Kleenmaid risks insolvent trade charge

"They have continued to trade for some time notwithstanding this deficiency … continuing to make sales and taking customer deposits, and indeed the full payment from many customers as well, right up until we were appointed," Mr Greig said. "Directors are under a duty under the Corporations Act to prevent what is referred to as insolvent trading.

The Sydney Morning Herald
May 19, 2009

Kleenmaid risks insolvent trade charge
Angela Harper

KLEENMAID was still taking customers' money for orders while racking up debts of more than $100 million, administrators say.

If found guilty of insolvent trading, directors of the Queensland-based whitegoods group, which went into administration last month, could face civil and criminal charges.

Administrators had found cash-flow problems plagued Kleenmaid for nearly two years and in June 2007 the group had a shortfall of assets to liabilities of about $20 million, said Deloitte partner John Greig.

That deficiency had escalated to $82 million last March and has now surpassed $100 million.

"They have continued to trade for some time notwithstanding this deficiency … continuing to make sales and taking customer deposits, and indeed the full payment from many customers as well, right up until we were appointed," Mr Greig said.

"Directors are under a duty under the Corporations Act to prevent what is referred to as insolvent trading.

"So in this case it would appear, given the length of time the group has been - based on our investigations - insolvent, there is a high likelihood they have been trading while insolvent for a period of time," Mr Greig said.

"If a director is found to have contravened these sections in the Corporations Act relating to insolvent trading, they will be held to be personally liable for the debts that the group incurs during that period.

"Then it's up to the regulator … [the Australian Securities and Investments Commission] to determine whether they consider that the insolvent trading is so chronic that criminal prosecutions might be applicable."

It was more than likely the group would face liquidation, which would be decided at the next creditors' meeting on Monday, Mr Greig said.

"Our recommendation is that the group should be liquidated … but there is little or no likelihood of creditors receiving anything, which is extremely bleak," he said.

Employees did not stand a chance of receiving the $3 million owed but would still be entitled to apply to the government-funded general employee entitlements and redundancy scheme, which might pay the outstanding money due to employees, excluding superannuation, Mr Greig said.

There would be little or no dividend available to unsecured or secured creditors of any part of the Kleenmaid Group, he said.

The creditors' meeting is at 10am at the Mercure Hotel, 85-87 North Quay, Brisbane.

AAP

http://business.smh.com.au/business/kleenmaid-risks-insolvent-trade-charge-20090518-bcq4.html


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