and diminished the Company's value;

(e) Due diligence was required for all transactions in which Govinda was involved including the sale of GFF's shares, to ensure that the bank account details and instructions were legitimate;

(f) The directors should write to all shareholders, explain the risks that 'were not previously disclosed' and halt the lodgement of shares from the February Capital Raising.

(g) Emerald concluded,

You can offer shareholders who participated

1. their money back.

2. More shares - at a market value of $1.50 to $2 per share - your choice not my decision to be made.

3. A few loyalty options - at purchase chose of 10c per option, with an exercise price of $2.50 to be exercise within 3 years.

4. Other offers to stop the shareholders from suing the directors in a class action law suit because the share price was over inflated as information was withheld from them which may be maybe mislead (sic).

If you agree, please fix your non-disclosure immediately tomorrow morning with a letter to shareholders.

48 As to the circumstances addressed in Simens' evidence and in Emerald's advice:

(a) It may be inferred that the fact that the RAIN investment was speculative and that there was no guarantee that the Company could obtain a price for its share at any particular implied value, was known to shareholders. It was not something that had not been disclosed to them.

(b) Govinda's criminal conviction had been public knowledge (as the parties accepted) long before any capital raising occurred in 2024.

(c) Simens referred to Emerald's concern about Govinda's conduct towards Simens since the February Offer (which Simens regarded as aggressive). Govinda's conduct was such that Simens' relationship with the Company was imperilled. I accept as a general proposition that the availability of competent experienced directors can affect and be understood by investors to affect the value of a company as an investment proposition. However, Simens did not say in his evidence that he was actively considering resigning. He addressed the subject of his role at the Company only indirectly. Simens' evidence was that he has the main carriage of the Company's relationship with RAIN and he has been working with RAIN to try to facilitate a sale of the RAIN shares. Simens said that if he leaves the Company the chance to 'facilitate this liquidity event' disappears and this impacts the value of the Company. He did not say why the opportunity of selling shares would in fact be lost if he left the Company.

(d) I accept that if the Company were unable to open a bank account that might present concerns to investors. However, to put that concern in context, the Company presently does not have a bank account and it intends to continue capital raising unless restrained. The difficulties with its banking are one factor that is said to have influenced the formulation of the share price the subject of the June Offer.

(e) Emerald was engaged to advise the Company about the capital raising. It is not possible on the evidence to form any view about the relationship between the advice that Emerald gave and the fact that one of its directors (and the director who gave the advice) owns and controls a shareholder of the Company. Taking the advice at face value, it evidences a concern that the February Capital Raising was conducted without full disclosure to investors of circumstances that might affect the value of the Company's shares, and that the $6.25 share price was inflated. It also evidences a concern to verify all dealings with GFF as having the authority of its director.

(f) The advice from Emerald did not set out any basis for the suggested share price of $1.50 to $2.00 which Emerald's director said was a decision for the directors. It did not relate the risks discussed to an evaluation of price.

49 By the June Offer letter to shareholders dated 26 June 2024, the Company offered to issue 1,500,000 shares at a price of $0.75 per share with a view to raising $1,125,000. The letter contained two offers:

(a) the first offer (Option A), was to existing shareholders to accept a number of shares in proportion to their proportionate shareholding in the Company. In the case of GFF that proportion was 36.7%. Each share attached an option with an exercise price of $6 with an expiry date of 5 years from the date of issue.[1] The form incorporated into the offer for shareholders to sign and complete stated in relation to Option A, 'acceptance of my full entitlement as set out above'. GFF submitted that the offer was intended to be an offer to take up the whole parcel of shares representing the shareholder's pro-rata entitlement and not an offer that the shareholder may take up a smaller proportion. That was a reasonably available reading of the document. The number of shares offered was determined by the requirement of the Company's constitution that members be offered shares in pro-rata to their existing shareholdings. There was no evidence as to the Company's preparedness to issue parcels of shares at less than the shareholders' full entitlement. It is not possible to conclude whether or not the Company would have been prepared to issue a smaller number of shares to GFF than the 551,181 that it was offered. GFF did establish or seek to establish that it wished to acquire fewer shares than the number it was offered.

(b) the second offer (Option B) was described as "Money back", and "accept to pay me back in cash and rescind my share". The letter to shareholders dated 26 June 2024 explained in relation to option B, that those shareholders who had participated in the February Capital Raising at $6.25 may receive a refund of their money or may elect to participate in the new capital raising at the price of $0.75 (subject to the Company complying with clause 5 of its constitution), applying the funds they already paid to the Company to acquire shares at $0.75 in response to the June Offer.

50 On 26 June 2024, the Company also sent an explanatory letter to shareholders (June Letter) which relevantly said that:

The Company has achieved remarkable intrinsic growth since launching as a result of its investment in RAIN.ai. The implicit pre-money valuation of our RAIN.ai shareholding continues to rise with each funding series that they undertake. They enjoyed a Safe Note of $250m with $200m valuation in their most recent funding series. A, suggesting that the company's RAIN.ai shares have an implied valuation of USD 10.96-13.7m. Or course, this does not mean anything unless we can find a buyer who is willing to buy our RAIN.ai shares for that price, which is one of my key objectives as a director of the company.

Gabriel Govinda pleaded guilty to 23 charges of manipulation of listed stocks on the ASX, and 19 charges of illegal dissemination of information relating to the manipulation, on 6 June 2022. He was sentenced to 2.5 years of imprisonment suspended on a 5 year recognisance, on 3 May 2023. He resigned as a director of the Company on 30 November 2022.

