A class action against Dick Smith Holdings (DSHE) by hundreds of the failed tech retailer’s shareholders has made it to court.
The legal firm representing the shareholders, Bannister Law, revealed on 20 June that it had commenced the legal process to file a class action against DSHE Holdings (receivers and managers appointed) (in liquidation) in the Supreme Court of New South Wales.
"We actually really do think that the shareholders were deceived and were not told the correct information that they needed to be able to have to make an informed decision," lawyer Diane Chapman said, according to a report by the ABC.
"The shareholders were treated very badly — they had a right to correct information to make an informed decision on the Australian share market,” she said.
It is understood that nearly 1,000 people have registered to take part in the action.
The application for the class action, which is being launched by Bannister Law, and is set to be underwritten by international litigation funder, Vannin Capital, was made out on 16 June and has since been served to DSHE.
DSHE is the liquidated entity remaining following the retailer’s collapse early last year, which is now under the control of receivers, Ferrier Hodgson.
ICP, with Johnson Winter Slattery (JWS) and a forensic accountant and econometrics expert, previously reviewed public information to assess whether there might have been a shareholder claim emanating as far back as the Dick Smith (DSH) prospectus.
“We have investigated and followed this matter since January 2016 and we are pleased to finally be in a position to make this application in order issue proceedings and to pursue shareholders losses. We are confident that our alliance with Vannin Capital will deliver results for shareholders,” Bannister Law founder and principal, Charles Bannister, said.
The case hinges upon the suspicion that Dick Smith Holdings allegedly made representations in its public listing prospectus, and at various times in the period from its listing on the Australian Securities Exchange (ASX) until the appointment of administrators.
The claim filed alleges that DSHE contravened various provisions of the Corporations Act, including the continuous disclosure obligations.
In essence, it is alleged that during 2015, DSHE made decisions about what stock to purchase based primarily on the rebates that could be obtained from suppliers rather than focusing on buying stock that customers actually wanted to buy.
This allegedly led to an increase in bad stock which could not be sold and an increase in debt. In November 2015, DSHE was forced to make an impairment of $60 million of the bad stock.
The shareholders allege that DSHE was aware of the problem of the accumulation of the bad stock earlier in 2015 and that, in breach of its continuous disclosure obligations, it failed to advise the market of this fact.
It is also alleged that DSHE accounted for the rebates it received in a way that was not in accordance with the Australian Accounting Standards, the effect of which was artificially to inflate DSHE’s profits reported in its consolidated financial statements published in 2015, in contravention the Corporations Act.
The shareholders claim that, during 2015, DSHE’s share price was inflated as a result of the contraventions of the act, and that they have suffered loss and damage as a result.
Now, the class action has made its way to court, with Bannister Law saying it is committed to achieving the best possible outcome and the maximum possible compensation for all affected shareholders.
The claim comes after DSHE receiver, Ferrier Hodgson, was ordered to pay the costs of its own legal action against the insurers of the failed tech retailer’s former directors and executives.
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 with a damages claim worth millions.
The case was brought against eight directors and executives, including former Dick Smith CEO, Nick Abboud, and saw Ferrier Hodgson go after not only the directors themselves, but also the insurers that provided cover for the individuals in question.
The legal claim included allegations that the former Dick Smith directors and executives breached their duties by failing to implement “adequate system” related to rebates and inventory management, Fairfax Media reported on 19 March.
Through the action, the banks hoped to secure priority for any resulting insurance payout for the Dick Smith directors and executives.