Dick Smith Holdings Limited

Update – 26 February 2016

On 25 February 2016, Ferrier Hodgson, as receivers and managers of Dick Smith and related entities, ‘announced that the remaining Dick Smith and Move stores (excluding airport locations) in Australia and New Zealand will close’ following a sale process that failed to obtain acceptable offers for the Dick Smith business.

Ferrier Hodgson also explained

‘All Australian employee entitlements will rank as priority unsecured claims ahead of the secured creditors and are expected to be paid in full.

‘Entitlements of New Zealand employees who are made redundant are preferential claims ranking ahead of the secured creditors, and are expected to be paid in full up to a maximum statutory limit of NZD$22,160 under New Zealand law.’

See Ferrier Hodgson’s ASX announcement for further details

Update - 4 February 2016

On 28 January 2016, the Federal Court of Australia granted the Administrators of Dick Smith Holdings Ltd (ASX:DSH) (Dick Smith), a six month extension of the convening period for the second meetings of creditors. This allows the second meetings of creditors for companies in the Dick Smith group to be held on or before 9 August 2016.

Update on timing of second creditors meeting On 26 February 2016, following the announcement by Ferrier Hodgson of their intention to close the remaining Dick Smith and Move stores in Australia and New Zealand, the Administrators indicated that, subject to the timetable for store closures, they now expect to convene the second meeting of creditors at an earlier date, anticipated to be in early June 2016.

Visit the McGrathNicol website for further information about the extension granted and other updates.

On 4 February 2016, Ferrier Hodgson, as receivers and managers of Dick Smith and related entities, announced the restructuring of support office operations resulting in the immediate loss of 22 staff. Ferrier Hodgson also announced that investigations to date had identified an issue in the calculation and payment of annual leave loading to retail employees in Australia. It is estimated that the annual leave loading underpayment may be approximately $2 million and may have resulted from the application of an incorrect industrial award.

The receivers and managers advise that all current employees have received information about this issue. Former employees will be notified as soon as possible.

The receivers and managers are required to report to ASIC on possible offences by people involved with the company. We will assess reports received to consider our own investigations and action, if any.

Visit the Ferrier Hodgson website for further information

Background

Dick Smith Holdings Ltd (ASX:DSH) (Dick Smith) is a large electrical goods retailer, operating approximately 390 stores across Australia and New Zealand under four brands, Dick Smith, Electronics powered by Dick Smith, Move and Move by Dick Smith.

On 4 January 2016, the board of directors of Dick Smith appointed Joseph Hayes, Jason Preston, William Harris and Matthew Caddy of McGrathNicol as voluntary administrators. Following this appointment, a syndicate of lenders, which hold security interests over Dick Smith and a number of associated entities, appointed James Stewart, Jim Sarantinos and Ryan Eagle of Ferrier Hodgson as receivers and managers.

 

The receivers and managers have taken control of Dick Smith’s business and assets and called for expressions of interest for a sale of the business as a going concern. Expressions of interest have closed. The receivers and managers advised on 25 February 2016 that ‘… unfortunately the sale process has not resulted in any acceptable offers for the group as a whole or for Australia or New Zealand as standalone businesses. The offers were either significantly below liquidation values or highly conditional or both.’

On 5 January 2016, the Australian Securities Exchange suspended Dick Smith’s securities from quotation.

Ferrier Hodgson issued a media release on 5 January 2016.

McGrathNicol issued a media release on 5 January 2016.

What is receivership?

If a company is in financial difficulty, a secured creditor may put the company into receivership. If a receiver has, under the terms of their appointment, the power to manage the company’s affairs, they are known as a receiver and manager.

It is possible for a company in receivership to also be in voluntary administration.

In general, the receiver and manager’s primary role is to collect and sell enough of a company’s secured assets to repay the debt owed to a secured creditor. Their primary duty is to the company’s secured creditor.

The receiver and manager’s main duty owed to unsecured creditors is an obligation to take reasonable care to sell secured property for not less than its market value or, if there is no market value, the best price reasonably obtainable. A receiver also has the same general duties as a company director.

The receiver has no obligation to report to unsecured creditors about the receivership, either by calling a meeting or in writing. However, the receiver will usually write to all of the company’s suppliers to inform them of their appointment. Unsecured creditors are not entitled to see the receiver’s reports to the secured creditor.

Another responsibility of the receiver and manager is to report to ASIC on possible offences by people involved with the company.

More information:

What is voluntary administration?

Voluntary administration is where the directors of a financially troubled company or a secured creditor with a security interest over most of the company’s assets appoint an external administrator called a ‘voluntary administrator’.

