ASIC alleges Dixon Advisory director Paul Ryan breached duties

The corporate watchdog has commenced legal proceedings against Dixon Advisory & Superannuation Services (DASS) director Paul Ryan over decisions made when the company was approaching insolvency, allegedly to the detriment of creditors and to the advantage of a holding company.

In mid-2021 Dixon Advisory, then a subsidiary of Evans Dixon which is now E&P Financial Group (ASX: EP1), had agreed to pay a $7.2 million penalty over its recommendations to clients that they invest in the US Masters Residential Property Fund (URF) focused on property in the New York metropolitan area.

The fund's value had fallen dramatically from a unit price of $2.25 to around 30 cents at that time, and by late December Dixon Advisory was facing two class actions from Piper Alderman and Shine Justice (ASX: SHJ) over its advice to investors.

Neither of those class actions were able to proceed however, because in early 2022 Dixon Advisory was placed into voluntary administration and subsequently its Australian Financial Services (AFS) licence was suspended.

It was the events that preceded the voluntary administration that are of concern to the Australian Securities and Investments Commission (ASIC), specifically the actions of Ryan which the regulator allege constitute a breach of directors' duties.

ASIC alleges Ryan - who was appointed a director in March 2021, well after most of the collapse in URF value had taken place - was involved in amending the constitution of Dixon Advisory on 22 December 2021 to expressly authorise its directors to act in the interest of holding company E&P Operations, in which Ryan was also a director. 

It also alleges he was involved in executing a deed of acknowledgement of debt two days later between Dixon Advisory and E&P Operations, which was to the advantage of the latter and the detriment of the former.

The regulator alleges that at the time the deed was entered into, E&P Operations owed Dixon Advisory more than $19 million, Dixon Advisory was approaching insolvency and therefore its directors were obligated to consider the interests of creditors, and that the deed "imposed conditions which adversely affected Dixon Advisory’s right to recover this $19 million debt".

It wasn't until almost a year later that a deed of company arrangement (DOCA) was passed by creditors, including a requirement that the holding company pay Dixon Advisory more than $17.6 million, minus a settlement adjustment for expenses incurred by E&P Operations during the administration period.

"Directors have responsibilities under the law to act in the best interests of their company, and this includes considering the interests of creditors when the company is facing insolvency," says ASIC deputy chair Sarah Court.

"The creditors included thousands of financial advice clients who had invested in the US Masters Residential Property Fund and financial products operated by entities related to Dixon Advisory. These creditors suffered significant losses.

"These proceedings underline our commitment to ensure directors meet their governance obligations, including where they serve on the boards of multiple companies in a corporate group."

ASIC seeks the imposition of a penalty against Ryan and an order that he be disqualified from managing corporations for a period to be determined by the court, as well as declaratory relief and legal costs.

In a response released on the ASX today, E&P Financial Group emphasised that E&P and its subsidiaries are not parties to the proceedings brought by ASIC in the Federal Court, and that there is no allegation that Ryan obtained any personal financial benefit through the alleged conduct.

Ryan is currently the managing director and CEO of E&P Wealth.

"E&P has been informed that Mr Ryan denies any wrongdoing and intends to vigorously defend the proceedings. E&P considers that Mr Ryan has always acted with integrity in his role as a director of DASS, including in the weeks leading up to the appointment of the voluntary administrators of DASS," the group said.

"Mr Ryan will continue in his current roles at E&P."

Dixon Advisory remains subject to the DOCA proposed by E&P, and the latter has made or agreed to make "a number of payments" for the benefit of creditors

"The DOCA ultimately provides for a total contribution to DASS’s creditors of $2 million in excess of the net intercompany debt owed by E&P Ops to DASS should the DOCA complete."