Dick Smith receiver told to pay up for director attack

Dick Smith Holdings (DHSE) receiver, Ferrier Hodgson, has been ordered to pay the costs of its 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.

Among the defendants were Michael Potts, Phillip Cave, Robert Murray, William Wavish, Lorna Raine, Robert Ishak and Jamie Tomlinson, in addition to Abboud.

The insurers included Allianz Australia Insurance, QBE Underwriting, Chubb Insurance Australia and Berkley Insurance Australia.

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.

However, the defendants in the case were granted a reprieve of sorts by the NSW Supreme Court in May, when the judge presiding over the case, Justice James Stevenson, declined leave for the action against the insurers to continue.

“The joinder of the insurers to these proceedings…will not improve the position of DSHE, NAB or HSBC in the event that there are competing claims for the fruits of these policies,” said Stevenson in March.

He suggested that such a move could, indeed, clash with an impending class action set to be undertaken on behalf of Dick Smith Holding shareholders against the company’s directors and executives.

“The first party to have its claim determined (whether by judgment, award or settlement) will prevail,” he said.

Now, Stevenson has ruled that the plaintiffs – Ferrier Hodgson, NAB and HSBC – should pay the legal costs of the insurers’ representatives.

“In my opinion the appropriate order is that the plaintiffs pay the costs of each of the insurers in the usual way,” Judge Stevenson said. “I will consider the question of indemnity costs once I have received submissions on that question.”

Meanwhile, the class action, which is set to be launched by Bannister Law and Johnson Winter & Slattery with the backing of Investor Claim Partner (ICP) is “fairly close” to seeing the light of day.

ICP, with Johnson Winter Slattery (JWS) and a forensic accountant and econometrics expert, has made efforts to review public information to assess whether there is a shareholder claim emanating as far back as the Dick Smith (DSH) Prospectus.

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, which allegedly gave a false impression to the market about the financial position of the company and the value of its shares.

ICP Capital subsequently funded JWS to file a claim in the Federal Court seeking orders that the liquidator of DSH, McGrath Nicol, to provide business records.

In its latest creditors’ meeting on 26 April, McGrath Nicol revealed that the Dick Smith Holdings shareholders had obtain the court orders to access the books and records of the Dick Smith Group to assist them in investigating the claims.

During the creditors’ meeting, George Khalil, representing Ingram Micro, asked whether the liquidators were investigating an insolvent trading claim against the directors.

The company’s liquidator, Joseph Hayes, confirmed that the liquidators are investigating an insolvent trading claim against the directors.

Dick Smith went into receivership in January 2016 following a massive inventory write down of about $60 million in November 2015.

Aggressive store expansion, buying too much inventory, strained supplier relationships and not generating enough sustainable profit, were some of the triggers that led to Dick Smith’s spectacular demise, according to McGrathNicol’s creditor’s report.