A class action against Dick Smith Holdings (DSHE) by hundreds of the failed tech retailer’s shareholders has been given the go-ahead by the Supreme Court of NSW.
On 24 July, the Supreme Court granted leave to Bannister Law, which is launching the class action on behalf of shareholders in the company, to file proceedings against DSHE Holdings Ltd (Receivers and Managers Appointed) in liquidation.
The move comes just over a month after Bannister Law revealed it had commenced legal proceedings against DSHE, the liquidated entity remaining following the retailer’s collapse early last year, which is now under the control of receivers, Ferrier Hodgson.
According to Charles Bannister, Principal of Bannister Law, the ruling is a “win” for many DSHE shareholders who lost out in the company’s demise.
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.
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.
“Thousands of shareholders have lost tens of millions because, we allege, DSHE contravened provisions of the Corporations Act, including by engaging in misleading or deceptive conduct on various occasions throughout 2015 in relation to DSHE shares,” Bannister said in a statement. “The Court’s ruling today is great news for those shareholders.
“Had the Court denied leave, our case was over before it really began,” he said.
According to Bannister, the law firm already has hundreds of registrants who had previously purchased shares within the relevant period, from 16 February 2015 to 31 December 2015, and suffered loss due to the alleged misconduct of DSHE.
It is alleged by Bannister Law that the publication by DSHE of its financial statements, both half year and full year results, in 2015 was misleading and deceptive.
The firm alleges that DSHE represented through directors’ declarations that its accounts were prepared in accordance with the Australian Accounting Standards and gave a true and fair view of the financial position and performance of the Group when that was allegedly not the case.
Rather, it is alleged that the accounting treatment of rebates artificially inflated DSHE’s reported profit and was not in accordance with the Australian Accounting Standards.
Shareholders allege that, during 2015, the share price was inflated as a result of the contraventions of the Corporations Act and that they have suffered loss and damage as a result.
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.