Earlier this year, a former director of the Kleenmaid Group became the first person to be sentenced to imprisonment for insolvent trading as a shadow director. The case centered around Kleenmaid Group a whitegoods company that had a chain of stores and franchises across Australia. In 2006 the Group was placed into voluntary administration. ASIC then commenced investigations into the Group’s affairs and the conduct of the directors and referred the matter to the CTH DPP. The DPP prosecuted Andrew Young, the founder and previous director of the Group, for insolvent trading, even though Mr Young was not a Company Director. Under the Corporations Act the duties owed by directors also extend to persons in accordance with whose instructions or wishes the directors of the company are accustomed to (shadow directors). Ultimately, Mr Young was charged with multiple counts of insolvent trading and fraud on the basis that he was shadow director of the Group. The jury found Mr Young guilty of 19 charges and Judge Devereaux sentenced Mr Young to 9 years imprisonment with respect to the fraud charges, and 3 years imprisonment with respect to the 17 charges of insolvent trading. This case illustrates that individuals who give instructions to the directors of a company, but are not formally appointed as directors themselves, should be aware that they may nonetheless be held to the same duties as directors by virtue of their role as shadow directors.

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