- The Market Herald notes there is no evidence of criminality by any party
Senior National Australia Bank (NAB) Manager Michael McBryde took the witness stand this morning as the examination into delisted ASX company Smiles Inclusive moves into its second week.
The Federal Court in Victoria heard claims NAB was aware of allegations against Smiles, including that it was deliberately misleading shareholders and potential investors.
Mr McBryde told the court he didn’t know if the bank had internal processes that specifically aimed to deal with claims of misconduct against third-party companies for which the bank provided services.
The public examination is looking into alleged fraud and mismanagement by Smiles Inclusive’s board of directors while the company was listed on the ASX.
The dental stock was rocked by an EGM in 2019 where former CEO Mike Tomney was removed in favour of Chairman David Usasz. There have been questions about the unusually high retail voter turnout at that meeting, and, some who were recorded as having voted later claimed they never voted at all.
Stockbroking firm Morgans’ stockbrokers were “quite involved” in advising shareholders on how to vote in the EGM. Last week, the court heard Morgans’ Chair and Mr Usasz not only knew each other but viewed one another as friends.
Morgans had lent Smiles $200,000 to pay back a NAB loan and allow it to continue raising capital.
Smiles’ former Chief Commercial Officer (CCO) Keith Nicholls alleged in court last week that the company produced material to share with traders in ASX announcements that he disagreed with.
“In terms of some of the guidance, particularly around forecasts, I thought they were quite ambitious at times … frankly in my opinion, I knew we weren’t going to be able to deliver on those,” he said.
Mr Nicholls left Smiles when the company became unable to pay its staff.
The two dentists leading the examination, Dr Arthur Walsh and Dr John Camacho, state that NAB enabled Smiles Inclusive to continue to operate. The dentists – the claimants in this civil hearing – had sold their practises to Smiles before it liquidated, less than three years after Smiles was listed on the ASX.
The claimants’ counsel, examining barrister Vicki Bell, produced an email to Mr McBryde at NAB from those two dentists in which they outlined their concerns surrounding Smiles, and suggested NAB was facilitating an allegedly dishonest company to continue operating.
“I think [that’s] speculative,” Mr McBryde said, commenting on the allegation NAB was allowing Smiles to continue to exist. He said he would need the details.
When asked if he had seen or was aware of such emails to NAB management, Mr McBryde confirmed being familiar with the emails.
Ms Bell’s attention turned to Deloitte, which conducted an independent business review (IBR) into Smiles back in 2019.
“I don’t recall, my understanding is the IBR was done and … it should have been on the file,” Mr McBryde said.
Ms Bell then began to question if Mr McBryde was fully aware of issues surrounding Smiles at the time.
An October 2019 Deloitte report made before Mr McBryde became responsible for the Smiles file was tendered to the court, with Deloitte reporting Smiles was underperforming and that it had made limited progress in improving its financial position.
Deloitte also said it expected Smiles’ unchanged management structure to perpetuate internal issues beyond FY20. The accounting firm noted Smiles would need more funding support in FY20 “in all scenarios tendered.”
Ms Bell asked Mr McBryde if he was aware the company was being scrutinised by its own JV partners, being DrCamacho and Dr Walsh.
“Privilege, if it’s being managed by our impaired asset management team, it’s very likely that it’s underperforming,” he replied.
“The extent of it, the scale … I was not specifically aware at this time … I didn’t have an understanding as to the scale of its specifically.”
Ms Bell then presented email chains from Deloitte which showed the firm was continuing to monitor Smiles Inclusive.
“I knew they had some engagement with the file … but not this scope or what had been agreed,” Mr McBryde echoed.
When asked if Mr McBryde was aware the directors of Smiles had to appoint Deloitte as administrators, he said he was not a party to any agreements of that nature.
Mr McBryde did, however, know the company was in safe harbour status.
He said the same about an email from ASIC voicing the regulator’s concerns that retail investors in Smiles were likely to lose out in the end, given they were presented with misleading information.
Dr Walsh and Dr Camacho were concerned the capital raising that took place after Morgans loaned the company $0.2 million was based on questionably ambitious revenue forecasts.
Counsel then asked Mr McBryde if NAB had an internal process that dealt with these sorts of allegations.
“The allegation being a [misleading IPO] from a client we’re involved with?,” Mr McBryde asked.
“Privilege – I am not aware of the specific processes which exist in the organisation to deal with that.”
Mr McBryde said it would “most likely” be dealt with by legal teams.
Asked how much NAB could recover through the administration process, he confirmed his “rough” understanding was that the bank ended up with $2.5 million to $3 million reclaimed.
Ms Bell asked one last question of Mr McBryde.
“Do you consider there was anything the bank could have done differently [to avoid] a terrible outcome for the … JV partners in this company?”
“It’s very difficult to speculate on these things,” he said.
“I’m not aware of what we might have done differently at this time with my level of understanding and engagement in the process.”
Mr McBryde became an associate director in the QLD portfolio of the corporate health division of NAB in March, 2020.
The hearing continues tomorrow.