RE “Frowns amid collapse of Smiles”
The Australian Thursday 26 November 2020, Jared Lynch refers.
As reported elsewhere the NAB has called in a $20million loan 10 months after the bank’s CEO first learned of Smiles financial woes and after considering “a range of options” to get Smiles “back on their feet”.
The NAB move and a failure to refinance the group has forced the Smiles board to put Smiles Inclusive Ltd, which was suspended from trading on the ASX in late February after missing its deadline to file its accounts, into voluntary administration.
The Australian had previously revealed in May that dentists had raised questions about the group’ solvency long before the COVID-19 pandemic struck early this year with the company delaying payment of rent, wages and supplier invoices. Newly appointed NAB CEO Ross McEwan was alerted to potential problems about Smiles Inclusive’s financial health after he received a troubling email from consultant Jayne Ansin on 22 January 2020, who I understand was acting on behalf of a group of dentists who were participants in Joint Venture practice arrangements with Smiles.
Jayne Ansin wrote;
“I hate to write to you knowing that you are only just in the building but I wanted to give you a heads-up on something that could turn toxic,”
“Here is a commercial business you are banking with a $19 million that is being poorly run at best. It is called Smiles and it is a group of 50 joint venture dental practices that have been sold an absolute lemon.”
“I have been doing some work with these very unhappy dentists who are stuck. I just wanted to give you a heads up as I think the relevant part of the NAB may not be dealing with this insolvent business as it possibly should be.”
As has been previously reported there have been a series of capital raisings and practice sales by Smiles to paper over its financial cracks which can be noted from its announcements to the ASX.
Recently Smiles announced that it had secured underwriting for a capital raising and an understanding with the NAB that on payment of an agreed amount the NAB would forgive a portion of the debt. Smiles repayment was to come partially from this proposed capital raising and partially by refinancing from an undisclosed source. Smiles was unable to meet the deadline agreed with NAB and as a result the full debt was due and Smiles directors were left with no realistic alternative to placing the company into voluntary administration with Luci Palaghia and Tim Heenan of Deloitte Restructuring Services.
Dentists are aware that I have previously commented on the inadequacy of information provided by Smiles. It is evident that the NAB had been patient but ultimately its own responsibility to its shareholders required a deadline to be set.
The Administrators have been handballed a mess to clean up. They may require the wisdom of Solomon and the diplomatic skills of Kissinger. They have already advertised for expressions of interest by potential buyers. The creditors will inevitably include staff entitlements, the NAB, various landlords, dental suppliers, dental laboratories, dental contractors and others. The administrator’s fees will be top of the list. There may be disputed claims on some assets by joint venture partners. To retain any value as a going concern the business has to be kept going to enable an orderly sale but doing so will require the consent and cooperation of creditors. If a viable plan for the whole of Smiles cannot be implemented quickly by the administrators a sale of individual assets appears inevitable meaning a likely liquidation. With significant risks of litigation concerning the company itself it would be a brave buyer who stepped up to buy it rather than individual assets within. Nor would a corporate buyer be blind to the problems of dealing with a mass of unhappy dentists including angry joint venture partners. The likely buyers of practice assets are the dentists including joint venture partners with practices likely to revert to being individually owned and the groups head office ceasing to exist.
Best wishes to all dentists,