The $25 million settlement resulting from class actions launched against Dick Smith Holdings (DSHE Holdings), the entity remaining after the collapse of electronics retailer Dick Smith, and insurer Alliance, has been approved, but only a small portion will end up in the hands of shareholders.
The cases were launched after the collapse of the retailer in early 2016, along with the closure of its stores, which followed closely on from a $60 million inventory write-down revealed in late 2015.
A rebate-focused inventory buying policy was one of the main triggers of the company’s collapse, according to a subsequent creditors’ report.
It should be noted that online retailer Kogan.com purchased the Dick Smith online retail business in 2016, taking over from June that year. The online business is unrelated to Dick Smith Holdings, the entity at the centre of the class actions.
Two of three proceedings were brought against DSHE Holdings Ltd and Dick Smith’s then executive directors, Nick Abboud and Michael Potts, and its auditor, David White of Deloitte Touche Tohmatsu. The other action was brought against Allianz Australia Insurance.
Broadly, two of the proceedings were securities class actions, with the plaintiffs representing people or entities that had purchased shares in Dick Smith. These actions alleged misleading or deceptive conduct of Dick Smith, Abboud, Potts and Deloitte.
The proceedings settled in principle on 3 December 2020, with the settlement involving a payment by several defendants of a total amount of $25 million.
Now, Supreme Court of NSW justice James Stevenson has approved the settlement, which he described as “disappointing”.
“I propose to approve the settlement,” he said in a judgment handed down on 17 March, noting that his approval was subject to one amendment relating to costs.
“The figure of $25 million is a disappointing result for the group members as the total of the losses they contend has arisen from the conduct complained of is in the order of hundreds of millions of dollars.
“However, I am persuaded that the inter partes settlement achieved is the best that could reasonably be expected and that the inter se settlement, although involving group members sharing only around 20 per cent of the settlement sum, is in all the circumstances fair and reasonable,” he added.
From the total $25 million settlement sum, it was proposed that $18,750,000 to the funders of the actions for the legal costs incurred to the date of the in principle settlement on 3 December 2020. It was noted that the funders had in fact incurred some $26 million in legal costs.
Additionally, an amount “up to” $840,125 would be allocated for the costs incurred “or estimated to be incurred” since 4 December 2020. Moreover, it was decided $40,000 would go to the plaintiffs for the time and expenditure they had incurred in the proceedings.
Additionally, $242,000 was allocated to the proposed Settlement Administrator, John Park, for his costs of administering the settlement and as to a further $40,000 to the plaintiffs and their legal representatives for costs incurred in connection with the administration of the proposed Settlement Distribution Scheme.
All up, this comes to $19,912,125, almost 80 per cent of the total settlement amount.
The balance, a little over $5 million of the total settlement sum, is to be distributed between the roughly 2700 participating group members – former Dick Smith shareholders – on a pro rata basis, in accordance with a Loss Assessment Formula set out in the Settlement Distribution Scheme, Stevenson said.