(By Darrell Choong and Bridget Hobbs)
On 7 February 2020, Kleenmaid’s former director and founder, Andrew Eric Young was found guilty of 19 charges arising out of Kleenmaid’s collapse. This prosecution is significant as it marks the first time a shadow director has been convicted and sentenced to prison for insolvent trading.
In April 2009, administrators were appointed to the Kleenmaid group of companies. At that time, Kleenmaid’s debts had amounted to an estimated $96 million.
Following the appointment of administrators, ASIC conducted an investigation into the group’s affairs. ASIC turned its attention on Andrew Young and the directors of the group. Despite Andrew’s resignation as a director of Kleenmaid several years prior, ASIC brought a case against him, asserting that he was a “shadow” director of the group.
Andrew Young was found guilty of the following charges:
- One count of fraud by dishonestly obtaining loan facilities from Westpac Bank totalling $13 million
- Two counts of criminal insolvent trading of debts of $3.5million relating to two further loan facilities from Westpac Bank
- 15 counts of criminal insolvent trading of debts totalling more than $750,000, and
- A further count of fraud by dishonestly causing $330,000 to be removed from a Kleenmaid company bank account prior to administrators being appointed, and transferred to a bank account held by a company that he had held an interest in.
How does this affect me?
If you hold a top-level management position, or if you undertake tasks that are similar to a director’s typical tasks, it is essential that you familiarise yourself with directors’ duties under the Corporations Act, as you may be considered a shadow or de facto director.
Under the Corporations Act, a shadow director is bound by the same statutory duties and liabilities as the appointed directors of the company, and is equally liable for breaches of directors’ duties.
ASIC’s “Why Not Litigate” approach in the wake of the Hayne Royal Commission (otherwise known as the Banking Royal Commission) demonstrates its newfound eagerness to enforce compliance. In this instance, ASIC’s prosecution of Andrew Young shows that it will not hesitate to clamp down on shadow directors to ensure compliance with the obligations in the Corporations Act.
If you require further assistance or advice on directors’ duties, contact a member of our Corporate & Commercial team for a chat on +61 (0)3 9663 9877.