Dick Smith Hearing Turns Into A ‘Soap Opera’ As Central Characters Give Evidence

Evidence being given in the NSW Supreme Court relating to the $400M collapse of Dick Smith is turning into a soap drama.

Central Characters are a Chairman who can’t remember as to who gave him assurances about the “high level of stock” that eventually bought Dick Smith undone and a former Woolworths executive, who was despised because of his management style “leadership and behaviour” and infighting between Directors and management.

Yesterday the court heard that the chairman, Rob Murray, saw the departure of former director Bill Wavish who was the architect behind the Companies ill-fated supplier rebate strategy as a blessing because of the negative aspects of Wavish’s “leadership and behaviour”.

This evidence was delivered two weeks after another Dick Smith Director Jamie Tomlinson told the Court that he didn’t think very highly of the skills of Dick Smith’s chief executive Nick Abboud.

What is now emerging is that the relationship between director and management at the mass retailer was toxic and that infighting was par for course when it came to running the business.

Under questioning Murray denied the company’s use of lucrative but controversial rebates was a deliberate ploy to boost its bottom line, saying stock was only ever bought to satisfy customer demand.

Dick Smith Electronics’ reliance on so-called “over and above” rebates was cited by its liquidator McGrathNicol as a possible cause of the retailer’s collapse in January.

During his four-hour grilling in the witness stand Murray was unable to say who or which director or member of the Dick Smith management team assured him that the stock levels at the mass retailer were normal.

“In all the conversations I was a party to the reason we bought inventory was to satisfy consumer demand,” Mr Murray told Jeremy Giles SC, counsel for the liquidator.

Mr Murray said he had received “broad assurance” from management that the high levels of stock in its warehouses would be reduced by the end of the year.

Mr Murray also told the court he would have been concerned if rebates had been paid by suppliers and taken into the retailers’ profit and loss accounts before stock had been sold.

“It would have been contrary to the accounting standards as I understood them,” he said.

“I was given reassurances that this was not the case and that we could explain this. For example, the $40m bought in private label had very little (O and A) support attached to it; it was more about buying products cost effectively.”

But when Mr Giles pressed Mr Murray on who gave him such reassurances, he drew a blank and conceded that he might only have assumed it.

“I can’t recall if I was told that. I guess I was an assumer of that,” Mr Murray said.

And when asked if he had conducted any investigation into whether or not rebates had been recorded in the company’s profit and loss statement, Mr Murray answered “no”.

When it came to the way the Company was being run evidence was given that Wavish’s long-time partner Phil Cave the Chairman at Anchorage Capital the Private Investment Company that acquired Dick Smith advised Murray not to go to Dick Smith finance and audit committee meetings chaired by Wavish.

The court heard this was due to Wavish’s autocratic behavioural style and his attempts to intimidate others.
Murray told the Court that the company raised $70 million in rebates (in 2014) and reported net profit of around $42 million – thus illustrating the importance of rebates.

These included pricing rebates, over and above rebates and advertising rebates.

Talking about the period between August 2014 and the end of December 2014 – before he was elevated to the chairman’s position – he said he had only a broad rather than a specific understanding of how accounting worked for rebates.

He confessed to not being a financial expert but knew that two different accounting standards applied.

One applied to specific payments regarding specific inventory and a more general over and above rebate not specifically applied to particular inventory and there was more discretion about how you account for those.

By the end of December of 2014 he was not aware of any overspending on inventory, but admitted that by the board meeting in February he could see that the levels of inventory were rising above those that had been projected.

Late in the day Murray concede that the retailer’s reliance on rebate support from suppliers left it in a vulnerable position.

“We operated with the same economic model as the vast majority of retailers in this country do, and that is an inherently vulnerable model,” he told the court.

“You get $70m of supplier support in rebates every year and your net profit after tax is $42m. In theory that is discretionary support and a lot of it can be taken away, so it’s an area in which the retailer is reliant on the goodwill of their suppliers.”

“I didn’t go into an investigatory hunt into that. I took the assurances I was given at face value,” he said, while also conceding it was possible he never received any oral reassurance at all.

Dick Smith collapsed in January. Receivers and managers James Stewart, Jim Sarantinos and Ryan Eagle of Ferrier Hodgson are seeking to recover an estimated $260m shortfall for creditors, including $140m owed to National Australia Bank and HSBC Australia.