Smiles Inclusive partners lose chance to claim $97m as Exit Solutions picks up final scraps

Smiles Inclusive partners lose chance to claim $97m as Exit Solutions picks up final scraps

Unsecured creditors in formerly ASX-listed, failed Gold Coast-based dental company Smiles Inclusive have been dealt the final nail in the coffin of their dreams to recover investments, including joint venture partner (JVP) debt claims of close to $100 million.

Following a creditor vote last Wednesday in favour of liquidating Smiles Inclusive's Totally Smiles (TS) dental practices and corporate brand, a follow-up meeting determined the remaining shell of the group would go to Brisbane-based Exit Solutions Ltd.

With the same administrators Tim Heenan and Luci Palaghia from Deloitte appointed as liquidators of TS on Wednesday, the vote on the fate of the Smiles Inclusive (SI) corporate entity was postponed by two days in light of a Deed of Company Arrangement (DOCA) offered by Exit Solutions.

On Thursday Heenan and Palaghia recommended SIL creditors agree to the DOCA, which includes the release of security interests understood to be "sufficiently substantial" to more than one creditor.

The DOCA also entails a further $90,000 in fees to administrators, who are already expected to receive around a third of the $9.2 million recovered from asset sales, as well as a $50,000 fee to deed administrator Nick Jim Combis of Vincents.

After the market closed on Friday, administrators announced on the ASX that Smiles' creditors had accepted the arrangement, due to be signed within 15 days of that date.

"The DOCA is expected to result in a greater return to one or more secured creditors and reduce the overall loss to creditors as a whole as compared to liquidation," the administrators said.

"Unfortunately, the Administrators do not anticipate any distribution to unsecured creditors under the DOCA due to the terms of the DOCA and the financial position of SIL on appointment.

As part of the deal the deed administrator will not be responsible or liable for any debts incurred or claims made against Smiles Inclusive, although a report from Deloitte states that during the DOCA period Smiles will "pay all reasonably incurred debts as and when they fall due", maintain all proper books and records while giving Combis access to them, and comply with all tax obligations.

The arrangement will come into effect once Exit Solutions obtains at least 90 per cent of total issued shares in Smiles Inclusive, or after 12 months if the shares are not obtained within that timeframe.

The Deloitte report noted Smiles Inclusive employees would be given the same priority as if the company were liquidated, although it claimed the only employee it was aware of was former CEO and founder Mike Timoney who "may have been employed on an executive services agreement with SI and [is] as such an excluded employee".

In their initial report, the administrators noted Timoney had lodged a proof of debt (POD) worth $178,000 in unpaid notice entitlements, although they added there were legal proceedings brought by Smiles Inclusive against Timoney and former chairman David Herlihy claiming $124,000 in allegedly unauthorised or overpaid transactions.

By the time the initial report was published prior to liquidation, administrators had received $96.7 million worth of PODs from JVPs, relating to: crystallised profit share claims pursuant to joint venture agreements (JVAs); minimum guaranteed payments as a result of alleged termination of a JVA; the guaranteed buy-backs of practices; the alleged misrepresentation and deceptive conduct or claims for breach of representations and warranties under JVAs; lost capital invested in Smiles Inclusive; and other disputes.

"These PODs have not been adjudicated at this stage as PODs are generally only adjudicated in the event of a distribution.

"As a result, we are unable to confirm an estimate of the quantum of unsecured creditor debts at this time."

When including claims from landlords, suppliers, contractors and others, the total sum of unsecured claims that will not be paid following the liquidation and DOCA rises to $101.73 million.

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