Dick Smith directors face legal action

Due to breaches of duties.

Former Dick Smith directors and executives are facing legal action that alleges a series of breaches of their duties. This follows an examination in the NSW Supreme Court in September last year. Insurers that provided cover for the directors and executives are also being investigated by the receivers of Dick Smith.

A spokesperson for the receivers said the company was “seeking to recover amounts equal to its 2015 interim and final dividend” which it alleges were paid in contravention, “as well as its losses arising from its inventory management.”

In a statement of claim lodged in the Supreme Court of NSW, it is alleged former directors including Bill Wavish, Phil Cave, Rob Murray, Jamie Tomlinson and executives Nick Abboud and Michael Potts, breached their duties by failing to put in place adequate systems in relation to rebates and inventory management, according to a Fairfax Media report.

It also alleges that company earnings in 2015 were inflated by pursuing a rebate maximising strategy. This strategy allegedly resulted in management being motivated to buy stock that was driven by rebates rather than customer demand, creating a stockpile of products that were “unsaleable”, the report continued.

Former Dick Smith directors and executives attended the NSW Supreme Court in September 2016 for questioning.

Dick Smith chairman, Robert Murray defended the retailer’s strategy, including the roll out of new stores and taking on more debt.

Anchorage Capital Partners managing director, Philip Cave also defended the policy of maximising rebates, which he said was initiated under Woolworths’ ownership.

Former Dick Smith CEO, Nick Abboud told the court vendor rebates were a key element of the company’s strategy in promoting margin and profitability.

Former Dick Smith CFO, Michael Potts said he was not concerned that over-and-above (O&A) rebates were distorting buying decisions until the accounting treatment of rebates was discussed in late 2015.

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