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Suspected staff underpayments date back to Woolworths' ownership of Dick Smith

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The suspected underpayment of Dick Smith staff dates back to Woolworths' ownership of the electronics chain before the business was bought by private equity and sold to investors through a $520 million public float.

The receiver of the failed electronics chain Ferrier Hodgson revealed on Thursday that 3,200 current and former staff may be owed as much as $2 million in entitlements, dating back as far as 2010 when the chain was under the control of Woolworths.

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According to Ferrier Hodgson partner James Stewart staff may have missed out on their full leave loading as a result of the "incorrect application of the relevant industrial award."

A spokeswoman from Woolworths said the Dick Smith business was sold to Anchorage Capital in November 2012 "following a thorough due diligence process."

"We understand from the receiver's release today that it may have identified certain issues relating to the calculation of leave loading for Dick Smith store employees from 2010," a spokeswoman said.

"We have contacted the receiver to request details."


It's also understood Woolworths is undertaking its own analysis to ensure this potential miscalculation hasn't been duplicated anywhere else across its business.

The corporate watchdog is already circling Dick Smith and while it hasn't initiated a formal investigation, ASIC is already understood to be looking at the float prospectus as well as Dick Smith's most recent audited full year financial results, which were signed off by Deloitte.

One Dick Smith insider suggested the underpayment of entitlements was picked up by Dick Smith's management shortly before the business went into administration.

He said this explains why Ferrier Hodgson identified it so soon after taking control of the business.

Dick Smith collapsed in early January under the weight of more than $400 million in debt, just weeks after launching a desperate pre-Christmas clearance in a bid to bolster sales.

There are a number of theories as to how the entitlement payment mistake could have occurred, but retail insiders suggest its timing may reflect the implementation of the new General Retail Industry Award in 2010.

Ferrier Hodgson referred the matter to the Fair Work Ombudsman as well as the Shop Distributive and Allied Employees' Association, which has already crossed swords with the receiver over its failure to consult the union over the staffing impact of the closure of the Dick Smith concessions in David Jones stores.

Ferrier shut down the 27 Dick Smith concessions in David Jones stores on January 22, leaving 181 staff facing an uncertain work future.

The national secretary of the Shop Distributive and Allied Employees' Association, Gerard Dwyer, revealed the union was undertaking its own investigation into whether there were claims for unpaid entitlements for Dick Smith employees.

The union filed its proof of debt claim on behalf of its Dick Smith workers following the appointment of receivers in January, which Mr Dwyer said was a fulsome assessment of the entitlements owed to employees.

"If there is a claim we will do everything we can to ensure these entitlements are paid," Mr Dwyer said.

In addition to the potential underpayment of staff entitlements, Ferrier Hodgson yesterday revealed the chief financial officer Michael Potts had left the business along with 22 office staff as a result of a restructure of the business.

Mr Potts' departure follows the resignation of Dick Smith chief Nick Abboud on January 12, just one week after the receivers moved in.

Ferrier's retail and FMCG expert and former Woolworths chief financial officer Bert van der Velde​ has stepped up as interim chief financial officer and will work with interim chief executive and former Retail Fusion Brands boss Don Grover.

The receiver said it was also continuing to investigate and review "other historical entitlement calculations" to confirm that staff had been correctly paid, potentially foreshadowing further irregularities.

Ferrier Hodgson said any additional unpaid entitlements would rank as "priority claims" ahead of the secured creditors.​