Frowns amid decay of troubled dental group Smiles after NAB calls in $20m loan

NAB has called in a $20m loan from embattled listed dental group Smiles Inclusive.

NAB has called in a $20m loan from embattled listed dental group Smiles Inclusive. Photo: iStock

NAB has called in a $20m loan from embattled listed dental group Smiles Inclusive, 10 months after the bank’s chief executive, Ross McEwan, first learned of the company’s financial woes and bankers considered “a range of options” to get Smiles “back on their feet”.

The move and refusal to refinance the group has forced Smiles, which was suspended from trading on the ASX in late February after it missed its deadline to file its accounts, into voluntary administration.

Its collapse comes after The Australian revealed in May that dentists had raised questions about the group’s solvency long before the pandemic struck early this year, with the company delaying payment of rent, wages and supplier invoices.

Meanwhile, its share price had crashed from $1 at its float on the ASX in April 2018 to 3.5c before it was suspended from trade when the ASX fired off numerous questions about the company’s financial health.

NAB executive for business metro banking Michael Saadie said the bank would consider a range of options, including loan restructuring, alternative fund sources or deferrals, before it called in a loan.

The pandemic also put more pressure on the banks, with Scott Morrison and Josh Frydenberg in April calling on the big four to speed up loans for struggling small businesses to avoid cashflow crunches.

“No one wants to see a business go through the pain and stress of coming to an end. We all want to see Australian businesses succeed,” Mr Saadie said.

“Where a business does encounter financial difficulty, we have a dedicated, experienced and specialised team who works closely with the customer on their individual situation.

“We understand this is a difficult time and that often their business is their livelihood, and it’s why we also offer the option of free access to third-party counselling and support services.”

Mr McEwan was alerted to potential problems about Smiles Inclusive’s financial health in late January after he received a troubling email from consultant Jayne Ansin.

Smiles built its business after persuading dentists to sell their practices to the group. The dentists then reinvested 40 per cent of the sale proceeds into the business and stayed on in a profit-sharing agreement.

When Ms Ansin completed a culture audit on behalf of dentists of Smiles Inclusive, her findings were grim.

“I hate to write to you knowing you are only just in the building but I wanted to give you a heads-up on something that could turn toxic,” Ms Ansin wrote in the email on January 22, which was seen by The Australian.

“Here is a commercial business you are banking with a $19m (unsecured loan) that is being poorly run at best. It is called Smiles and it is a group of 50 joint venture dental practices that have been sold an absolute lemon.

“I have been doing some work with these very unhappy dentists, who are stuck. I just wanted to give you a heads-up as I think potentially the relevant part of the NAB may not be dealing with this insolvent business as it possibly should be.”

Mr McEwan replied at 5.51am the following day: “Many thanks Jayne, I will certainly get the team onto it and see what’s happening”

Cracks began to appear when the company lodged its results for the 2018 financial year. It had lost almost $5m versus its prospectus forecast loss of $300,000. A year later, that loss soared to $31m, while the company embarked on a series of emergency capital raisings to patch up its finances.

As of October 19, Smiles owed NAB more than $19m, including a $137,819.23 credit card debt. The company issued a statement to the ASX on October 28, saying that NAB had “agreed to release and discharge the company from liability under its various banking facilities” on receipt of a $12m payment plus the amount owing under its credit card debt as well as NAB’s “reasonable expenses”.

NAB set a deadline of November 4 for that arrangement.

“On settlement of the agreement, Smiles Inclusive anticipates debt forgiveness from NAB of approximately $6m,” the company said in the announcement.

It signed an underwriting agreement with Aitken Murray Capital Partners and intended to raise about $8m ($7.6m after transaction expenses) via a fully underwritten rights issue at a price of 2.5c per share.

But two weeks later, Smiles issued another statement to the ASX saying it was unable to come up with the cash to repay NAB, adding that the board had appointed Luci Palaghia and Tim Heenan, of Deloitte Restructuring Services, as voluntary administrators.

“Unfortunately, we were unable to refinance the NAB debt in the time frame required so we have taken the decision to appoint voluntary administrators to continue our efforts to restructure the group. The board will work with the voluntary administrators to put forward a deed of company arrangement proposal for the benefit of all stakeholders,” Smiles chairman David Usasz said.

Chief executive Michelle Aquilina, the company’s third CEO in two years, remained upbeat about Smile’s prospects despite losing the backing of its banker.

“Our decision today is about securing the future of Totally Smiles and emerging on the other side. Industry demand for oral health services remains strong and we will continue to provide services to the community across our network as we work through this process,” she said.