The Commonwealth Bank closed the company's bank account in July 2023. The company needs to have a bank account. Its funds are being managed in the trust account of the accounting practice run by Mr Koutlis in the meantime. The directors believe that in order for the company to have a reasonable opportunity to open a bank account it must be able to demonstrate that Govinda is not in a position to control or influence the decisions of the Company, either by virtue of having a significant shareholding in the company or by attempting to act as a shadow director. Gabriel does not appear to be willing to help the company achieve this outcome.

GFF holds a significant percentage of the company's shares, which would cause banks to be concerned that Gabriel continues to exert significant control and influence over the company even after he has left the board'. He remains the sole shareholder of the plaintiff.

In February 2024 a capital raising at $6.25 a share was conducted, facilitated by Emerald Capital Australia. Acceptances from existing shareholders were received in a total amount exceeding $400,000. No shares have been issued because of the events described in the letter concerning Govinda.

The threats towards Simens and the company are severely undermining its value and causing the company to be 'unbankable'. The letter described Simens' account of aggressive and hostile conduct and threats of harm by Gabriel Govinda towards Simens, stating that the conduct had escalated to threats of physical harm against Simens and his family.

Simens is in constant communication with RAIN.ai with whom he has established a close working relationship in the event that an opportunity arises for the company to sell its RAIN.ai shares. The best opportunity of achieving a 'liquidity event' for the RAIN.ai shares is for Simens to remain at the company.

Emerald Capital has expressed great alarm at these events because if Simens leaves the company as a result of Govinda's threats and intimidatory conduct the company will lose its best chance of securing a liquidity event; the company has no funds to defend itself against Gabriel's threats of legal action; the company remains unable to open a bank account despite its efforts to do so.

Emerald Capital has expressed the view that these events significantly devalue the company and because a number of them arose during the capital raising process and pre-emption process for GFF's shares, shareholders and investors who accepted the offers to acquire shares would be misled and suffer loss if those transactions are allowed to go through. ECA has confirmed that it would be willing to take legal action against the company to stop these transactions going through unless participating shareholders and investors are given sufficient disclosure of the matters undermining the company's value.

The company has no cash at bank. It cannot pay 'operating expenses' or defend legal claim by Govinda. The company is therefore facing a real and imminent risk of insolvency'.

The Company has been advised by Emerald Capital that an appropriate and fair valuation for the company's shares may be less than $1.

The risks to which Emerald adverted were discussed in the letter (as described earlier in these reasons).

Emerald Capital's initial assessment of the $6.25 share price for the February capital raising was based on Simen's strong relationship with RAIN.ai and investment banks which represented a realistic prospect of securing a liquidity event for the RAIN.ai shares.

The directors believe that the only option is to carry out an urgent capital raising by offering 1,500,000 shares at $0.75, which the directors believe to be a fair price. The shares must be offered proportionately to all existing shareholders in accordance with the constitution.

The proposed use of funds:

• To fund any legal proceedings involving Govinda or GFF;
• Appoint lawyers to run a review on Chaos so that we can secure the company's investment in Chaos and seek a liquidity event for it;
• To support ongoing efforts to open a bank account;
• To establish adequate insurances to protect all shareholders and directors from being harmed;
• to pay advisers and consultants;
• To pursue further opportunities if/as they become available;
• General working capital.

51 I note that the statement to shareholders that Emerald had advised that 'an appropriate and fair valuation for the Company's shares may be less than $1' was inconsistent with the Emerald advice produced in evidence. The Company did not contend that the letter to shareholders referred to some other advice. The advice given by Emerald on 23 June 2024 recommended that the Company offer shares at 'market value of $1.50 to $2 per share', not $1. The Emerald advice did not set out a basis for the view as to market value. Simens' letter to shareholders referred to Emerald's 'initial assessment' of a share price of $6.25 and the basis for it. However, Simens' evidence was in effect that he and Koutlis agreed upon a value for the Company in light of what Govinda suggested to them. If the Company did receive advice from Emerald about the Company's value for the purposes of the February Capital Raising that advice was not subject of any evidence.

52 Simens' evidence was that the purpose of the June Offer was to raise funds and replace the 'inflated' February Offer.

53 If GFF accepted Option A, it was required to accept 551,181 shares at a price of $413,385.83 by 28 June 2024, by signing and returning to the Company's directors a copy of the June Offer with 'Option A' selected, and pay for those shares within 9 days, that is, by 5 July 2024.

54 On 27 June 2024 the plaintiff's director Zhang signed the June Offer indicating acceptance of Option A (the acquisition of a further 551,181 shares at a cost of $413,3885.83). GFF's solicitor's evidence was that Zhang signed the acceptance form because she feared that unless the share issue the subject of the June Offer were accepted, the plaintiff's shareholding would become significantly diluted following the share issue and she wished to preserve the possibility of minimising the damage to the plaintiff from the issue offer, if it turned out that the plaintiff could subsequently raise the funds to pay for the shares. The plaintiff does not currently have such funds.

