All Smiles PE to explore NAB/Deloitte relationship

Smiles
Deloitte’s Luci Palaghia.
Smiles
Deloitte’s Tim Heenan.

The public examination of the affairs of the Totally Smiles Group which kicked off in the Federal Court this week is set to explore various issues relating to the ASX-listed dental chain’s demise, including the influence of the company’s bank and the independence of its administrators.

Deloitte partners Luci Palaghia and Tim Heenan were formally appointed by the Group’s directors in November 2020 but the heavy hand of the NAB smudges the ink on just about every relevant document, starting with its engagement of Palaghia and Heenan as investigating accountants (IAs) in early 2019, barely a year after the Smiles Group listed on the Australian Securities exchange (ASX).

As iNO has previously reported, while the Deloitte pair fulsomely disclosed the pre-appointment work in the DIRRI it was NAB’s refusal to extend an indemnity to rivals from Worrells that ensured the Deloitte duo retained their appointments as voluntary administrators (VAs) of Totally Smiles and Smiles Inclusive at the first meeting of creditors.

It was also NAB’s agreement to extend a $4 million overdraft to its preferred VAs that enabled them to trade the Totally Smiles business whilst they conducted an expedited sale process for the Group’s profitable assets, an approach at odds with the wishes of certain unsecured creditors propounding DoCAs.

That process led to the sale of 16 dental practices to Genesis Capital in January 2021 with a further 21 offloaded to individual buyers.

At a meeting of creditors on June 30, 2021 Heenan told Totally Smiles creditors that DoCA proposals had been received and he and Palaghia had been asked by the deed proponents to convene a meeting so creditors could consider the proposals alongside the asset sale agreement with Genesis recommended by the VAs.

Heenan however had refused, explaining that as the proposals did not have the backing of all stakeholders, there was no point putting them forward for consideration.

It is those DoCA propounders, having obtained ASIC’s imprimatur as eligible applicants, who are running the PE, which began on Monday with ex-Smiles chairman and former PwC partner David Usaz and was followed yesterday by the two chief financial officers (CFO) who worked for the company during the period from before its 2018 listing.

As anyone who’s observed a PE will know, the witness box is no friend to one’s capacity to recollect.

Paul Donald Innes told the court he was invited to do some consulting work for the Smiles Group prior to the company’s April 2018 ASX listing. That evolved into him accepting employment as CFO.

But within eight months of the company’s April 2018 share market listing Innes had been replaced by Emma Corcoran, who’s since moved on to Vincents, which is something of a coincidence given her Vincents colleague Nick Combis was appointed deed administrator of a DoCA put forward for Smiles Inclusive at the meeting on June 30, 2021.

Corcoran’s time in the witness box also featured difficulties recollecting events but she did remember that as CFO solvency was not an issue for her consideration, despite barrister Vicki Bell’s skepticism.

Corcoran instead insisted her role had been to turn the business around and even the engagement of Vantage Performance’s Michael Fingland as a safe harbour advisor hadn’t distracted her from that purpose.

Today the examinations will focus on the involvement of broker Morgans in the lead up to the initial public offering.

We’ll have to wait till next week before questions of independence can be canvassed and the depths of NAB’s involvement plumbed when Michael McBryde, an associate director of the bank’s corporate health division occupies the box.

Further reading:

All grimaces after Worrells missed Smiles Inclusive

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