Bust dental-chain hearing probes growth outlook ‘discrepancy’
Key Points
- Smiles Inclusive was a roll up of dental chains that floated in 2018.
- It was wracked by boardroom turmoil and failed in 2020.
- A public examination is examining events up to the company’s administration.
Potential investors in a Gold Coast-based dental chain were being told wildly different forecasts for growth than what a due diligence committee was hearing, a court heard on Monday.
The alleged discrepancy was questioned in a public examination into Smiles Inclusive, which raised $35 million in an ASX float in April 2018 with more than 50 dental practices trading under the Totally Smiles brand. It fell into voluntary administration in November 2020.
David Usasz of Smiles Inclusive outside the Federal Court in Melbourne on Monday. Luis Enrique Ascui
The examination, held in the Federal Court, also questioned the timing of updates for earnings forecasts and heard contradictory claims about voting at a bitterly contested shareholding meeting about board positions.
Appearing in court, former director and later chairman David Usasz was quizzed about information in pre-float investor documents that contrasted with information listed in a due diligence committee in December 2017.
The investor documentation, which detailed raising $3 million in a pre-float round, had a practice acquisition summary that claimed Smiles had 95 heads of agreement being entered into with a turnover exceeding $110 million.
But examining lawyer Vicki Bell also pointed to an update from Smiles Inclusive’s chief financial officer to a due diligence committee at the same time, which detailed that 61 heads of agreement “remained live” with a turnover of $65 million. Mr Usasz was listed at that due diligence meeting.
“There’s quite a discrepancy between what was said to potential investors,” Ms Bell said.
Mr Usasz said he could not recall having any involvement with the investor document and would not have agreed with it if he had seen it.
He pinned the blame on former chief executive Mike Timoney. “What was true and what was repeated by him wasn’t always the case,” Mr Usasz told the court.
“This is something I’m finding out now here as well.”
The company had been wracked within a year of listing, with trading falling below budget, and by February 2019 Mr Timoney had stepped down as chief executive.
The company issued downgraded profit guidance for the 2019 financial year on February 28 that year.
A bitter boardroom brawl also erupted publicly while Mr Usasz was chairman, with Mr Timoney among those voted off the board in May that year. Claims later erupted about voting irregularities, which Smiles Inclusive later categorically rejected in ASX announcements.
Smiles Inclusive had said in one letter that an investor had directed proxies online in favour of removing Mr Timoney and another agitating board member, and supporting other directors. But Ms Bell said the investor had then in a statutory declaration denied voting online, which “flies in the face” of the announcement.
Mr Usasz said he was not aware of the declaration and the investor had told him he was “voting for our group” and took him at his word.
A public examination is not a trial but a hearing at which information can be raised for any potential future actions. This ongoing public examination is different in that it is not being backed by liquidators but two dentists who were investors.
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