Sydney-based cognitive start-up in legal wrangle over reluctant investor returns

Sydney-based cognitive start-up in legal wrangle over reluctant investor returns

Semantic Software told to compensate shareholders

According to court documents, the investor pack issued to the investors said that, “[Semantic] is currently selling shares to raise capital of up to $500,000 from private investors.

"We anticipate substantial returns for these investors, including a minimum three-fold return guarantee within two years as described in our Share Issue Agreement."

The information memorandum contained in the investor pack stated that one aim for the company in 2012 was to “sell the company to a US software industry leader” and that “we believe it is likely” that IBM, Microsoft, Oracle, HP or Google “will seek to purchase [Semantic] in 2012”.

Likewise, in a pre-IPO Offering document, the company – then known as Tralee Software – stated that, “shares in the company are priced with an expectation of a five-fold to ten-fold return within three years or sooner.

Investors are offered a guaranteed minimum threefold increase in value within 2 years as detailed in our standard Share Issue Agreement,” according to court documents.

The share issue agreements entered into by the Ebbsfleet and McGee contained a clause guaranteeing a number of warranties, including provisions that the shares that were the subject of the agreement “shall triple in value within two years”.

If the shares did not triple in value within two years, the clause stated, the company’s director would transfer additional shares from his personal or beneficial shareholding sufficient to effect a tripling in value of the shares the subject of the agreement.

However, Semantic’s financial statements show that it was operating at a significant – and ever increasing loss – with its only revenue being the receipt of subscriptions for shares, interest and some research and development tax incentives, according to court documents, with the company’s losses amounting to $3.1 million by the end of the 2016 financial year.

Now, following hearings in early February, the court has found in favour of the investors, whom Justice Stevenson said are entitled to damages sufficient to place them in a position as if the contract had been performed; that as if the warranty had been made good.

“Those damages are, prima facie, to be calculated so as to put Ebbsfleet and McGee in the position they would have been in had the promise…been fulfilled; namely that their shares in Semantic had tripled in value within two years of issue,” Stevenson said in the Judgement.

According to Stevenson, the court is yet to hear submissions as to the precise amount that should be awarded and whether, in exchange for an award of damages, Ebbsfleet and McGee should transfer their shares in Semantic to the company’s director.

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Tags legalNSW Supreme Courtcognitive computingSemantic Softwaresemantic



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