Background
EVP Opportunities Master Pty Ltd (EVP) is an investment fund that was introduced in mid-November 2024 to Strong Room Technology Pty Ltd (SRT), an artificial intelligence company, as a potential investor. Between November and December 2024, SRT and its co-founder and CEO, Max Musashi Mito Jr, provided due diligence information to EVP, allegedly for the purpose of inducing EVP to acquire shares. On 7 February 2025, EVP entered into a Subscription Deed, and on 12 February 2025 a Secondary Share Sale Agreement, paying $10,440,969.06 for shares in SRT. The agreements included warranties from SRT, Mito Jr, and co-founder and director Christopher Durre as to SRT’s financial position and performance.
By 20 February 2025, EVP had completed payment. On 24 March 2025, after accessing further internal financial information, EVP issued a notice of warranty breach, alleging the pre-investment information was false and misleading. SRT was placed into voluntary administration on 28 March 2025, and EVP commenced proceedings on 31 March 2025 against SRT, Durre, and numerous other defendants, alleging fraudulent misrepresentation, misleading or deceptive conduct, and accessorial liability.
On 24 March 2026 — nearly a year after proceedings were filed — Durre filed a debtor’s petition and became bankrupt on his own application. This required EVP to seek leave under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to continue proceedings against him. Separately, disputes arose over the scope of discovery obligations Durre would bear, in particular whether he could be required to produce documents outside his control.
The Court’s Holding
Justice Goodman granted EVP leave under s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to proceed against Durre up to the making of final orders, while expressly prohibiting enforcement of any judgment without a further grant of leave. The Court found the claims were sufficiently arguable, noting that a co-founder’s potential liability for misleading or deceptive conduct inducing entry into a contract constitutes a provable debt under s 82 of the Bankruptcy Act, following Coventry v Charter Pacific Corporation Limited [2005] HCA 67; (2005) 227 CLR 234. The complexity of the issues — including proportionate liability, the Corporations Act relief provisions under ss 1317S and 1318, and the true financial position of SRT — rendered the proof of debt procedure in bankruptcy an inadequate substitute for a contested trial.
The Court also made discovery orders against Durre, but resolved his concern about being required to produce documents outside his control by limiting discovery strictly to documents within his possession, custody, or control. The orders further preserved Durre’s ability to assert legal professional privilege over any responsive documents. Costs of the interlocutory applications were reserved.
Key Takeaways
- A court will grant leave to proceed against a bankrupt defendant under s 58(3)(b) of the Bankruptcy Act where the claims are arguable, the issues are legally and factually complex, proceedings were well advanced at the time of bankruptcy, and the plaintiff’s proposed orders protect the bankrupt estate from immediate enforcement.
- Misleading or deceptive conduct claims that induced entry into a contract are provable debts in bankruptcy — including accessorial liability claims — because they arise “by reason of a contract or promise” and are not excluded by s 82(2): Coventry v Charter Pacific (2005) 227 CLR 234.
- A defendant’s voluntary bankruptcy shortly before a major discovery round does not shield them from discovery obligations; courts will tailor orders to limit discovery to documents within the bankrupt’s actual control rather than dismissing the obligation entirely.
- Where proportionate liability defences and multiple co-defendants are involved, a proof of debt process is generally an inadequate forum: contested litigation is preferred to avoid fragmented and duplicative proceedings.
Why It Matters
This decision reinforces that strategic personal bankruptcy will not automatically stall complex multi-party commercial litigation. Courts applying Hillig v Battaglia [2019] FCA 2191 will weigh the complexity of the claims, the stage of proceedings, and the interests of all parties — not just the bankrupt — when deciding whether to permit litigation to continue. The explicit ring-fencing of enforcement (requiring a second leave application before any judgment can be executed) reflects the court’s balancing of creditor protection against the integrity of the broader proceeding.
For practitioners advising investors in startup or private equity transactions, the case also highlights the exposure of co-founders who give contractual warranties as to financial position: even limited operational involvement in providing due diligence materials may ground fraud, accessorial liability, and misleading conduct claims that survive bankruptcy proceedings.