ISoft, a cash-strapped software provider for Britain's National Health Service, is being sued in New Zealand over a business it acquired three years ago.
Britain's Guardian newspaper reported the former owner of i-Health is claiming to have lost out on up to $25 million in deferred performance-related paymentsbecause iSoft failed to properly market i-Health's electronic health records product around the globe.
The lawsuit comes at a difficult time for iSoft, which urgently needs a cash injection. The company has been in takeover talks with potential rescuers for six months, over which time its shares have lost a third of their value.
British financial regulators have been investigating iSoft's accounts after it disclosed it had found evidence of irregularities in its 2004 and 2005 accounts.
Isoft, based in Manchester and spun out of KPMG Management Consulting in 1997, is developing software for Britain's NHS in a 6.2 billion pound ($18.64 billion) upgrade of information systems.
ISoft acquired i-Health, which had been making an operating loss, in January 2004 with most of the amount paid staggered over a five-year period, depending on revenues generated by the business.
Under this "earnout" agreement, the vendors of i-Health and a related company called Galen were to receive $9.9m if the business performed to expectations over the five years and up to $24.9m if it outperformed expectations.
A statement of claim filed at the high court in Auckland this month alleged iSoft had failed to market i-Health's HealthViews software globally and, where the product had been licensed, it had been sold at well below market price.
The claim said iSoft also "knowingly and deliberately sought to replace HealthViews in major reference and other sites with another of the iSoft Group's products, Lorenzo."
The lawsuit is being contested and iSoft strongly denied the claims. According to iSoft's website, HealthViews was installed on the Wirral, as a pilot project, where it was well received.
Earnout agreements are a common source of litigation. ISoft has reached settlements relating to deferred acquisition payments on other acquisitions.
The Guardian said pressure was mounting for the iSoft board to strike a deal to rescue the company. Onerous debt-related commitments were stepped up again at the start of this month.
