Smiles Inclusive (ASX:SIL) is taking its former CEO and chairman to court over allegations of illegal payments and transactions.

The dental chain is suing former CEO Mike Timoney, former chairman David Herlihy.

It’s also claiming against a company controlled by Timoney called Investment centre, and a company controlled by Timoney’s son James and his Romanian fiancée Ilda Sanda Redak called Pink Diamond.

Smiles was thrown into chaos in November when it announced news of a legal dispute in a business it acquired in the IPO.

Since then it’s slashed a forecast profit to a loss (it only listed in April 2018), talked its bankers around to overlooking loan breaches, dumped the CEO and chairman who promptly called for a board spill, and launched the investigation that culminated in today’s lawsuit news.

The allegations

In a publicly-available statement of claim filed in the Supreme Court of Queensland yesterday, Smiles alleges Herlihy wrongly approved $79,878.29 worth of expenses claimed by Timoney.

These included alleged trips to Europe and the US which Smiles says were “predominantly for personal reasons” and an alleged $2000 payment to register two businesses that were never incorporated.

It also alleges Herlihy approved $4,195.44 of Timoney’s credit card spending for car hire in the US and Europe and for tyres.

Smile has in its claim against Pink Diamond alleged that James Timoney and his fiancée “abdicated their decision making to Mr Timoney” allowing him to run the company.

The statement of claim alleges Pink Diamond charged Smiles $167,630.02 for events services such as arranging gifts between March and June 2018, and that Timoney directed invoices from a caterer to Pink Diamond which then added a mark-up to the final bill to Smiles.

And finally, Smiles claims it bought 64 cases of wine in April last year and paid 31 directly but paid Timoney’s company Investment Centre “a greater sum to acquire the final 33 cases of wine than the amount for which it could otherwise have acquired those cases”.

Smiles is seeking to recover its alleged losses from the four defendants.

‘Bully boy tactics’

Timoney has responded by claiming that Smiles’ lawsuit was brought because he called for a board spill.

“This is yet another attempt to avoid the ballot box. It is a further example of 1980s governance, a continuation of bully boy tactics,” he said in a statement.

“Nothing will stop the EGM taking place on 22nd May 2019. We are focused on refreshing the board with proven business executives that the renegade directors have denied Smiles Inclusive shareholders the right to vote for.”

The proceedings remain at a very early stage and each defendant will have 28 days to file a defence. No hearing has been set for making orders for next steps in the proceedings, and the case continues.