Morgans denies voting breach in failed dental-chain spat

“It is unusual,” Morgans’ then corporate advisory director, Philip Lee, said on Wednesday about the loan.

But Morgans had a “large number of clients” invested in Smiles and the broking outfit “wanted to take whatever steps we could to keep the company alive to enable it to raise capital it needed to continue”, he said.

Brisbane-based Morgans describes itself as Australia’s largest national full-service stockbroking and wealth management network, boasting more than 250,000 clients. Its corporate arm has helped raise funds for companies more than 500 times but Morgans’ promotion of some investments, such as failed fund manager Blue Sky Alternative Investments, has attracted controversy.

Smiles raised $35 million in an ASX float in April 2018, underwritten by Morgans. The dentistry fell into voluntary administration in November 2020.

Smiles was also subject earlier in May 2019 to a boardroom brawl with former chief executive Mike Timoney and another director on one side, and then-chairman David Usasz and other directors on the other.

At an extraordinary shareholder meeting about director positions, Morgans had backed board members aligned with Mr Usasz.

Morgans Holdings chairman Tim Crommelin told the hearing he knew Mr Usasz from business and socially – from rugby at the University of Queensland – and Morgans had backed his side’s plan for the business. The previous plan from those aligned with Mr Timoney was a “complete joke”, Mr Crommelin argued.

Examining lawyer Vicki Bell presented documents from Mr Lee which mentioned to client advisers they should encourage shareholders to vote at the meeting. Mr Lee also said he had recommended another advisory group to Mr Usasz so Smiles could contact investors that were not Morgans clients.

The meeting, which ended with votes in favour of directors aligned with Mr Usasz, was later subject to voting irregularity allegations. Smiles categorically rejected such claims in ASX announcements.

Ms Bell on Wednesday read out a letter from lawyers for Mr Timoney to Smiles’ lawyers, raising concerns that Morgans might have voted client shares without authority at the meeting. “That’s quite a serious allegation,” Ms Bell said.

Mr Lee responded: “I would say it’s incorrect.” He referred to actions Morgans had taken to motivate investors to vote and said this was representative of what the stockbroking outfit had done.

Ms Bell also presented messages from investors, who had been recorded as having voted for those aligned to Mr Usasz, later alleging that they had not actually voted. The court heard they were Morgans clients.

Mr Crommelin said he would need to examine the circumstances but such messages did not mean people actually did not vote, remarking it was like being unable to “find anyone who voted for Kevin Rudd when he became prime minister of Australia”.

Ms Bell said at least seven investors had made such complaints.

A public examination is not a trial but a hearing at which information can be raised for any potential future actions. This public examination is different in that it is not being backed by liquidators but two dentists who were investors.