55 The Company responded to GFF by letter of 27 June 2024, writing to GFF's director Zhang. The letter said that since Govinda had ceased to be a director of GFF the Company had not received any communications directly from Zhang other than a transfer notice in March 2024 sent from the address Gabriel.hewitt@gmail.com containing what appeared to be a scan of Zhang's signature (GFF Transfer Notice). The Company was concerned as to the authenticity of the signature on the GFF Transfer Notice for the placement of 44,000 of GFF's shares. The Company had received bank account details from Govinda described as a bank account for GFF for the deposit of the sale proceeds if any arising out of the sale of shares the subject of the GFF Transfer Notice. The letter went on to state that the Company's corporate advisor who was facilitating the Company's capital raising and proposed sale of GFF's shares, required for anti-money laundering purposes, a certified copy of an unreacted bank statement for GFF, and a certified copy of Zhang's passport or Australian drivers' licence showing Zhang's photo and signature 'so that the Company can confirm that the signature on the Transfer Notice (or other communications or directions from Zhang) matches the signature on the identity document.' The letter stated that unless the identity certification was received the GFF Transfer Notice would not be treated as valid, and the Company would be unable to pay any funds to GFF from the sale of its shares. It also required the identity documents before it would accept communications from Zhang. Zhang was asked to provide written notice of GFF's physical mailing address and email address.

56 GFF and Zhang did not respond to the 27 June letter. GFF did not withdraw its acceptance of the June Offer. The Company later extended the date by which payment for the shares was required, until 16 August 2024 (see below).

57 Govinda wrote to Simens and to Koutlis by email of 1 July 2024 which read, relevantly,

Even just the fact that you guys offered accepting full settlement, without any option to select number of shares/partial entitlement opens you up to serious Corp law/ASIC/criminal law violations.

Then you guys decide to double down on criminal behaviour by offering to buy everyone's shares at $0.75 (literally 1/20th of intrinsic value, as confirmed by Louie's attempt at plausible deniability by including Rain's valuation [whilst intentionally NOT including what that equates to per Cryptai share].

Louie, matey, lots of your people talk to my people.

I'm probably one of the most connected guys in Australia when it comes to the small cap ASX investing space. Pretty much everything you so or say ends up coming back to me.

58 Govinda also emailed Koutlis and Simens on 1 July 2024 saying that they had violated laws by the attempted capital raise and that the maximum jail term for gaining financial advantage was 10 years imprisonment.

59 Simens' evidence was that he did not presently see how the Company and GFF could effectively work together in the future given Govinda's conduct.

60 By his solicitor's evidence, Govinda denied the allegations he was aggressive towards Simens.

61 On 10 July 2024 (after this proceeding had commenced) the Company, by its solicitors, wrote to GFF's solicitors extending the time for GFF to make payments for the Offer Shares until 16 August 2024. That letter referred to the Company's letter to Zhang of 27 June 2024 in which the Company expressed concerns about the GFF Transfer Notice and said that_, 'our client sought that Ms Zhang provide a certified copy of her passport to finalise her application'_. It said that for the avoidance of doubt, the Company does not seek to prevent GFF from participating in the capital raising and that subject to receiving certified identity documents and subsequent payment, the Company would issue the Offer Shares to GFF. In circumstances in which Govinda was disqualified from being a director of GFF, the Company was concerned that it was not entitled to rely on his ostensible authority to bind GFF, and in circumstances where there is some uncertainty about the identity of Zhang, confirmation of her identify is both prudent and necessary. The letter stated that having considered the issue, so as to permit GFF sufficient time to raise the funds to participate in the June Offer, the Company would extent time for payment for the Offer Shares until 16 August 2024 subject to confirmation that Zhang has indeed instructed GFF's solicitors.

62 According to Koutlis' evidence the change in shareholding effected by the June Capital Raising as between existing shareholders was as follows:

63 Koutlis' evidence as to the Company's assets was that:

(a) From the February Offer and June Offer, the Company has received $409,993.

(b) As at 25 July 2024, the Company has $558,784.73 in the trust account of Koutlis' accounting firm. This includes $80,000 held in trust for non-shareholders and $207,256.25 pursuant to the GFF Transfer Notice, neither of which can be used by the Company. This leaves $271,528.48 which may be used by the Company.

(c) If the February Offer and June Offer are reversed (an order that GFF seeks as final relief by its Originating Process), the Company will have a cash shortfall of -$138,964,05 because funds have been spent on consulting (Emerald), legal fees, insurance, accounting and ASIC fees.

(d) The Company has no ability to raise money because it has no debtors or access to finance. It has no assets of any value in Australia.

(e) Without funds the Company would need to go into administration.

64 The defendants say that if the Company cannot use funds from the February Offer and June Offer, it cannot pay lawyers to defend these proceedings. The directors believe that if it cannot use the funds, the Company will be insolvent.

65 The plaintiff submitted that the Company's recent substantial increase in expenditure is unexplained. Financial statements for FY 2020 to February 2024 show minimal expenditure (under $500) each year. Since Simens became a director the Company's expenses appear to have increased substantially. Certain transactions including an amount of $37,537.50 transferred to Melvin Yeo for "Legal Fees" on the same day Mills Oakley was retained were, it was submitted, notable.

66 The Company submit that past expenditure is not relevant to determining whether future expenditure is reasonable.

67 In support of its proposed undertaking as to damages director Zhang's evidence was that GFF owns unencumbered real property at Lot 72 Flinders Highway Sheringa, South Australia and Allotment 38, Town of Shringa Hundred of Way, South Australia. GFF did not rely on any evidence as to the value of that land. GFF also holds shares in five companies listed on the Australian Stock Exchange, presently valued at a total of $194,300, according to GFF's director, by reference to current shareprices.

