Dick Smith considers lawsuit against Anchorage Capital

Dick Smith has blasted Anchorage Capital Partners, saying the private ­equity firm lacked “morality and decency”.

McGrath Nicol administrator Joseph Hayes addresses creditors in Sydney yesterday. Picture: Britta Campion

Entrepreneur Dick Smith has taken aim at Anchorage Capital Partners, claiming the private ­equity firm that floated the electronics chain bearing his name lacked “morality and decency”, and demanding refunds for customers left holding now worthless gift cards.

Mr Smith said he would consider funding a class-action lawsuit against Anchorage, which made hundreds of millions of ­dollars after buying the retailer from Woolworths in 2012, keeping the pressure on the firm and its managing director, Phillip Cave.

His comments came as Dick Smith’s administrators, McGrathNicol, held the first meeting of creditors, advising them that a ­crucial second meeting could be delayed by up to six months.

The delay will allow the administrators, and receivers Ferrier Hodgson, appointed by the company’s financiers, to embark on a difficult sales process.

It was also revealed that McGrathNicol had been appointed to advise the struggling retailer two days before Christmas. But the chain continued to sell gift cards for a fortnight before the retailer, with 3300 staff across 393 stores, was placed into administration.

McGrathNicol’s Joseph Hayes flagged two items in the company’s accounts as “of interest”: the rapid expansion of the store network since Woolworths sold the business; and a large “other income” figure in 2013. Founded by Mr Smith in 1968 as a hobbyist retailer, Dick Smith was sold to Woolworths for $25 million in a sale ­finalised in 1982.

The business was sold to Anchorage for $94m in 2012, and the private equity firm floated the business just 15 months later for more than five times that amount.

One long-running gripe, most prominently raised by Forager Funds in late October, was Anchorage’s restructure of the business, marking down Dick Smith assets including significant amounts of inventory, later selling that at a discount and posting ­attractive earnings figures.

Mr Smith said he would ask Mr Cave to use some of the $500m of proceeds from the float to “pay back the totally innocent people who bought gift cards and have lost them”.

McGrathNicol last week said the company would be unable to accept gift cards, as purchasers were classified as unsecured ­creditors. “As I think everyone understands, I’m absolutely outraged at people like Phillip Cave and Anchorage Capital Partners because of their absolute dishonesty,” Mr Smith said.

“There can be absolutely no doubt they knew that things were going wrong and instead of doing the right thing, they’ve let typical Australians suffer.”

The Australian Competition & Consumer Commission has already made inquiries of Ferrier Hodgson about “consumer issues” arising from the administration, while Woolworths and Coles said they would exchange Dick Smith gift cards purchased at their stores.

Dick Smith’s collapse has left its banks — National Australia Bank and HSBC — owed $130m, while other unsecured creditors are owed $220m, although some of that could be recouped through the return of unsold stock.

Mr Hayes said staff were owed $15m, excluding potential redundancy entitlements, while it was too early to tell what claims ­landlords and customers may have against the company.

Representatives of the creditors — which include Macquarie, Scentre Group, QBE Insurance, ISPT, Amazon and catalogue publisher PMP — listened to Mr Hayes in silence, asking not one question. Macquarie was one of two banks, alongside Goldman Sachs, advising Anchorage on the float of the business at $2.20 a share. The company last traded at 35c a share.

South Australian senator Nick Xenophon earlier said ASIC should “urgently investigate” whether Dick Smith had contravened continuous disclosure requirements, and called for a Senate inquiry into the collapse.

Dick Smith’s former chief executive, Nick Abboud, departed on Tuesday, replaced by Don Grover, a retail veteran and cousin of former Dick Smith executive Jeff Grover. Before his appointment this week, Mr Grover had headed Fusion Retail Brands, which owns the Diana Ferrari, Williams, Mathers and Colorado brands. Analysts have said the likelihood of a buyer emerging for the business was low, with store closures and industry consolidation a more likely scenario.

Morgan Stanley analysts forecast a 9 per cent increase, to $241.2m, in earnings for Dick Smith rival JB Hi-Fi in 2017, while Harvey ­Norman could benefit with a 4 per cent rise to $480m. Several product lines were already unavailable for ­purchase, suggesting a failure to secure bridging ­finance would scupper any chance of trade continuing as ­normal.