One of two class actions being launched against Dick Smith Holdings is set to be endowed with new allegations as fresh evidence comes to light.
Investor Claim Partner (ICP) which, in partnership with Johnson Winter & Slattery, is proposing a class action on behalf of Dick Smith shareholders.
On 1 September, the firm told litigants that is had been granted access to additional disclosure documents associated with Dick Smith’s initial public listing as part of its research into the proposed case.
Specifically, ICP was successful in obtaining orders from the Federal Court of Australia on 25 August 2017, requiring that the liquidators of Dick Smith Holdings, McGrath Nicol, provide thefirm with further disclosure of documents relevant to the failed tech retailer’s prospectus.
“After reviewing these documents, it is now likely the claim will include an allegation that had the market been aware of revenue recognition, stock valuation, provision and rebate issues relevant to reported revenue, margins and cost of doing business that were in existence at the time of the prospectus… the listing would not have proceeded or, if it did, it would have proceeded with the issuing of shares at a materially lower value,” the company said in a message to participating shareholders.
ICP Capital, which is a benchmark claims management and funding services, previously funded Johnson Winter & Slattery to file a claim in the Federal Court seeking orders that McGrath Nicol provide business records about the retailer.
The class action, which is being undertaken on behalf of aggrieved Dick Smith investors who suffered losses as a result of the company’s demise is likely to allege breaches of disclosure obligations and misleading and deceptive conduct.
The case hinges on the suspicion that Dick Smith Holdings made representations in its prospectus, and at various times in the period from its listing on the Australian Securities Exchange (ASX) until the appointment of administrators, which gave a false impression to the market about the financial position of the company and the value of its shares.
The class action comes after another class action, undertaken by Bannister Law, and launched against Dick Smith Holdings – or rather the entity left following the company’s liquidation – got the green light for proceedings to begin in the Supreme Court.
According to Charles Bannister, Principal of Bannister Law, the ruling was a “win” for many DSHE shareholders who lost out in the company’s demise.
Meanwhile, yet another court case associated with Dick Smith and its collapse looks as though it may drag the tech retailer’s former auditor, Deloitte Touche Tohmatsu into the legal fray.
Dick Smith Holdings’ (DSH) receivers, Ferrier Hodgson, in conjunction with National Australia Bank (NAB) and HSBC – two of Dick Smith’s largest creditors – mounted a legal action in March against former directors and executives of the collapsed electronics retailer in a damages claim worth millions.
Broadly speaking, the legal action alleges that Dick Smith’s earnings in 2015 were inflated thanks to the use of a “rebate maximising” strategy that compelled managers to make stock purchasing decisions based on rebates instead of customer demand.
The collapse of the retailer in early 2016, along with the closure of its stores, followed close behind a $60 million inventory write-down revealed in late 2015.
The rebate-focused inventory buying policy was one of the one of the main triggers of the company’s collapse, according to a subsequent creditors’ report.
The claim filed against the former directors, including former Dick Smith CEO, Nick Abboud, and former CFO, Michael Potts, allege that the company’s directors and officers breached their duties to Dick Smith Holdings – as a publicly-listed company – through failures associated with a rebate-driven buying policy.
Now, thanks to fresh cross-claims filed by representatives for at least two of the company’s former executives, Abboud and Potts, the firm charged with auditing the retailer’s financials in 2014 and 2015, Deloitte Touche Tohmatsu, has also been drawn into the line of fire.
According to a cross-claim filed with the NSW Supreme Court on 14 July, if Abboud is found liable to the charges laid against him by Dick Smith Holdings’ receivers, the former CEO’s legal team will launch cross-claims against Deloitte for “damages and/or contribution”.
The case continues.