68 An applicant for an interlocutory injunction must show that there is a serious question to be tried by making out a prima facie case in the sense of demonstrating that there is a sufficient likelihood of success at trial to justify the preservation of the status quo pending the determination of the parties' rights at trial, in the circumstances. This does not mean that the applicant has to establish that it is more likely than not that it will succeed at trial. How strong the probability needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the relief sought.[2] The applicant must also establish that the balance of convenience favours the granting of an injunction. The Court should take whichever course appears to carry the lowest risk of injustice, should it turn out to have been wrong in the sense of granting an injunction to a party who fails to establish its right at trial or failing to grant an injunction to a party who succeeds at trial.[3]

69 Incorporated within the consideration of "balance of convenience", or sometimes considered as a separate matter, is the question whether damages would be an inadequate remedy, were the injunction refused.[4] One must also consider the adequacy of the applicant's undertaking as to damages. There is no inflexible rule that the plaintiff should be denied interlocutory relief unless it can give a meaningful undertaking,[5] but the adequacy of the undertaking will be a relevant factor to be taken into account in weighing the balance of convenience, particularly in cases involving the protection of commercial interests.[6]

70 These principles are not to be applied in isolation from one another, but must be considered together. In considering where the lower risk of injustice lies, all relevant factors are to be weighed in the balance. The strength of the applicant's case and their chances of success may be a relevant matter when assessing the balance of convenience.[7]

71 In order to grant relief under s 233 of the Act the Court must be satisfied that there is an actual or proposed act by the company that is contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to or unfairly discriminatory against, a member or members (within the meaning of s 232) and that it is appropriate to make the under s 233.

PART D - SERIOUS QUESTION TO BE TRIED AND BALANCE OF CONVENIENCE

72 It is well accepted that where directors issue additional shares for the purpose of diluting a shareholder's shareholding, that may be oppressive conduct.[8]

73 GFF contends that the dominant purpose of the Company's issue of shares was oppressive within the meaning of s 232 of the Act because it was for the purpose of diluting GFF's shareholding and not for the dominant purpose of raising capital. The issue of shares in the past is relevant on this application because the plaintiff seeks to restrain the Company from using the capital it raised in the June Capital Raising. It was submitted that the purpose may be inferred from the following matters:

(a) The June Offer Letter makes plain that the Company's views that GFF's shareholding is inimical to its bankability, stating that, 'the Company must be able to demonstrate that Gabriel is not in a position to control or influence the decisions of the Company, either by virtue of having a significant shareholding in the Company, or by attempting to act as shadow director. Unfortunately, Gabriel does not appear to be willing to help the Company achieve that outcome'.

(b) The June Letter also makes plain that Simens considers that his ongoing role in the Company is vital to its ability to achieve a liquidity event and that Govinda's continued involvement with the Company threatens his willingness or ability to maintain his involvement.

(c) It may be inferred that the June Offer was formulated such that 'Option A' would not be accepted by GFF or would be difficult for it to accept. GFF was by a considerable margin the largest shareholder at the time of the June Offer, and was in consequence, offered 36.7% of the shares the subject of the June Offer. The June Offer was open for a mere 2 days and required GFF to find and pay the sum of $413,385.83 within 9 days.

(d) The Company refused to accept the validity of GFF's acceptance of the June Offer, instead asking by its letter of 27 June, for proof of Zhang's signature;

(e) There was no sensible explanation of the basis on which the shares had been priced at $0.75. That price was significantly below the previous offer of $6.25 (as to the share price, see further below).

(f) There does not appear to have been a need for the Company to raise $1,125,000 in circumstances were the Company had raised over $400,000 in March 2024. The Company is an investment vehicle that does not trade. The stated purposes of the use to which the Company will put the funds it raises is vague to the point of being unintelligible. For example, the appointment of lawyers to 'run a review on Chaos so that we can secure the company's investment in Chaos and seek a liquidity event for it' was completely at odds with the evidence of Simens who said he understood the Company's Chaos shares to be worth nothing. The need to pay 'advisers and consultants' was stated without any detail whatsoever. The cost of establishing a bank account was not stated and on any reasonable view could not be inferred to involve substantial cost. The 'further opportunities' were not specified. The cost of insurance for directors was, for the current year, $7,900. GFF accepted as it must, that the concern about GFF involving the Company in legal proceedings had materialised, in this very proceeding. However, this proceeding is about the capital raising itself. There was no evidence that GFF or Govinda had threatened legal proceedings about any other matter.

74 As to the future issue of shares if the Company is not restrained from completing the June Capital Raising, GFF accepted that it cannot rely on the short period of time for acceptance of the June Offer (the time having been extended). The remaining matters are relevant however, to the ongoing issue of shares.

75 The Company submitted that the evidence of an attempt to dilute GFF's shareholding only ever amounted to a suspicion. Those suspicions have proven to be unfounded, particularly with the extension of time granted to GFF to accept the June Offer. If GFF accepts the offer it will maintain its proportional shareholding.

