The proposed settlement was reached 48 days into the complex trial before Justice Michael Ball which began in March as one of the first virtual trials held during the first wave of the coronavirus pandemic but was adjourned to September. The trial was expected to conclude in February.

$25 million will be paid by the insurers of Dick Smith and former directors Nicholas Abboud and Michael Potts as well as auditor Deloitte to settle the class actions, which were run by Corrs Chambers Westgarth and Johnson Winter & Slattery.

Under the proposed settlement, 75 per cent — or $18.75 million — will go towards covering the costs of the class actions so far, the first of which was filed in 2017. This will not cover the costs incurred by litigation funders ICP and Vannin in backing the case, who will not seek a funding commission or any other costs they may be contractually entitled to. Shareholder recoveries “will not be substantial”, according to a notice to group members.

Around $6.25 million will be left for distribution to group members, less $40,000 for the lead applicants and $625,000 in costs for finalising and administering the settlement.

The plaintiffs and funders have requested that the solicitors not seek any deferred fees they are entitled to upon the matters settling or any uplift on those fees.

Five cases, including the three class actions, were being heard together in the NSW Supreme Court. They include claims against the company’s former directors, a dispute against several of the fallen company’s insurers, cross claims against accounting firm Deloitte and a claim by the company’s liquidators against the former directors.

A retail chain specialising in electronics, DSHE, trading as Dick Smith, was previously owned by Woolworths and was acquired by Anchorage for $115 million in late 2012. In December the following year, the retailer was floated on the ASX through a $520 million public offering and a prospectus that detailed DSHE’s FY13 financial statements and forecast growth and profits for FY14.

DSHE eventually wrote off the value of its stock by approximately $60 million in November 2015. The company was then placed into voluntary administration in January 2016 and entered liquidation in July the same year.

The class actions, which target the company as well as Abboud and Potts, allege that DHSE’s FY13 financial statements overstated the value of its inventory, gross profit, net profit, and the value of shareholders’ equity, resulting in an artificially inflated share price of $2.20 per share following its listing on the ASX.

The class actions also claim that DSHE’s valuation and provisioning of its inventory failed to comply with Australian accounting standards in the entire time it was listed as a public company, which resulted in an overstatement of net equity, total assets and reported profits.

During this time, the company’s policies sought to maximise rebates given to suppliers, which were not consistent with accounting standards — a policy that was a significant driver of purchasing decisions within the company, the class actions allege.

A third class action was filed in July of 2019 by Johnson Winter & Slattery against a number of Dick Smith’s insurers including Allianz Australia, AAI Group and Vero. This sub-group of plaintiffs argues that losses relating to their secondary market acquisitions should be covered under Dick Smith’s $150 million Public Offering Securities Insurance policy.

Dick Smith is also facing a company claim brought by liquidators Ferrier Hodgson against Abboud, Potts and six non-executive directors — Phillip Cave, Robert Murray, William Wavish, Lorna Raine, Robert Fishhook and Jamie Tomlinson — which accuses the senior executives of breaching their directorial duties.

A further bank claim has been brought against the company by National Australia Bank and HSBC, which alleges the banks never would have extended financing to the company in 2015 if they had known of its accounting practices. NAB is seeking to regain $75 million in loans, while HSBC wants to recoup $50.4 million.

Several cross claims brought by DSHE, Abboud and Potts against accounting firm Deloitte were dropped under a walk-away settlement agreement.

Deloitte was retained by Dick Smith to audit the company’s financial statements for the 2013 and 2015 financial years. It was joined as a respondent to the two shareholder class actions in April of 2019.

The auditor has been accused of failing to identify problems with the financial statements and misrepresenting in audit reports that the statements presented a true and fair view of the company’s financial position. The accounting giant allegedly failed to exercise reasonable care and skill, and engaged in misleading and deceptive conduct.

In cross claims against Abboud and Potts, Deloitte claimed that if the class actions’ allegations were made out, then both executives knew there were shortcomings and problems with the company’s tracking and recording of rebates, knew that the company was carrying excess poor quality and obsolete stock, knew that its provision of inventory did not take into account whether stock was sellable in the future, and knew that the company should have made provision for bad stock but failed to.

In December of 2019, the plaintiffs won a bid to tweak their claims against Deloitte.

The class actions are jointly instructed by Corrs Chambers Westgarth and Johnson Winter & Slattery. The class action against the insurers is instructed by Johnson Winter & Slattery. The liquidators of DSHE are represented by Colin Biggers & Paisley. Abboud and Potts are represented by Clayton Utz. Deloitte is represented by Clifford Chance. The liquidators and the banks are represented in their case against the former directors by Norton Rose Fulbright.

The Corrs Chambers class action, which is being funded by Vannin Capital, is Haliburton Charles David Findlay & Anor v DSHE Holdings Ltd (Receivers and Managers Appointed) & Ors. The Johnson Winter & Slattery class action, which is being funded by Investor Claim Partners, against Dick Smith is Epaminondas Mastoris & Anor v DSHE Holdings Ltd (Receivers and Managers Appointed) & Ors. The Johnson Winter & Slattery class action against Dick Smith’s insurers is Epaminondas Mastoris v Allianz Australia Insurance Limited.

The company case is DSHE Holdings Pty Limited (Receivers and Managers Appointed) (ln Liquidation) v Nicholas Abboud & Ors. The bank case is National Australia Bank & Anor v Nicholas Abboud & Ors.

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