Amidst allegations of shareholder privacy breaches and a desperate capital raise to pay back less than half of an outstanding loan, more plaque has been found building up on Gold Coast-based dental group Smiles Inclusive.
Joint venture partner (JVP) Aged Dental Care dropped a $20 million case against Smiles in November last year with its legal representative singing the praises of leadership renewal, but now has changed its tune.
"On behalf of the mobile dentistry unit, and its related interests, I have served a statutory demand on Totally Smiles Pty Ltd, and will seek to wind the company up, pursuant to Section 459P of the Corporations Act, should they fail to comply within the requited time period," the JVP's General Counsel Cabral Douglas said in a statement.
"My client sold them a business for $7 million earning $1.4 million net profit per annum in April 2018, which has totally collapsed under Totally Smiles management within six months of completing the acquisition.
"This colossal failure in leadership, and management was the basis of the $20 million lawsuit I had instituted against them in the New South Supreme court in March of 2019, seeking damages for lost income under the terms of the 60/40 joint venture."
However, after the value of Smiles Inclusive plummeted, a set of individuals and entities referred to by Douglas as the 'mobile dentistry unit' - agreed to enter into a deed of settlement to recover its alleged losses.
The parties in that group include Venessa and Michelle Olivier, key shareholder Jeremais Corneluis 'Bok' Olivier, Australian Mobile Health Care Logistics, Smiles on Site, Australian Aged Dental Care and Onsite Dental Group.
"According to the terms of the settlement deed, the 5 three-chair surgery mobile clinics were due to be relaunched on or before 1 February 2020," Douglas said.
"However, to date, no significant strides have been made in this regard, and as a result my clients have, once again, lost confidence in the management team, this time led by chairman David Usasz.
"On 2 September 2020, I issued the company with a formal Notice of Breach, followed by serving them with a Statutory Demand today, with further legal action likely to follow for substantial damages."
Douglas has advised his clients to vote in favour of a board overhaul at an extraordinary general meeting (EGM) that is due to take place in less than two weeks.
He said the recapitalisation plan was welcome, but claims the company has "no future" under its current leadership structure.
"Thus, any hope of returning this company to profitability, must start with voting to remove directors David Usasz, Michelle Aquilina, and Peter Fuller from the board at the Extraordinary General Meeting (EGM) slated for 23 October 2020, and the election of a group of experienced practice managers Dr Camacho, Dr Makepeace, and Dr Walsh.
"In the unlikely event that the current leadership team should remain in place, given their disastrous track record, destroying tens of millions of dollars in shareholder value, coupled with their failure to restart the mobile dentistry business, I will seek to terminate my clients relationship with Totally Smiles, and, terminate the joint venture, taking back possession of all 5 three-chair surgery mobile clinics."
Smiles Inclusive response
In a letter to Douglas on Smiles Inclusive's behalf, Norton Rose Fulbright Australia partner Abigail McGregor claimed he did not represent the mobile dentistry unit, describing his statements in a release as "misleading and deceptive".
"Totally Smiles owns that business. You do not represent it," McGregor wrote, also noting his statement had omitted he was a joint venture partner.
"The statement represents that you are an impartial professional advisor, but in fact you have a direct personal interest in the matters outlined in the release."
McGregor took umbrage at Douglas' allegation that poor leadership was to blame for the poor performance of the mobile dentistry unit, alleging Douglas' client has "relocated the trucks and refuses to tell our client where they are".
"Because of material breaches and subsequent eviction on 20 August 2020, our client as sub lessee has been forced to find another tenancy within a very short time frame at great cost and disruption," she said.
Totally Smiles denies it is obliged to pay the invoices that are the subject of the statutory demand.
McGregor also highlighted progress in readying the mobile clinics for relaunch with services provided to three schools throughout July and August prior to the school holidays, along with several other positive developments
With regards to Douglas' claims about bringing the company back to profitability, Smiles Inclusive's lawyers argue it already returned to profitability in May.
In terms of cash flows the company broke even operationally in the June quarter, had net cash outflows of $560,000 in July and was $42,000 in the black in August.
Smiles Inclusive and its lawyers also dispute the claim that Smiles' leadership has had a "disastrous track record".
"They have collectively over 45 years' experience in service based distributed businesses in dental and healthcare. Specifically the CEO Michelle Aquilina has 30 years of direct dental industry leaderships and performance," McGregor said.
"The recently appointed non-executive board member Dr Genna Levitch also demonstrates belief in the current management team," she said, in reference to the man who was one of the founding executives at Australia's first corporate dental group, Pacific Smiles Group.
"The current leadership team have only been a team since Ms Aquilina joined SIL in April 2020 at the peak of the COVID pandemic when the whole industry collapsed. That current leadership team has only been in place since that time."
The letter also claimed shareholder value had improved since the current leadership has been in place, although in May the company's founder Mike Timoney sold all his shares in the company at a share price that was slightly more than quarter of where it stood prior to the trading suspension in March.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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