76 The Company emphasised that its constitution gives its directors broad powers to raise capital and to deal with shares. The directors are expressly empowered to allot, issue or grant options in respect of shares to such persons on such terms as the directors think fit. They are required to first offer shares to the existing holders of shares in that class. In this case, the directors did exactly as clause 5 of the constitution requires, by offering 'as far as practicable, the number of shares .. to each holder ... in proportion to the number of shares of that class that they already hold.' The June Offer was precisely in conformity with the constitution, which required that it give the existing shareholders a statement setting out the terms of the offer, including the number of shares offered and the period for which the offer will remain open. More fundamentally, the Company emphasised that it is for the directors, and not for a shareholder, to determine what capital is raised, when and on what terms. It is for the directors to decide whether and to what extent it should have capital reserves and how the Company's money should be spent. It was submitted that GFF's case concerns 'petty complaints about how the Company is being fund since Govinda was disqualified'. As to the analysis of the Company's expenditure and the plaintiff's contention that it does not need the capital it has sought to raise, the Company submitted that it need not establish a specific purpose for the proposed expenditure of funds - that being a matter entirely within the directors' discretion. But in any event, the evidence of Simens established that the director's view was that capital was required.

77 I consider that there is a serious question to be tried that the dominant purpose of past capital raising pursuant to the June Offer was to dilute GFF's shareholding, for the following reasons.

78 I accept that fundraising, expenditure of the Company's money and more generally, the conduct of the Company's affairs, is within the control and discretion of the directors. By itself, the fact that the directors decided upon the amount of capital that they considered the Company should raise, irrespective of any specific plans to deploy it, would not amount to oppressive conduct. I also accept that directors deciding upon the Company's activities and taking steps to place the Company in a position to pursue new opportunities would not by itself, amount to oppressive conduct.

79 However, the conduct of a Company's affairs, even if within power and in accordance with the Company's constitution, might still be oppressive.[9] The plaintiff relies on a combination of circumstances.

80 Statements by the directors in the 26 June 2024 letter to shareholders evidence the directors' view that Govinda's shareholding and his continued involvement with the Company is significantly detrimental to it. The statements included the following:

We believe that in order for the company to have a reasonable opportunity to open another bank account in Australia, the company must be able to demonstrate that Gabriel is not in a position to control or influence the decisions of the company, either by virtue of having a significant shareholding int eh company, or by attempting a act as a shadow director. Unfortunately, Gabriel does not appear to be willing to help the company achieve this outcome. In this regard, GFF, with 294,000 shares out of a total issued capital of 800,100 shares, holds a significant percentage of the company's issued share capital, which would cause banks to be concerned that Gabriel continues to exert significant control and influence over the company even after he has left the board.

...

Gabriel appears to believe that he remains indispensable to the company that that we are beholden to him despite the fact his continued involvement with the company is causing it to be unbankable, and his threats against me and the company are severely undermining its value.

81 I accept that the statements were made in support of the proposition that Govinda's role and conduct had significantly devalued the Company and hence were made in support of soliciting funds at a price that was significantly reduced below the earlier offered price. However, they are also indicative of a desire to limit the role of Govinda in the Company's affairs, specifically through GFF's shareholding. Since that time, in evidence in this proceeding, Simens said that he did not presently see how the Company and GFF could effectively work together in the future given Govinda's conduct. The fact that the directors may wish to limit the involvement of Govinda in the Company's affairs appears consistent with their concerns about his behaviour and the impact of the Company's association with him on its ability to maintain a bank account. Assuming the directors' concerns to be well founded, their statement of concern is nevertheless capable of informing the question whether they acted with the purpose of diluting GFF's shareholding, and consistent with it. The Company did not contend that if its concerns about Govinda were well founded that it was entitled to dilute GFF's shares.

82 As I have said, it must be accepted that the directors have power to decide for themselves that the Company should have capital reserves. In exercising the powers conferred by ss 232 and 233, Courts must respect the traditional roles of the directors and shareholders in relation to the management of the Company.[10] However, the fact that the directors decided that the Company would raise the amount of capital that they fixed upon, with the rationales as given to shareholders, is capable of informing the question of their purpose in making the June Offer. The reasons given for the June Capital Raising as stated by the directors in their June 2024 letter to shareholders did not establish a need for $1,125,000 or anything close to that amount, in the foreseeable future. I accept that the Company wishes to be in a position to take advantage of an offer to sell its RAIN shares should that opportunity become available. However, I have not accepted the directors' evidence as to the estimated costs of engaging consultants to assist it sell its shares and on the evidence I have preferred, the up-front costs are not likely to be within the range stated by directors. The fact that the Company sought to raise a relatively significant sum of money in the context of its stated objectives is one factor that could support the existence of an intention to achieve the dilution of GFF's shareholding by undertaking the capital raising.

83 There was no evidence establishing the necessity or even the desirability of the extremely tight timeframe required for the acceptance of offers and payment of money. That is particularly so in light of the fact that the purpose of the June Capital Raising was described in such general terms and was largely forward-looking.

84 Before the capital raising in February 2024 (for which no shares were in fact issued) GFF held by a considerable margin the most significant shareholding, at 36.75%. The next largest shareholder was JJ (WA) at 15.99%, with the next largest shareholder at 6.49%. Insofar as the timeframe imposed a burden on shareholders it would necessarily fall most heavily on GFF.

85 On the present evidence the June Capital Raising was conducted in part for the purpose of addressing the concerns raised by Emerald that capital had been raised in February 2024 (money received by investors who had subscribed for shares) at an 'inflated' price. Those concerns could be met by in effect offering those shareholders who had subscribed, a refund of moneys and the opportunity to subscribe at a much lower price. The evidence as to the directors' assessments as to value of the Company's shares had the limitations that I have described.

