Blame and Actions in Dick Smith Case Study

This case study discusses the blame on directors, senior management, Anchorage capital, investors, and float adviser in the Dick Smith electronics acquisition by Woolworths. It also suggests actions that can be taken by each blaming object to protect their investment.

DICK SMITH

Contents
Contents.................................................................................................................................................1
Introduction...........................................................................................................................................2
Who is to blame.....................................................................................................................................2
Discuss about each blaming object........................................................................................................3
Actions can be taken in few short paragraphs with headings regarding to different blaming objects. .6
Conclusion.............................................................................................................................................8
References...........................................................................................................................................10

Introduction
This case study is regarding Dick Smith electronics that was acquired by Woolworths
in 2012. Woolworth acquires the senior employees who have stock options of Dick Smith in
2012 but during this process, the anchorage capital partners managed these stockholders to
purchase Dick Smith shares in 2012 with a worth of AUD $115 million and list it in the
market with a value that is equivalent to total market value of nearly AUD $520 million.
Who is to blame
The issues were found due to the legal liquidation of the company and the blame was found
on the directors and management department of company who failed to maintain the effective
governance of company.
Director-
As director could not give any assure that whether the stock options of the employees
are even safe or not. The financial risk become uncontrollable due to the non-effective steps
of the directors.
Senior management
Senior employees were given updated stock options before it was under Woolworths in 2012
(The conversation, 2016). Employee would have saved the money or the stake by transferring
the self to the private equity as it was highly leveraged and departed from the risk (Foye,
2016).
Anchorage capital
These shares of Dick Smith electronics owned shares inclusive of anchorage capital partners
through which they were offered a right to exchange the share options for the shares but at
last, they lost their jobs and these shares became worthless when 2016. (The conversation,

2016). Anchorage capital used the tricks to turn the books in such a way it turned to reflect it
from $10million to a $520 million. Anchorage held Dick Smith sub holding which is used to
acquire Dick Smith business from Woolworths (Akkeren, Buckby, and Tarr, 2016). It is
found that they have paid $115million whereas, as per the books of accounts, it has been
observed that in 2014 accounts, it is found to be $20 million in terms of cash (Akkeren,
Buckby, and Tarr, 2016).
Investors
The employee may feel secure as the acquisition was greatly funded by debt rather than
equity (The conversation, 2016).
Float adviser
In this case, the blame would be made upon the share transfer agent officer appointed by the
company who failed to intimate the employees to transfer their shares in the equity share.
However, employees themselves would also be liable for the failure to convert their
employee stock option to the equity share capital.
Discuss about each blaming object
Directors
In this case, directors were blamed to the fact that they did not issue the notice to the
employees for the swapping of the shares. However, they were kept separate from this
allegation as they were not bound to send the notice to employees for the swapping of their
shares in the Woolworths Company. It is important to know that directors of the company do
not take hard and fast decision regarding the official sounding profitable prospects as it not at
all ensure the title prospects with an independent umpire for long term.

Senior management
Some of the most affected stakeholders were employees, senior employees, investors, and
creditors. The senior management of company failed to record the financial transactions of
the business. The books of accounts prepared were at utmost fraud and misrepresented. They
would be considered as creditors for the company and Dick Smith would be liable to pay the
compensation to them before any amount to be paid to the shareholders of the company in the
liquidation or admiration process.
Anchorage capital
Most of the shares of Dick Smith electronics owned shares inclusive of anchorage capital
partners It acquired Dick Smith organisation with cash $115 million and the anchorage
forked that it only $10 million. These are some of the important situation and
misrepresentation seen in the books of accounts of Dick Smith (Akkeren, Buckby, and Tarr,
2016). However, the misrepresentation of the recorded items in the books of account of
company arises due to its accountant failure to comply with the applicable rules and
regulation for the corporate governance (Cate, 2016). It is analysed that all the employees
who were having shares in the Dick Smith Company could easily ask for the compensation of
the hold shares in Dick Smith Company. They could either go for the judicial process to have
the stay on the Dick Smith acquisition by the Woolworths Company or they could ask for
holding the general meeting for the compensation of the shares. It is seen that the stockholder
in the name of employee stock option has to consider the compensation, which they would
get after selling their shares. It is clearly visible that Anchorage capital partners undertook to
manage Dick Smith in 2012 in regards to Woolworth who dealt with the amount of $115
million and listed in under the total market value of $520 million. Due to poor strategy, and
poor inventory management, it is seen that private equity in the Dick Smith did not suffer

severely as compared to other holders who have still invested in the company. However, they
will be considered as unsecured creditors for the company.
Float adviser
It could be inferred that agents themselves and concerned team of the share transfer of the
company would be liable for this case. Employees failed to convert their employee stock
option scheme before the administration process and therefore, they would be liable for their
failure. These float advisor could be very effective, impartial, and rousting for the faulty
presumptions as forensic faces several challenges in terms of operative estimates and
company`s assumptions on which it works (Ismail, Azizan, and Fahmi, 2019). All the senior
employees who are facing issues in taking the compensation of their shares should raise their
concern in the administration process. It would help them to take compensation through the
judicial process.
Auditors
In addition to this, Woolworth acquires the senior employees who have stock options of Dick
Smith in 2012 is audited by the auditors. Therefore, Woolworths could also be responsible for
the payment or compensation of the shares held by the employees of the Dick Smith as per
the given audit report of the auditors. These senior employees could ask for the swapping of
the stock option with the shares of the Woolworths Company in the liquidation process.
However, if Woolworths failed to do so then employees could take this case to judicial
process or central government for their compensation.

