- The Market Herald notes there has been no evidence of criminality by any party
The Victoria Federal Court (VFC) public examination into failed ASX-listed dental provider Smiles Inclusive has continued with the company’s former Chief Commercial Officer and an executive from shareholder manager Link Registry questioned on Thursday and Friday.
It’s alleged there was collusion between the company and a broker firm to manipulate shareholder votes at an extraordinary general meeting (EGM) and that the company told the market it was able to operate, while executives allegedly knew the company was in trouble.
On Thursday, the CCO Keith Nicholls told the court he’d been pressured by other members of Smiles’ staff to limit the release of financially damaging information.
“Were there any disclosures to the market that you disagreed with?” The claimant’s counsel asked Mr Nicholls on Thursday.
“Yes there were a couple,” he replied.
“In terms of some of the guidance, particularly around forecasts, I thought they were quite ambitious at times … frankly in my opinion, I knew we weren’t going to be able to deliver on those.”
Smiles Inclusive’s former CCO also told the court he often did not feel supported in the job.
When Mr Nicholls was asked by counsel if he raised those concerns, he said that they “fell on deaf ears”. He said he’d approached CEO Mike Tomney, who was removed in a controversial EGM, which much of the hearing has so far focused upon.
“When the company didn’t have enough cash to pay its payroll, that’s when I started becoming concerned,” Mr Nicholls added.
Background: Smiles Inclusive saga
The week in the Federal Court civil hearing started with former Smiles’ Chairman, David Usasz, questioned on whether the company, through Mr Usasz, could have colluded with stockbroking firm Morgans to solicit beneficial outcomes at a Smiles EGM. At that EGM, former CEO Mike Tomney was removed.
Core to the examination are two dentists who participated in Smiles’ IPO. Those dentists claim to have suffered financial loss after selling their dental practises to Smiles before it liquidated, less than three years after listing on the ASX.
Those dentists brought the examination to court, which is believed to be a legal first in Australia. They allege that Smiles Inclusive, and Morgans who backed it, both had known that the dentists wouldn’t ever see a real improvement in their revenues.
It is claimed that shareholders who voted “yes” at the EGM had not voted at all and that Morgans, in collusion with Smiles Inclusive, sought to manipulate the outcome of votes to ensure Mr Usasz took a greater share of the company, even as it was obvious the company was heading for liquidation.
On Wednesday, two Morgans staffers were questioned – including its Chairman – where it was revealed that:
- Mr Usasz had an existing relationship with Morgans;
- Mr Usasz was personal friends with Mr Evans, who headed an independent committee on Smiles’ Board that allegedly sided with Mr Usasz;
- Morgans’ Chairman Mr Crommelin personally knew Mr Evans;
- Some shareholders who voted in the EGM later complained they hadn’t voted; and,
- Morgans once loaned Mr Usasz $200,000 to pay back NAB.
“We were quite involved,” Morgans Executive Philip Lee told the hearing. Chairman Tim Crommelin also confirmed being personal friends with Mr Usasz and that it was not unusual for Morgans to lend companies interest-free six-digit loans – even with the funds being used to repay a bank loan.
Link Registry adds further questions
Today an account executive from market services provider Link Registry, Chris Healey, confirmed unusually high retail voter turnout for that controversial EGM – a line of questioning that was put to Mr Usasz and Morgans’ executives earlier in the week.
Mr Healey said he attended the EGM.
“Can you give me your recollection of the meeting?” Counsel asked Mr Healey.
Mr Healey said his recollection was hazy, but that everyone arrived earlier than usual. He said people usually arrived five minutes early, however, at this meeting, there was a pronounced presence well before the EGM started.
“In your experience, at an EGM of this nature … what is the usual level of voter turnout?” Counsel asked.
“I can’t recall how many voted for Smiles. I can’t tell you if it’s above or below the average,” Mr Healey said.
“But do you have any sense of average voter turnout … at an AGM?” Counsel asked again, seeking to establish a baseline of attendance from which to compare the EGM.
After some back and forth, Mr Healey noted contentious EGMs tended to attract much higher numbers than an AGM and a normal EGM. For larger companies, an AGM would rarely attract about two per cent of voters.
When asked why some shareholders had e-mailed Link to ask how they’d voted, Mr Healey said that the company had previously received similar enquiries.
“Does that happen often? That a shareholder contacted the call centre to ask how they’d voted?” Counsel asked.
“That does happen, but not very often,” Mr Healey replied.
Hearings continue on Monday.