Dixon Advisory defendant enters voluntary administration
E&P Financial Group Ltd (EP1) announced to the ASX earlier today that its wholly-owned subsidiary, Dixon Advisory and Superannuation Services Pty Limited (DASS), appointed PwC as voluntary administrators due to mounting actual and potential liabilities and having formed the view it was likely to become insolvent.
In July 2021, DASS entered into a heads of agreement with ASIC to resolve civil penalty proceedings, which included an agreement to pay a penalty of $7.2 million and legal costs of $1 million.
Following that heads of agreement, class actions were launched against DASS by Piper Alderman in November and Shine Lawyers in December 2021. Both class actions also included claims against directors and DASS’s parent, E&P Financial Group Limited. Further, claims have also been commenced by individual investors against DASS, before the Australian Financial Complaints Authority (AFCA).
The ASIC action, the two class actions and investor claims relate to advice DASS gave clients to invest in a fund managed by another part of the E&P Financial Group of companies, the US Masters Residential Property Fund (URF).
URF, is an Australian-listed property trust which gives investors exposure to US residential property, principally in New York and New Jersey. As at 30 September 2021, the pre-tax net asset value of the fund was AUD$280 million and the gross asset value AUD$1,001.4 million. However, the price of the URF shares in the property trust has dropped from approximately $2.00 in January 2017 to $0.32 today.
Similar to the ASIC civil penalty proceeding, the class actions allege that companies related to DASS, and part of the E&P Financial Group, received significant payments in the form of fees from the property trust or the Responsible Entity of URF, which created a conflict of interest. Due the conflict, the scale of fees and the nature of the underlying assets of the fund, it is alleged URF was not an appropriate investment for, or in the best interests of, DASS’s clients.
Under the voluntary administration, it is proposed that a Deed of Company Arrangement will be put forward for the settlement of all DASS and related claims (including the class actions) and prompt transfer of DASS clients to a replacement service provider, of the client’s choice, will be facilitated.
E&P Financial Group Limited acknowledges the $7.2 million penalty agreed with ASIC and indicated that they intend to contribute “an equivalent sum” for the benefit of creditors as part of the proposed “comprehensive settlement” of all DASS and related claims.
E&P Financial Group Limited’s announcement states that the voluntary administration relates to DASS only and does not affect any other E&P Financial Group entities, including internally managed real asset funds.
URF’s Responsible Entity remains E&P Investments Limited and other E&P Financial Group related entities continue to provide services to URF.
DASS may have entered voluntary administration, but this is far from the end of the story. A deed of company arrangement may be proposed, but its terms are not yet known and can be expected to be the subject of bitter consideration.
More broadly, it remains to be seen whether the source of investor’s complaints was specific to DASS’s advice, given the URF investment profile, or is more broadly linked to E&P Financial Group’s management of that fund.
It is also yet to be seen whether voluntary administration and even a deed of company arrangement or liquidation will be the end of the DASS related claims against other parties.
The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such. It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only. You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.