86 The question of purpose was advanced on this application as a matter of inference from the accumulation of the circumstances described. Evaluating all the circumstances together, even if the concerns expressed by Emerald are taken at face value, I consider that there is a serious question as to the dominant purpose of the June Capital Raising being a dilution of GFF's shareholding.

87 The circumstances relevant to the completion of the June Capital Raising have changed from those prevailing at the time, in some respects.

88 GFF has been afforded time within which to pay for its subscribed shares. As it happens, GFF does not intend to take up the offer, maintaining that the offer is oppressive and contrary to the interests of the members as a whole.

89 If the Company is permitted to continue the capital raising it will potentially raise approximately another $750,000. It has $271,528 in its bank account. It is involved in this litigation, having been sued by GFF. It was not contested that it has to date incurred close to $100,00 in legal fees in defending this proceeding. There was no basis on which to assess the reasonableness of those fees, on the evidence before me. However, taking those incurred costs into account, it cannot be assumed that the moneys held in the Company's account would suffice to cover its reasonably anticipated legal fees going forward. There is an unavoidable circularity about this analysis - that a purpose for the capital raising is, now, to defend proceedings in which the purpose for the capital raising is challenged. Nevertheless, it may be inferred that a purpose for the continuation of the June Capital Raising is to put the Company in funds for this proceeding. The Company did not seek to establish that it would require for legal costs, funds of the magnitude that it would raise if the remainder of the shares proposed to be issued by completing the June Capital Raising, were subscribed.

90 On the present evidence the case that the Company's dominant purpose for completing the June Capital Raising is to dilute GFF's shareholding is weaker than the case concerning the past capital raising, for the reasons discussed. The serious question is nevertheless, on balance, arguable. For the purposes of deciding the application it is to be taken together with the claim that the shares will be issued at an undervalue if the capital raising continues.

91 GFF's case was that if existing shareholders were to avoid dilution they were, practically speaking, required to take up the June Offer. GFF says that the evidence supports an inference that the shares were offered at a significant 'undervalue'. In circumstances where shareholders were in effect forced to take up shares or have their shareholding diluted, requiring them to purchase shares at an undervalue was contrary to the interest of the members as a whole. The substance of that point was that the conduct of the capital raising would have the effect of diluting the value of the holding of existing shareholders, without any evident commercial justification.

92 As to the share price, 98.6% of the shares offered in the February Capital Raising were subscribed at a price of $6.25. GFF said that the remarkably high acceptance rate supports an inference that the market considers the shares to be worth $6.25 per share. It was submitted that Simens' evidence concerning the reasons for the significant re-valuation was unpersuasive and lacking credibility. In particular:

(a) There is no sufficient evidence substantiating the claim that the Company could not open a bank account because of Govinda's convictions;

(b) There is no reasoning explaining how it is that Govinda's alleged aggressive conduct could rationally bear on the re-valued share price;

(c) There is no evidence as to how Govinda's role as the owner of a major shareholder in the Company could impact of the price of the Company's shares, particularly where the objective of capital raising is said (by Simens) to be the sale of shares as a block, so that the purchaser would be free from Govinda's involvement and therefore is it immaterial;

(d) There is a lack of any rational explanation as to the relevance of Govinda's convictions in May 2023 on the share price in June 2024 in circumstances where the fact had no impact on the $6.25 share price or the acceptance rate (98.6%) of the February Capital Raising or the Company's objective mentioned above.

93 The Company submitted that that the directors had made their best estimates of the share price on an unsophisticated basis, as lay people, and had acted on the advice of Emerald. GFF had been afforded the opportunity not to have its shareholding diluted. The directors had complied with the Company's constitution. No barrier was being erected in the way of it maintaining its position.

94 In accordance with the Company's constitution members did not have the right to remain 'undiluted' (maintaining their proportionate interest in the Company). Rather, the Company's directors were obliged, when causing the Company to offer new shares, to afford to shareholders the opportunity to maintain parity with their existing positions by acquiring shares in proportion to their existing holdings. I accept that if the shares were offered at price that was significantly less than their real value, shareholders could only maintain parity by buying new shares at an 'undervalue'. In circumstances where the shares were offered at an undervalue, the resulting value of the shares at the end of the capital raising, would be reduced compared to the value that the shares previously held, as a result of that share issue. The point can be illustrated by a simplified example. Suppose the shareholders in company A hold 100,000 shares and company A is valued at $1,000,000. The resulting value of the shares is $10 per share. Suppose 2,000,000 new shares are issued in company A at $1 (assuming $1 to be below the true value of the shares) raising $2,000,000 in new capital. The result is a $3,000,000 valuation ($1m plus $2m of newly contributed capital) and 2,100,000 shares with a value of $1.43 each.

