Dick Smith shareholders have launched a class action lawsuit against the former electronics retailer, alleging they were deceived about the financial state of the company before it fell into voluntary administration last year, the ABC has reported.
The ABC has alleged that shareholders invested in the Australian Securities Exchange (ASX)-listed company after its 2015 annual report forecast profits of AU$45 million to AU$48 million -- a few months ahead of being placed into voluntary administration after failing to secure a funds injection from its banks.
The class action alleges that the company should have disclosed to the market that it was incorrectly accounting for financial incentives known as "rebates" as early as February 2015, the ABC said.
It is alleged the company did not comply with Australian accounting standards and may have resulted in "misleading or deceptive" financial statements published in February and August 2015, according to the ABC.
When announcing the company's collapse early last year, then-chairman Rob Murray said that while he was confident in the long-term viability of the company.
At the time, Dick Smith blamed its financial woes on worse-than-expected sales and cash generation in December 2015, continuing the weak trend from previous months. Murray said the company explored alternative funding, but concluded that it would not be secured in time to order the required inventory for the upcoming weeks.
The once-thriving electronics chain swiftly closed 363 retail stores across Australia and New Zealand, which saw just shy of 2,900 staff members lose their jobs.
Australian online retailer Kogan.com was quick to scoop up Dick Smith's online business, relaunching it in May 2016 after it rebuilt dicksmith.com.au and dicksmith.co.nz.
Dick Smith was sold by retail giant Woolworths for AU$94 million to private equity firm Anchorage Capital Partners in 2012. At the time, Woolworths noted that it spent AU$420 million on restructuring Dick Smith before it accelerated the process of selling it off to Anchorage. This was despite Woolworths having previously stated that Dick Smith's online presence was one of its more successful avenues for revenue.
At the time of purchase, Anchorage said it was going to support Dick Smith through additional cash investments and guarantees, and intended to keep all 325 stores, which employed 4,500 people throughout Australia and New Zealand. Anchorage also had intentions to expand the retail network.
A year later, Anchorage floated the company on the ASX at AU$2.20 per share, valuing it at AU$520 million.