The first case, relating to the Kleenmaid Group of companies, is infamously one of the longest criminal trials held in Queensland.
Prior to its collapse, Kleenmaid provided retail whitegoods to an Australia-wide customer base through a series of group owned and franchise stores. Deloitte were appointed as liquidators in mid-2009 and, at the time of writing, their website notes that the Kleenmaid group has over $102 million in liabilities. Reports issued to creditors over the history of the liquidation tell a story of missing records, questionable transactions, minimal cash flow and unrecoverable inter-company loans all leading to a devastating “little chance of dividend” outcome for creditors.
It came as no surprise then, when the Commonwealth Director of Public Prosecutions, on behalf of ASIC, commenced criminal proceedings against the directors in 2012. Following the imposition of the charges, one of the directors, Gary Armstrong, pleaded guilty to 1 count of dishonestly gaining loan facilities from Westpac in 2007 and two counts of insolvent trading from 2008. Armstrong was subsequently sentenced to 7 years in prison and is eligible for parole in February 2018.
Notwithstanding Armstrong’s capitulation, fellow directors Bradley and Andrew Young vehemently denied the charges filed against them. Both were charged with 1 count of fraud under section 408C of the Queensland Criminal Code and 18 counts of insolvent trading under section 588G(3) of the Corporations Act 2001 (Cth).
The fraud allegation pertained to the acquisition of a $13 million loan from Westpac which the company obtained only months before its ultimate demise. Relying on evidence obtained by the liquidators in their investigations, including a public examination of the directors, the prosecution argued that the Youngs and the other directors knew of the company’s financial instability and egregious debt position but did not disclose this information to Westpac when applying for the loan.
After 9 days of the eventual 71 day trial, the trial against Andrew Young was adjourned to allow him to find another barrister to represent him. His trial will continue another day.
When the trial against Mr Young continued, his lawyer tendered over 60 character references with respect to his client. Unfortunately, that was of no avail as the jury found Mr Young guilty of the fraud charge as well as 17 of the 18 charges of insolvent trading.
When delivering his sentence, District Court Judge Farr commented on what he considered to be Mr Young’s ‘callous disregard’ for those who would ultimately be affected by his actions. His Honour sentenced Young to a jail term of 9 years; he is eligible for parole after six years and three months.
A trial date for the third director and brother to Brad, Andrew Young, is yet to be determined. McCullough Robertson, who have been the primary legal advisors to the liquidators on this matter since 2009, will be keeping a close eye on this matter and publish updates as it develops.
The second case considers charges against a former director for the fraudulent acquisition of funds, relates to the collapsed debenture issuer, Wickham Securities Ltd.
During its prime, Wickham Securities operated as a Brisbane-based property financier. After going into liquidation in 2013, the liquidators uncovered what can only be described, in hindsight, as a master class in ponzi-schemes. Wickham Securities’ business model saw it raise money from the general public by issuing various deposit notes to provide mezzanine loans to property developers. When the model fell apart, hundreds of mum and dad investors and self funded retirees lost tens of millions of dollars. A class action filed by a group of aggrieved investors is currently progressing through the Courts.
In the aftermath of this discovery, Wickham Securities director and chairman, Bradley Sherwin, filed for bankruptcy and, in response, ASIC banned him from financial services for two years and seven months pursuant to section 920A of the Corporations Act. In addition, ASIC then commenced proceedings against the former CEO of Wickham Securities, Garth Robertson.
In April 2015, Mr Robertson appeared in the Brisbane Magistrates Court facing 10 counts of fraudulently obtaining funds between 2010 and 2012, nine counts of giving, or permitting to be given, false information about Wickham Securities to its trustee and finally, one count of falsifying books relating to Wickham Securities’ affairs. During the period in question it was alleged that Mr Robertson obtained more than $700,000 in funds to pay off his own personal tax debts and credit card repayments.
In February 2016, the matter was set down for trial which was due to commence in August only for Mr Robertson to plead guilty to all charges in July.
On 1 September 2016, Mr Robertson was sentenced to 5 years imprisonment (to be suspended after 20 months). In delivering the sentence, District Court Judge Tony Moynihan acknowledged that Mr Robertson’s fraudulent and deceitful conduct caused his victims to suffer loss and commented that Mr Robertson lacked the moral and ethical discipline to resist the temptation to fraudulently deal with money.
Whilst the outcome of each of the above cases is largely unsurprising to some, it sends a strong message to would-be fraudsters that their conduct is always the subject of scrutiny and, where they choose to break the law, the regulators have the appetite to, and will, pursue them.
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