95 A capital raising that negatively affects the value of shares might be undertaken in many circumstances without attracting s 232 of the Act. The plaintiff's case was that the offer and issue of shares at a significant undervalue, in circumstances where shareholders were required to take up the issued shares if they wished to avoid dilution, and where the capital raising on those terms was not otherwise justified (for example because the Company was in urgent need of funds), is capable of attracting s 232. I consider that capital raising that reduces the value of existing shareholdings without more would not meet the description of conduct contrary to the interests of members as a whole. But the additional circumstances on which the plaintiff relies - the apparent lack of justification for the dilution of the value of the members' shareholdings and the practical requirement for members to take up the offer to avoid diluting their existing positions, is arguably capable of constituting conduct contrary to the interest of members as a whole. The significance of the shareholders' interest in maintaining parity might ultimately be found to be relevant only to the members' interest inter se (and not to the interests of member as a whole). However, as I understand the plaintiff's case, the relevance of the practical effect of the June Offer (dilution if not accepted) is that it increases the likelihood that the value of the Company's shares will be reduced by the issue of shares at an undervalue.

96 On the evidence I accept that there is a serious question to be tried that the offer of $0.75 was at a value significantly below the real value of the shares.

97 I accept that the price for the shares offered in February 2024 was not shown to have been formulated, for example, on the basis of expert opinion as to true value of the shares. It was an unsophisticated assessment by the directors. Nevertheless, the February Offer was almost wholly subscribed at a price of $6.25. In addition, 32,532 of the 44,000 GFF shares made available for transfer in March 2024 were subscribed at a price of $6.25.

98 It might be contended on the basis of the issues raised in the Emerald advice and the June 2024 letter to shareholders, that shareholders who accepted the February Offer and GFF Transfer Notice did so without being properly informed of the Company's circumstances. But as set out earlier, it may be inferred that the nature of the Company's investment in RAIN was known to shareholders, as was the fact of Govinda's criminal convictions. It can be accepted that the extent to which shareholders were fully informed about all of the Company's circumstances is contestable. For the reasons submitted by GFF, the significance of the factors that the directors disclosed in the June 2024 letter to the value of the Company is also contestable.

99 In the circumstances it is arguable that the rate of uptake of the February Offer and the GFF placement shares indicates that the market valued the Company's shares at $6.25 in February and March 2024. To that evidence must be added the paucity of any explanation of the basis on which the price of $0.75 was reached (or for that matter, the Emerald estimate of $1.50 to $2) and the significant difference between the share prices.

100 The plaintiff submitted that unless the Company is restrained from issuing further shares at the offer price of $0.75 (i.e. completing the June Capital Raising):

(a) The plaintiff's shareholding and attached rights will be immediately and proportionately decreased. It is no answer that the plaintiff can avoid dilution by taking up the June Offer (with a recently extended date for payment) because doing so would require subscription for shares at the offer price which, on a serious question basis, is contestably at an undervalue;

(b) For the same reasons, the continued capital raising would involve the continuation of conduct which, on a serious question basis, is contestably, contrary to the interests of the members as a whole;

(c) Conversely, for the reasons discussed, it has not been demonstrated that the Company needs to engage in the further capital raising.

101 GFF submitted that capital raising is the only realistic option by which the Company may raise funds - it has no bank account. Its assets are illiquid. It cannot feasibly borrow funds but it can raise equity. The Company needs funds to defend this proceeding. It has incurred close to $100,000 so far in legal costs. Nothing more particular was put as to what it would need. The Company also has ordinary business expenses which include the costs that will arise when and if it able to procure the opportunity to sell its RAIN shares. Beyond that, it was submitted that the Company does not need to justify its expenses, on the basis that decisions as to what capital the Company requires are a matter for the directors.

102 Further, GFF has not established that its proposed undertaking as to damages is meaningful which should, by itself, be sufficient to disqualify GFF from the relief it seeks.

103 In respect of the share issue restraint, I consider that the balance of convenience favours the grant of the injunction.

104 I have accepted that there is a serious question to be tried that the further issue of the shares in accordance with the June Offer will entail conduct contrary to the interests of the members as a whole. I am satisfied that there is a serious question to be tried that the further issue of such shares will involve conduct that is oppressive to the plaintiff. I was initially attracted to the proposition that the plaintiff can avoid the prejudice said to arise from the issue of the shares by subscribing for the June Offer (and if the plaintiff cannot afford to do so that is not a matter that should affect the Company). However, because of the undervalue question, I accept that the question of the consequence flowing from allowing the relevant conduct to continue should not be approached in that way.

105 Against those considerations the Company's need to put itself in funds must be weighed.

106 As discussed, the Company has some funds ($271,528) in its bank account. It may use those funds unless it is restrained from doing (as to which, see below). I accept that it may require further funds to defend these proceedings; it very likely will, if the matter proceeds to trial. At this point it is not possible to say when the proceeding will resolve. The evidence did not address what it needed specifically, although it has already spent close to $100,000 on legal fees on this proceeding. I also accept that if an opportunity to sell its RAIN shares arises, it should not be restrained from pursuing the offer for want of funds that it would otherwise have. On the evidence that I have preferred, the Company is unlikely to incur significant upfront costs if such an opportunity arises, but it may incur some costs. I accept that it cannot be determined when and whether an opportunity to sell the RAIN investment will arise but I accept that the Company is pursuing the opportunity and that doing so is a primary objective of the Company. The Company may also have other expenses.

107 I accept that all things being equal, the Company should be able to run its own affairs including making decisions about share issues, expenses and the pursuit of new opportunities. That said, for the reasons discussed, the exercise of powers conferred on the directors can involve the conduct of the Company's affairs in a way that attracts relief under ss 232 and 233 of the Act_._ The general contention that the Company should be free to run its own affairs in my view, in this case at least, does not weigh the balance against the grant of an injunction.

