Court throws out rebel creditor case against Smiles Inclusive

Court throws out rebel creditor case against Smiles Inclusive

Update (3 February): Dr Henry Chen has told Business News Australia the administrators have informed joint venture partners (JVPs) of their intention to extend the date of settlement, which would allow for another creditors' meeting prior to the asset sale to Genesis Capital being finalised. See the Smiles Inclusive timeline for more information.

A Supreme Court judge has dismissed a case from a rebel faction of creditors and shareholders in troubled dental group Smiles Inclusive, who have found themselves at loggerheads with administrators Deloitte Restructuring Services.

Earlier this month the administrators decided to hand over Smiles Inclusive's Totally Smiles assets to Genesis Capital, but the group of stakeholders claimed their competing bid was not considered or presented in a meaningful way to creditors.

Barrister Gary Radcliff, who is legal counsel for the group together with Greystones Lawyers and Corporate Advisors, told the Supreme Court in Brisbane his clients - comprising three entities including substantial Smiles shareholder and dentist Dr Henry Chen - were owed approximately $7 million by Totally Smiles.

In contrast, National Australia Bank (ASX: NAB) is owed around $18.5 million.

"You're going to be outgunned aren't you?" Justice Martin asked Radcliff in the court.

"If the National Australia Bank isn't on your side, you're going to have difficulties."

The goal of the hearing for the applicants was to have orders to bring forward a second creditors' meeting in a last-ditch effort to propose an alternative deal before the Genesis agreement is settled, currently with a sunset deadline for the end of February.

The JVP and shareholder syndicate has proposed a Deed of Company Arrangement (DOCA) for the administration of the group, claiming it will provide a greater return to creditors such as National Australia Bank, Macquarie Leasing, secured creditors, unsecured creditors, and shareholders, as well as ensure employment and payments of entitlement for staff.

The respondents' legal counsel Stewart Webster, acting on behalf of the administrators, described the alternative DOCA as "impractical" and "unworkable"; a claim that has been strongly refuted by the proponents of the scheme. 

"The problem with the recent one [proposed DOCA from the group] is its uncertainty, and the fact that National Australia Bank is unable to support it," he said.

"A meeting now would disempower the creditors as they wouldn't be in a position to do anything useful."

The Dr Chen-led group also sought orders to access the full details of the agreement with Genesis Capital so they can be fully informed. 

Radcliff claimed some creditors wanted more information about what was happening with the administration.

"They're just not being treated fairly," he told the court.

"We want to know what's going on."

Webster refuted these comments, claiming they had received "considerable feedback".

"It's wrong to say that creditors have been kept in the dark," he said.

"Even if it's [the Genesis agreement] seen, there's nothing useful that can be done for the time being."

Justice Martin dismissed the case, forming the opinion that it would be an ineffective exercise of administrators' powers if they were to ignore matters of confidentiality. He also drew on precedents to show it was not unusual for administrators to sell a portion of assets before a second creditors meeting was held.

The judge said the applicants had failed to demonstrate any justifiable reason why he should order the meeting be held earlier.

He added that a settlement would not prevent a deed taking place for the remaining assets of Smiles Inclusive and Totally Smiles.

A representative for Greystones told Business News Australia the aim was not to persuade the courts about the merits of the various options, but rather to seek a meeting of the creditors in order that they could make their own commercial judgements.

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