The Kleenmaid saga continues as former directors face trial for insolvent trading and $13 million fraud

Three former directors of collapsed whitegoods distributor Kleenmaid will stand trial on 20 criminal charges, including a $13 million fraud against Westpac and 18 charges of insolvent trading.

The Australian Securities and Investments Commission is also alleging two directors, Andrew Young and Gary Armstrong, dishonestly withdrew more than $300,000 from the company’s bank accounts two days before it was placed in administration.

The other director to stand trial is Bradley Young.      

The case comes after years of controversy, as Kleenmaid was placed in administration in 2009 and liquidators reported consolidated debts of almost $100 million.

In 2012 SmartCompany reported the trio had been charged with 18 counts of insolvent trading of debts more than $4 million, after the business became insolvent in 2008.

A date for the court case is yet to be fixed, but after years of delays the three men were committed to stand trial on March 31, 2014 by the Maroochydore Magistrates Court.

In its prime Kleenmaid operated 22 outlets Australia-wide (including 15 franchise stores) and employed 200 staff.

The number of people impacted by the collapse of the company was estimated to be upwards of 10,000.

Up to 6000 Kleenmaid customers were said to have lost up to $27 million in the collapse. Many customers were left without goods, and those who had purchased faulty products were unable to claim on the warranty.

Creditors of the company were angry about the collapse, and in April 2009 a group confronted Andrew Young armed with a sledgehammer, in the hours after it was placed in administration.

At the time of the collapse both Andrew and Bradley Young told the Sunshine Coast Daily they wanted to continue to be involved with the company in the long term.

“The easiest thing for us is to pull up stumps and say ‘see you later’,” Andrew Young said.

“But it is up to the creditors. It would be disappointing not to be part of the future.”

Soon after the company’s collapse, the intellectual property was bought by Sydney private equity firm Compass Capital Partners, which opened a clearance store to sell the remaining goods in early 2010.

Warfield and Associates chief executive Brett Warfield told SmartCompany the trio, if found guilty, will receive a sizeable sentence in relation to the fraud and insolvent trading charges.

“Looking at a $13 million fraud alone, according to research in our Million Dollar Employee Fraud in Australia report, the average sentence for a fraud of this amount would be a non-parole period of four years and six months,” he says.

“However, there have been some more recent cases where the sentences have been even heavier than that.”

Warfield says it’s uncommon for there to be collusion between company directors.

“The majority of fraud cases I’ve investigated tend to be individuals. There isn’t usually a lot of collusion inside the business at such a high level,” he says.

“Perhaps the cases of fraud where there is collusion in the upper ranks don’t get found out because they’re responsible for covering it up, where as if it’s an individual who is lower down the hierarchy, it’s easier for a person to spot.”

Warfield says when it does occur, it’s often because the company has hit financial troubles.

“When the directors and management can’t find a way to turn it around, people sometimes start to dip their fingers into the till and then start taking money for personal gain. Often fraud doesn’t lead to the demise of a business, it’s the other way round,” he says.