108 Addressing the Company's need for capital, it should be steadily borne in mind that the present application seeks to restrain the continuation of the June Capital Raising under the terms of the June Offer. It is not an application to prevent the Company from raising capital generally. Put another way, the grant of the injunction will not prevent the Company from formulating and issuing a different offer to shareholders and new investors to invest in the Company, on terms that would not entail the difficulties besetting the June Offer. Whether the directors wish to do that and if they do, what considerations they would take into account and how they would engage with investors is a matter for them, exercising their powers lawfully, in the best interests of the Company and the interests of members as a whole. Obviously, the extent to which a further capital raising may be taken up by investors, cannot be known.

109 As set out earlier, the extent to which a party is able to support an undertaking as to damages is one consideration relevant to the grant or refusal of an injunction. The plaintiff has some liquid assets in the form of shares in ASX-listed companies, said to be worth $194,300 in total and two unencumbered allotments of land, whose value the plaintiff did not seek to establish. Given the overall circumstances of the Company including the evidence of its financial needs and the fact that the grant of the injunction will not foreclose capital raising generally, I do not consider that the limits on the value of the plaintiffs' undertaking should be a reason to refuse the grant of an injunction in this case.

110 I consider that in the circumstances the least risk of injustice, should it ultimately be determined that the issue of shares pursuant to the June Offer did not involve oppressive conduct or conduct contrary to the interests of members as a whole, is to restrain the continuation of the June Capital Raising.

Restraint on use of capital already raised in June Capital Raising

111 The basis for the proposed restraint on the use of the capital raised in the course of the June Capital Raising is that the plaintiff seeks a final order requiring the Company to buy back the Offer Shares. It was submitted that if the restraint were ordered it would increase the likelihood that the Company will be in a position to buy back some of the Offer Shares which would undo some of the oppression alleged by the plaintiff, restoring the plaintiff's relative shareholding (to the extent that the funds restrained or quarantined will facilitate buy-backs). As the plaintiff put it, if an order is not made 'there is a risk that the company will ultimately not have sufficient capital to buy back the shares purportedly issued as part of the offer shares (or at least some of those shares)'. If that occurs the final relief sought by the plaintiff may be rendered otiose, even if the plaintiff successfully establishes that it is entitled to relief under s 232 of the Act.

112 The proposed restraint would apply to the $271,528 in the Company's bank account.

113 What might ultimately prove to be the appropriate form of relief, remains to be seen. Whilst the Company's current asset position is known, what its position will be at the time at which a final order is made, is not presently known. What the composition of the Company's share register at that time will be, is also not presently known. GFF's alternative claim for relief is for the purchase of its shares at fair value. That notwithstanding, I accept that there is a logical connection and a relationship in principle, established on the evidence, between the conclusion that there is a serious question that the June Offer Shares were issued in circumstances that would attract relief under s 233, and the proposed quarantine of funds obtained in that capital raising. If it is ultimately proved that the June Offer was made and shares were issued in circumstances that attracted ss 232 and 233 of the Act_,_ an available remedy would be to require the Company to buy back the shares issued pursuant to the June Capital Raising.

114 Against that consideration is the fact that constraining the Company's ability to defend these proceedings or to continue with the usual conduct of its affairs, would not in my assessment reflect a course that embraces the least risk of injustice.

115 GFF accepts that the Company should be able to fund its legal costs and to fund its ordinary business expenses.

116 GFF seeks a restraining order with a carve out for reasonable legal expenses (uncapped) and ordinary business expenses up to $10,000. GFF initially formulated the allowance for legal costs as a cap of $150,000 subject to further order. During argument counsel accepted that disputes about what further allowance might be needed or requested could make that regime unworkable.

117 I do not consider it appropriate to impose an arbitrary cap on the Company's business expenses. Despite the Company's limited expenditure in the past, GFF's proposed $10,000 limit on business expenses is an arbitrary sum.

118 While is not possible to conclude with any precision what the likely quantum of the legal costs of the Company will be going forward, given the quantum of funds already spent by the Company in this proceeding, there is a real prospect that the moneys presently held by the Company will be substantially eroded by the need to fund its defence and by its ordinary business expenses.

119 I have considered whether there would be a resulting lack of utility in making an order restraining the Company from dealing with capital raised from the issue of the Offer Shares. It may be that such an order will have no real effect if legal costs and ordinary business expenditure are uncapped. Although the issue is finely balanced, I consider that the least risk of injustice is not to conclude that a restraining order will have no utility by making an assumption without sufficient evidence, that all of the moneys retained from the June Capital Raising will be consumed. The least risk of injustice is to restrain the use of the funds but not to restrain the Company from employing those funds for its legal costs or its ordinary business expenses. If the funds are exhausted because they are deployed to those ends, that is a risk that the plaintiff will be required to bear.

[1] No evidence or submissions were addressed to the significance if any, of the option.

[2] ABC v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at 68 [19], 82 [65].

[3] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65.

[4] Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148, 153.

[5] See for example, Varley v Varley [2006] NSWSC 1025, [62].

[6] See for example, Enertek AU Pty Ltd v 8Starenergy Pty Ltd [2022] VSC 544, [18].

[7] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65.

[8] See for example, Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136, [957].

[9] See for example, Donald v Natural Springs Australia Ltd [2015] FCA 498, [252].

[10] See for example, Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd [2001] WASC 8; (2001) 19 ACLC 517, [14].