Dick Smith Directors Face Grilling About “Wrongful Acts” & “Deceptive Conduct” In NSW Court Today
Today is D-Day for several former Dick Smith directors and senior executives, who face being grilled in the New South Wales Supreme Court over the $400 million collapse of the mass retailer.
What will be put to them is a litany of alleged “wrongful acts” that contributed to the retailer’s demise allegations of misleading and deceptive conduct will also be put to former executives of the Company.
Initially lawyers acting for the receivers Ferrier Hodgson will grill Myer chairman and Woolworths finance director, Bill Wavish, who was on the board at the time of Dick Smith’s 2013 float, Lorna Raine, who was also on the board during the float, former non-executive director Jamie Tomlinson, who joined the board ten months before the company went into administration, and Dick Smith’s company secretary, David Cooke.
Former directors including Metcash chairman Robert Murray and Phil Cave the Chairman of Anchorage Capital and Dick Smith are expected to follow.
The former CEO of Dick Smith Nick Aboud is not expected to take the stand for several weeks. Aboud is facing questions about the operations of the company and above all the information he provided to shareholders ahead of the collapse which occurred two years after the float of the company which netted investors over $500 million.
The executives will be questioned under oath about their knowledge of events that contributed to the company’s demise, ChannelNews understands that lawyers acting for Ferrier Hodgson have a paper trail of emails and correspondence which they want to question executives about.
It is not known whether the former marketing director and head of buying Neil Merola will be questioned about his involvement in the collapse of the mass retailer, at one stage he was telling journalists, that there was nothing wrong at the retailer and that the company was “profitable” this was despite the fact that financial records later show that the company was losing money on the sales were slumping.
The retailer collapsed in January 2016, barely two years after the float, owing more than $400 million to creditors, including about $140 million to NAB and HSBC.
Dick Smith’s receivers, James Stewart, Jim Sarantinos and Ryan Eagle of Ferrier Hodgson, are aiming to establish whether former directors and executives are liable for the collapse and whether claims can be made against the company’s directors’ and officers’ insurance policies.
The evidence of those who appear before the examinations may also be used to establish whether there is a case for criminal charges.
The Australian Financial Review claims that letters sent on July to 10 former directors and executives by Ferrier Hodgson’s lawyers, Norton Rose Fulbright, outlined a litany of alleged “wrongful acts” that contributed to the retailer’s demise and foreshadowed claims of misleading and deceptive conduct.
The letters alleged that directors and officers breached their duties by failing to have proper reporting systems and controls in place, inflating earnings to meet market expectations by deliberately buying too much stock, booking rebates from suppliers as profits and disguising weak retail sales with low-margin commercial sales.
The receivers alleged that the banks, National Australia Bank and HSBC, were misled into providing loans to Dick Smith.
According to the letters, from at least July 2014 Dick Smith’s management allegedly undertook a program of “maximising” rebates by suppliers – buying excess and unsaleable stock and booking certain types of rebates as an increase in profits or a reduction in marketing expenses rather than spending the rebates on marketing and customer discounts.
Any excess rebate was booked as a reduction in the cost of sales in the month that the rebates were negotiated, potentially before the sale of the stock and before the receipt of the agreed support, in breach of accounting standards.
Ferrier Hodgson alleges the executive and non-executive directors did not have systems in place to ensure adequate reporting or management of stock purchases.
Watching the examinations with interest will be Dick Smith’s liquidators from McGrathNicol.