Creditors at the second meeting of creditors of Dick Smith and its Australian subsidiaries. Credit:Wolter Peeters The audience didn't get an answer to the first questions concerning the stock round robin. The man in the witness box, Dick Smith's one time company secretary and investor relations manager David Cooke, reckons that was someone else's handwriting and he had no memory of any such practice. He was asked plenty of difficult questions during his two-hour stint on the stand, including whether he recalled whether the company had asked some of its vendors to increase the price it paid for their goods and call the increased cost a rebate. As for why so many batteries – this was explained as more of a hoarding exercise to ready the company for "higher marketing activity in the lead-up to Christmas". As history now records, Dick Smith had a lousy Christmas in 2015 and was stuck with millions of dollars' worth of excess inventory. One can only imagine that there were plenty of batteries making up that excess.

Why would Dick Smith have been holding 12 years' worth of batteries on its inventory? Credit:Jason South The proceedings, which take the form of public grillings by lawyers acting on behalf of Dick Smith bank-appointed receivers, bring in Dick Smith's management and some of its former directors. The object of the exercise is to work out whether the directors and/or senior Dick Smith management are liable for its collapse and whether the banks that lent and lost on the loans can recover some money via directors' and officers' insurance. After day one of this hunting season it is clear that the path being pursued by the examination is leading to the implication that profits that Dick Smith declared in the two or more years leading to its collapse were a fiction enabled by pumping up profits – in large part using supplier rebates. This is no surprise. The battle lines became clear enough in June when the bank- appointed receivers, Ferrier Hodgson, reportedly sent letters to 10 former Dick Smith managers and directors alleging that executives inflated earnings to meet market expectations by buying too much stock, booking rebates from suppliers as profits and disguising weak sales, and that directors encouraged, permitted or failed to control the practice of making purchasing decisions on the basis of maximising rebates.

As the first of the Dick Smith managers in the witness box, it was up to Cooke to spearhead the defence – although he was frustratingly short on detailed recounting of board and management meetings. For example, Cooke was asked about the number and substance of meetings he attended with one of its bank lenders, HSBC, in the last half of 2015. The only meeting in which he was able to recount much detail was one that involved a lunch at which HSBC's views on the economy were the only item on the agenda. Nothing much could he recall on other meetings that dealt with Dick Smith's cash flow and trading conditions. However, he did remember that rebates, and in particular "over and above" rebates, were a focus of management, but rather than seeing them as an accounting problem they were considered part of an improvement program. He was also aware of rising inventory levels but maintained it was necessary because the group was opening new stores and increasing the stocks of private label goods coming from China that had longer lead times.

In answer to why Dick Smith was opening stores when its same-store sales were falling, he said the reason he was given was it was finding more attractive locations.