The role of the voluntary administrator is to investigate the company’s business, property, affairs and financial circumstances, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or for the administration to end and control of the company be returned to the directors.

Like a receiver and manager, a voluntary administrator is to report to ASIC possible offences by people involved with the company.

More information:

ASIC’s role

The receivers and managers or the voluntary administrators will report to ASIC possible offences by people involved with the company, we will assess the reports to consider our own investigations and action, if any.

This approach also avoids ASIC's investigations diverting resources of the company at the early crucial stages of an administration.

ASIC has been in contact with the voluntary administrators and receivers and managers (McGrathNicol and Ferrier Hodgson) and we will continue to monitor the progress of this matter closely. Further, ASIC can initiate any investigations at any time if circumstances develop where early ASIC involvement is appropriate.

Role of the ACCC and Fair Trading Agencies

ASIC, the Australian Competition and Consumer Commission (ACCC) and State and Territory fair trading agencies are responsible for consumer protection under the Australian Consumer Law. When a business is under administration a number of consumer issues will arise as noted below.

Affected customers – gift cards, deposits, outstanding orders and extended warranties

You may be affected by the appointment of an external administrator if you have:

  • paid in full for goods or services to be collected or delivered later
  • paid a deposit
  • bought a gift card or voucher and have not used it
  • returned a product and been issued a credit note
  • bought an extended warranty product from the business, or
  • bought a product that is faulty.

Ferrier Hodgson has provided some responses to Frequently Asked Questions: Customers (Customer FAQs) on its website that relates to some of these matters.

Ferrier Hodgson has advised that outstanding gift cards cannot be honoured and deposits cannot be refunded.

In these circumstances, affected customers may become unsecured creditors of Dick Smith and should contact the voluntary administrators to register their claim.

Gift cards purchased with a credit card or eligible debit card

If you have purchased a Dick Smith gift card using a credit or eligible debit card you may have chargeback rights. This means you may be able to get your money back from your card issuer. You should contact your card issuer straight away as there are conditions and time limits on making a chargeback claim. You may be eligible for a chargeback even where the gift card has recently expired – check with your card issuer as soon as possible.

Gift cards not eligible for chargeback

If you have a gift card purchased with cash, or with card using the ‘cheque’ or ‘savings’ option, or you don’t want to ask the person who gave it to you to request a chargeback, you can contact the voluntary administrators about registering as an unsecured creditor. The insolvency process will determine if you get a full refund, a partial refund or no refund at all.

Offers to exchange gift cards

Some entities are offering to exchange Dick Smith gift cards. It is a matter for customers to consider each offer and whether or not they choose to accept.

Deposits placed on an item

If you can’t get a refund on a deposit you have placed on an item, you can register with the voluntary administrators as an unsecured creditor of Dick Smith.

If you paid a deposit with a credit card or eligible debit card, you may have chargeback rights. You should contact your card issuer straight away as there are conditions and time limits on making a chargeback claim.

See Ferrier Hodgson’s Customer FAQs for futher information.

Outstanding orders

If you have ordered an item and have not received it, you should contact Dick Smith in the first instance.

If you paid for an item with a credit card or eligible debit card, and you have not received it within the timeframe expected, you may have chargeback rights. Contact your card issuer as soon as possible to make a chargeback claim.

Extended warranties

Customers who have purchased an extended warranty issued by Dick Smith can contact The Warranty Group, the administrators of the Dick Smith extended warranty, on 1300 654 621. Consumers can also contact the voluntary administrators.

See Ferrier Hodgson’s Customer FAQs for futher information.

Faulty products

Customers still have consumer guarantee rights in relation to faulty products while a company is under administration, though to pursue those directly against the retailer may be more challenging. Where a store does not assist you by offering a refund for a faulty product, you should make enquiries with the voluntary administrator.

Importantly, in most cases, you may still have rights against the manufacturer under the Australian Consumer Law consumer guarantee provisions or under the manufacturer’s warranty. While a retailer is under administration, where you are not getting immediate attention from the retailer, you should contact the manufacturer.

See Ferrier Hodgson’s Customer FAQs for futher information.

Contact information – registering as an unsecured creditor

To register as an unsecured creditor of Dick Smith you can contact the Creditor Hotline established by the voluntary administrators with Link Market Services – 1300 853 481 or dicksmith@linkmarketservices.com.au.

Further information

Visit our MoneySmart website for more information on gift cards and chargebacks.

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Last updated: 23/03/2016 03:04