The Case of the Kleenmaid Group’s Collapse

Topics: Audit, External auditor, Auditing Pages: 4 (1487 words) Published: April 2, 2013
The case of the Kleenmaid Group’s collapse

Commencement of the Kleenmaid business was started out in 1980 by Andrew Young, who had extensive knowledge in the appliance repair industry. At first, the business commenced as an appliance parts distributor and traded through Orchard KM. Afterwards the Kleenmaid Group expanded their operation ranges by providing refrigerators, vacuum cleaners and cooking appliance and so on, finally consisting of 2 separate groups known as the Orchard Group and the Kleenmaid Corporate Group (“Corporate Group”), respectively. In 2007, Kleenmaid’s operations began to transition from the Orchard Group to the Kleenmaid Corporate Group under an informal restructure of the business. Before its collapse, the Kleenmaid Group had grown into one of Australia’s most successful franchisors, operating 22 outlets with selling high-end imported whitegoods. However, the original group collapsed with debts in excess of $100 million and ultimately was placed into liquidation in May 2009. Unfortunately, thousands of customers who had paid some or the full amount up front for their appliance eventually lost more than $25 million. As a result, a large number of warranties customers owned became worthless and lots of spare parts for appliance were no longer available. According to the survey report of Deloitte in the process of a voluntary administration, it is reported that the Kleenmaid Group has experienced cash flow difficulties since June 2007 and probably earlier. But the former directors continued to trade for more than one year after the Kleenmaid Group became insolvent in March 2008, leading to being accused of criminal charges, including criminal insolvent trading and an alleged $13 million fraud committed on the Westpac Bank. Certain vital reasons for failure are also identified: -a significant cost structure;

-high cash burn due to losses incurred by company-owned stores operated by Kleenmaid Retail and high overheads associated with the...

References: 1. http://www.smartcompany.com.au/cashflow/048268-kleenmaid-directors-face-insolvent-trading-and-fraud-charges-three-years-after-collapse.html
2. http://www.abc.net.au/news/2012-02-16/kleenmaid-directors-face-court-over-2413m-fraud/3834260
3.http://www.franchiseadvice.com.au/index.php?option=com_content&task=view&id=163&Itemid=1
4. http://www.couriermail.com.au/news/customers-kleened-out-of-27m/story-e6freon6-1225699235459
5. http://www.theaustralian.com.au/business/trio-bailed-on-kleenmaid-fraud-insolvent-trading-charges/story-e6frg8zx-1226273199498
6. http://www.sunshinecoastdaily.com.au/story/2012/02/16/kleenmaid-directors-face-fraud-charges/
7.
Moroney, R., Campbell, F., Hamilton J., (2011) Auditing a Practical Approach, First edition, John Wiley & Sons, Brisbane, pp.22-24, pp. 91-93
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