Shares in Sydney based financial services group, E&P Financial Group traded lower yesterday after releasing news that it had put a major subsidiary – Dixon Advisory – into voluntary administration.
That was after Dixon Advisory (DASS) directors determined that mounting liabilities from class actions, settlements and regulatory penalties would leave the company insolvent.
E&P shares ended the day at 57 cents, down 1.75%, having risen as high as 60 cents after the statement to the ASX.
There were no commentary as to losses, if any at the moment, current or future, but they will certainly come.
In a statement to the ASX on Wednesday, the firm’s parent company E&P Financial Group said PwC Partners Stephen Longley and Craig Crosbie had been appointed as voluntary administrators to Dixon Advisory Superannuation Services (DASS) after the directors determined that “mounting actual and potential liabilities mean it is likely to become insolvent at some future time.”
“Actual or potential liabilities include: possible damages arising from the representative proceedings led by Piper Alderman and Shine Lawyers; claims against DASS being determined by the Australian Financial Complaints Authority (AFCA); and penalties agreed between DASS and the Australian Securities & Investments Commission (ASIC), the statement from E&P said.
That part of the statement raises questions about whether this decision is an attempt to avoid payment of some or all of any penalties from the Australian Financial Complaints Authority (AFCA); and ASIC.
From what is contained in the statement to the ASX, E&P seem to be aiming to reach some sort of settlement on these claims but perhaps limit any significant financial cost from any class actions such as the actions from Piper Alderman and Shine lawyers.
E&P said that following the appointment of Voluntary Administrators, it is aiming
- facilitate the prompt transfer of DASS clients to a replacement service provider of the client’s choice with minimal disruption to client service; and
- propose a Deed of Company Arrangement (DOCA) which provides for the comprehensive settlement of all DASS and related claims (including the representative proceedings) in a manner which provides for equitable treatment of all DASS clients/creditors.
E&P made it clear the action on DASS “does not affect any other EP1 entities or services provided by EP1 or related entities, including internally managed real asset funds, all of which are independently governed. There is no recourse for DASS liabilities to other entities within EP1.”
E&P said that “No client assets are at risk as all client assets are either held in clients’ own names or on trust by independent third- party custodians; there will be no staff impact as a result of the voluntary administration. DASS clients will have continued access to their current Adviser/s; and there will be minimal disruption to client service while clients are supported through the transition to a replacement service provider of their choice.
“In due course, the Group intends to propose a DOCA to the Administrators that will include, among other matters, a comprehensive settlement of the representative proceedings and all other claims.
“The Group acknowledges the heads of agreement entered into between DASS and ASIC relating to alleged breaches by DASS of the Corporations Act, including the agreed penalty and contribution to ASIC’s costs.
“The Group intends to contribute an equivalent sum for the benefit of creditors as part of a comprehensive settlement of all DASS and related claims,” E&P said.
Peter Anderson, Managing Director & CEO of EP1, said “The appointment of Voluntary Administrators to DASS has become necessary in light of the increasing number of claims against DASS and the potential associated financial liabilities.
“It has also become apparent that settling individual claims as they arise will likely lead to inequities between client creditors. Voluntary administration provides an appropriate framework to ensure all client creditors are treated equitably.
“Importantly, no client assets are at risk as a result of this process, and we will strive to minimise any disruption to clients who will have ongoing access to their Adviser(s),” he added.
A statement on July 9 last year from E&P contains details of the settlement between ASIC and Dixons consisting of a fine of $7.2 million and $1 million in ASIC’s legal costs, each to be paid in two instalments.
The instalments were set for December 31, 2021 and March 31 2022.
There was no word in the statement on Wednesday from E&P that any payments had been made.
That would suggest they haven’t and the money owed to ASIC remains outstanding and a major headache for any attempt to get a Deed of Company Arrangement agreed to and signed off on. ASIC will want its money, as will the Financial Complaints Authority.
