Australian entrepreneur Dick Smith has told The Australian that he may consider funding a class-action lawsuit against Anchorage Capital Partners, the private equity (PE) firm that sold consumer electronics retailer Dick Smith Holdings Ltd (ASX: DSH) to the public.
Mr Smith claims the PE firm lacked morality and decency and demanded refunds for customers who had bought gift cards which Dick Smith (the retailer) is unable to honour after falling into to administration. "As I think everyone understands, I'm absolutely outraged at people like Phillip Cave and Anchorage Capital Partners because of their absolute dishonesty," he said.
While those cards are virtually worthless, supermarket retailers Coles and Woolworths Limited (ASX: WOW) have offered to exchange Dick Smith gift cards for their own gift cards as long as customers can prove they bought them in their supermarkets and discount variety stores.
It appears that the retailer had appointed McGrathNicol as advisors 2 days before Christmas, but kept selling gift cards for another 2 weeks.
Mr Smith says he would ask Anchorage boss Phillip Cave to use some of the $500 million the firm received from the IPO to 'pay back the totally innocent people who bought gift cards and have lost them'.
Gift card holders are deemed as unsecured creditors according to administrators McGrathNicol, and therefore, stand behind secured creditors such as Dick Smith employees, the company's lenders, insurers and other suppliers. Dick Smith's banks – National Australia Bank (ASX: NAB) and HSBC are owed $130 million, with unsecured creditors another $220 million.
Secured creditors have to be paid out first in the event the company is wound up, but some of that could be recouped by returning unsold stock.
Foolish takeaway
It's a sad ending to a sorry saga, with many Dick Smith shareholders likely feeling ripped off – but the warning signs were there and I warned investors it was a dud IPO at the time.