Actions can be taken in few short paragraphs with
headings regarding to different blaming objects
Below are some of the steps that has been undertaken by the stakeholders to protect their
investment-
Directors
Stakeholders consulted with the forensic accountants’ to get an advice to protect their money.
It is important to know that employee’s do not lulled where the floats are an easy way that
can lower the risk associated with the money. Sellers always have deeper knowledge of awful
stock who knows more about business. It there is a probability to increase the worth of the
private equity than the employee should keep its shares to get benefit from the future profits.
It is analysed that employees or the intended investors are reading a biased document. With
the assistance of forensic accountants and experts, it is seen that in order to regain the share
amount or reliable worth of investment of the employees. A range of accounting policies such
as provisions in crucial years, adjusting depreciation, and other physical actions, can benefit
the future profitability. A sustainable company usually squeeze huge expenditure to increase
the profitability in large numbers. As they specialises in analytical skills so that forensic
accountants will be able to apply financial, accounting, as well as economic issues that could
help the employees to approach any different issues so that it could claim the appropriate
amount from the company that will increase the assurance of the result.
Management
As an employee investor, it is suggested that forensic accounting act should be enacted, and
statement financial analysis in order prevent fraud and their acts. It is the responsibility of the
forensic accountant so that it can be securities by making and investing in a protective and
safe way (Abc.au.in., 2012). A forensic accountant undertakes to get advice from investment

portfolio makers so that they can make an intelligent decision related to investment (Yee,
Sujan, James, and Leung, 2017). The main action of this accountant is to protect the
employee from frauds and advise him to undertaken legal actions. It could protect them from
fraud investment policies so that they can get long-term success.
Anchorage capital
With the help of excelled knowledge of GAAP (generally accepted accounting principles)
and other accounting standards so, that anchorage capital holder can conduct an internal audit
of the company concerning performance audit and operating audit (Domino, Giordano, and
Webinger, 2017). If the company has huge number of operating assets, then employees get
enforce them to authorise the asset in their name that can act a compensation for entitlement
of shares. As an outcome, it can be consequence that it could impart the asset in the name of
the employee on the behalf of employee stock option. Another option can be if the
organisation has been expanding the business then they can retain these employees again for
the operations and equally retaining the share option (Ismail, Azizan, and Fahmi, 2019). The
forensic accountant will advise the employees after undertaking continuous audit programs,
updated background works, background checks and other special projects before advising the
employees to take any action with their investment (Domino, Giordano, and Webinger,
2017).
Auditors
Being forensic accountant helps the employees to protect from complex accounting schemes
that was applied by the Dick Smith while evaluating the its net profit or sales (Ismail, Azizan,
and Fahmi, 2019). There is a misrepresentation of financial statements by the Dick Smith,
forensic accountants protects the employees by other misrepresentation or fraud. In order to
have an effective and huge profitability after the investment has been withdrawn from the

Dick Smith (Roussy, and Brivot, 2016). A forensic accountant will undertake to build a
portfolio of the different investments options such as different shares by effective companies
such as who undertake to diversification from time to time. A forensic accountant will
suggest following legal sanctions as investment fraud will lead to huge process (Woolworth,
2011).
Float agent
Employees can claim actions under various acts such as fraud related money laundering act
and financial transaction fraud through which employees will be able to retriever its money
and can get compensation by taking assistance from the float agent (Abbott, Daugherty,
Parker, and Peters, 2016). A forensic accountant will advise the employees that what actions
or claims it can undertake to get their money as compensation for the shares they hold. They
are advised that they would be considered as creditors to the company and could raise their
concern to the judicial system to get the compensation for their shares. A forensic accountant
will advise the employee to get some compensation in terms of cash, asset, receivable, stake
in Woolworth Company, employee stock option in Woolworth, employment in acquiring
company (Murphy, 2016). With the help of any stake in Dick Smith, the money derived
should be more than the valued money, as it should counterfeit the shares. The employees are
generally excited about the investments with higher returns such as 25 or 50 percent that
possess little risk or no other claims (Howieson, 2018).
Conclusion
It is important to delegate the portfolio to the perfect and acceptable association to have
sufficient knowledge regarding excessive and unauthorised fraud trading so that it could
avoid frauds (Investor.gov, 2018). There is a great mathematical possible to evaluate the
profitability through application of several tools. One best way is to create an attractive price

to the one who have low knowledge regarding the share pricing and seller already have great
knowledge of the pricing. Dick Smith is a greatest private equity robbery of corporate world.
Now in the end, it could be suggested that all the senior employees who are having shares in
the company could easily ask for the compensation.
As a forensic accountant, it is advised to the employees to follow steps to assess liquidation
and compensation, which need to be given to them. It is obvious that Dick Smith did not
have any favourable prospects and had to face high financial distress issues in its business
process. Further, it is significant that one year`s profits can play an major role in affecting the
prospects (Enofe, Izevbigie, and Usifo, 2015).

References
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