Has Dixon Advisory’s voluntary administration cauterised the wound?

ANALYSIS

The manner of Dixon Advisory and Superannuation Services (DASS) entry into voluntary administration should factor into the current Senate Committee review of the Compensation Scheme of Last Resort (CSLR) legislation because it was generated by mounting liabilities.

DASS’s parent company, E&P Financial Group, told the Australian Securities Exchange (ASX) “mounting actual and potential liabilities mean it (Dixon Advisory) is likely to become insolvent at some time in the future. So, the question for investors will be the extent to which they are now exposed, notwithstanding the actions of E&P and its statement that no client assets are at risk.

But the road which led Dixon Advisory into voluntary administration has been long and tortuous and, in large measure, reflects the manner in which what was once a fairly straight-forward financial planning business grew to having an associated funds management business.

In particular, the company ran into trouble because of its US Masters Residential Property Fund which not only generated action on the part of the Australian Securities and Investments Commission (ASIC) but in turn prompted class action by investors in that fund.

ASIC in late September, 2020, announced that it had started proceedings in the Federal Court against Dixon Advisory alleging that Dixon Advisory representatives failed to act in their clients’ best interests and to provide advice that was appropriate to the clients’ circumstances.

The legal action related to advice given to clients who were advised to invest in the US Masters Residential Property Fund and related products between 2 September 2015 and 31 May 2019.

ASIC said at the time it was seeking declarations of contraventions and pecuniary penalties against Dixon Advisory, noting that the maximum civil penalty for contraventions alleged against Dixon Advisory is $1 million per contravention for contraventions prior to 13 March 2019, and $10.5 million per contravention after that date.

In the end, the company entered into an agreement with ASIC to pay the Commonwealth a penalty of $7.2 million to be paid in two equal instalments on 31 December 2021 and 31 March, this year.

Little wonder then, that E&P’s announcement of voluntary administration cited “the penalties agreed between DASS and the Australian Securities and Investments Commission” along with other claims being mounted against the company.

E&P managing director, Peter Anderson said it had become apparent that settling individual claims as they arise “will likely lead to inequities between client creditors” and that voluntary administration provided an appropriate framework to ensure all client creditors are treated equitably.

What E&P have done by calling in the administrators is effectively cauterise what had become a weeping sore. As recently as the company’s annual general meeting in November the chief executive, Anderson sought to remind shareholders that the company was very different to the one which had been targeted by ASIC.

“As shareholders will recall from our briefings over the past two years, the Group has made considerable changes to its governance structures, senior management and business model since the time of the alleged breaches,” he said. “As a further step, during the year we commissioned an external independent review of governance practices and implemented all resulting recommendations.”

He said sought to remind shareholders “of the high-quality business we are building for the long term”.