The founder of a funeral insurance company that targeted vulnerable Aboriginal families and collapsed, leaving thousands of mostly low-income people without the means to pay for their funerals, collected more than $20m in tax-free income from the business through a complex web of offshore companies.
The New Zealand-based businessman Ron Pattenden accumulated the millions from the operations of the Aboriginal Community Benefit Fund (ACBF), later called Youpla, over 10 years from 2010, and continued to make money from it even after he sold it to new operators, Guardian Australia can reveal.
Pattenden has amassed significant personal wealth, including a luxury yacht named Dream Catcher, a high-end fishing and boating resort in Vanuatu and multiple blue-chip properties in New Zealand. This is in stark contrast to reports that since the company went under in March, some of ACBF-Youpla’s policyholders have had to leave the bodies of relatives in the morgue for weeks while they raise the money to pay for a funeral.
Guardian Australia has seen documents that it understands are in the possession of Australian and New Zealand authorities, and used public records and other sources, to trace the history of Pattenden’s involvement with the company.
Pattenden has received payments from ACBF-Youpla in three ways over the years. While he was owner, he was paid dividends as a shareholder and one of his Vanuatu companies, Crown Insurance Services, was paid premiums for insurance. After he sold the business to new operators in late 2018, he continued to receive money as instalments on the purchase price.
The former liquidator of one of Youpla’s funds, Roland Robson, raised concerns in a late 2021 report to creditors filed with the corporate regulator that Pattenden may have misappropriated money from it.
What is ACBF/Youpla
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- The Aboriginal Community Benefit Fund (ACBF) was a Gold Coast-based private business that for decades aggressively sold funeral insurance almost exclusively to Aboriginal people, including children and babies
- At its peak ACBF had about 25,000 clients. Trading as Youpla, it had 13,000 clients at the time of liquidation, all of whom face losing the money they paid in
- Contributions of active members to the three funds totalled $39.2m
- The liquidator, SV Partners, says there is just $11.9m left – the largest fund (Fund 3) has just $207,000
- ACBF-Youpla was investigated by NSW’s Department of Fair Trading in 1992 and by the financial services regulator, Asic, in 1999, 2004 and 2014, but the business was allowed to continue
- The company became a case study at the banking royal commission in 2018
- Changes implemented following the royal commission led to Youpla being unable to sell to new customers without a licence
- The financial ombudsman, Afca, has received 700 complaints about Youpla group since 2018, and issued 178 decisions to date, all in favour of complainants citing misleading or deceptive conduct
- Afca estimates it has awarded more than $1.4m in compensation, but 61 determinations remained unpaid, worth around $500,000
“My enquiries with the current directors of the company revealed that the former director of the company [Pattenden] may have misappropriated a large amount of the company’s funds by the way of the dividend payment to himself or related entities over a number of years,” Robson said in a report into the affairs of Youpla’s Fund No 2, which collapsed in December. The allegation is in a section of the report examining whether certain payments made by the company can be clawed back to pay creditors.
Pattenden did not respond to detailed questions about the issues raised in this report and it is not known if he disputes the allegation.
ACBF’s collapse in March took with it most of the premiums paid by its Aboriginal policyholders, leaving them without funeral coverage and facing the loss of everything they had paid into the scheme.
The Guardian has seen documents that suggest Pattenden, who founded ACBF in the early 1990s, was keen to influence the affairs of the business when he was not a director, including by demanding higher premiums for Crown and suggesting the company’s new owners slash costs in an effort to recoup what the company owed him.
In September 2017 Crown gave ACBF instructions to double the premiums it was charging “payers & nominees effective from 1st August 2017”.
“This decision is being made due to payer higher risk factors,” Crown director Jonathan Law, one of Pattenden’s Vanuatu-based accountants, said in a 4 September 2017 letter to ACBF.
Hundreds of complaints
ACBF-Youpla was a private business based on the Gold Coast that for decades sold low-value funeral insurance to Aboriginal people, including children and babies, using aggressive sales tactics and falsely giving the impression it was an Aboriginal organisation.
Over the years, ACBF-Youpla fought numerous legal battles with NSW and federal regulators, some of which resulted in rulings that it was engaging in misleading and deceptive conduct in the way it marketed its funeral expenses policies to Indigenous people.
It also survived a decision by the federal government in 2014 to prevent it taking automatic deductions from people’s Centrelink payments. ACBF lost 6,000 customers as a result, chief executive Bryn Jones told the financial services royal commission in 2018. But because the policyholders then defaulted on regular repayments, ACBF got to keep the money they had put in.
The company’s appearance before the royal commission into banking and financial services in 2018 put it into the public spotlight and sent it into a downward spiral.
In his interim report, commissioner Kenneth Hayne said ACBF may have engaged in misleading and deceptive conduct by holding itself out as an Aboriginal organisation that was endorsed by the community. He said the company had fallen below community standards and expectations in a number of ways, including by selling insurance to children.
Hayne said ACBF fell below community expectations by selling a “low value product” where customers received just 13% of the premiums they paid – the lowest percentage discovered in a survey conducted by the corporate regulator.
Since 2018 the newly established Australian Financial Complaints Authority (Afca) has received 700 complaints about ACBF-Youpla. It has made 176 determinations, all in favour of the complainants, citing “deceptive and misleading” and “unconscionable” conduct. Afca estimates it has awarded $1.4m worth of refunds to clients of ACBF-Youpla, which it says still owed $500,000 in unpaid refunds at the time of liquidation.
After the royal commission, consumer advocates repeatedly warned governments that ACBF-Youpla was teetering, and that if it were to go broke thousands of people would be left high and dry.
In October last year, the Australian Securities and Investments Commission (Asic) launched legal action against ACBF-Youpla, accusing it of misleading and deceiving customers by using marketing material that painted it as an Aboriginal organisation and by promising a lump sum payment at time of death, when in fact only funeral expenses were covered. Since the collapse of the group this litigation has been put on hold.
By the time ACBF was hauled before the royal commission in 2018, Pattenden was no longer officially involved in the company. But documents seen by Guardian Australia suggest he was still keen to exert influence over its affairs, apparently to ensure it could continue to pay moneys it owed to him.
‘Cut back on staffing’
Pattenden didn’t appear before the royal commission when it sat in Darwin in July 2018 to examine the affairs of ACBF.
Instead, the hot seat was occupied by Jones, an ACBF director. Counsel assisting the commission, Rowena Orr QC, subjected him to a withering cross-examination over the company’s business practices, as well as allegations that it represented itself as Aboriginal-owned when it was controlled by white people.
Despite the public battering, Jones and his group went on to buy ACBF from Pattenden, formalising the deal in November 2018.
Pattenden agreed to bankroll the sale himself, accepting repayments by instalment. In addition, Jones and his consortium of buyers agreed to use any surplus money in the business to pay him back.
But in the wake of the royal commission, the federal government and the corporate regulator, which had for decades let ACBF carry on business, had finally had enough. In February 2019 they announced they would close the legislative loophole which had allowed ACBF to operate without a financial services licence (as recommended by the commission), constricting its ability to turn profit. In emails to the directors, Pattenden was keen for the company to try to get a licence, apparently to ensure they could pay back money owed to him.
“How far away do you think the AFSL licence will take to achieve or to be able to operate under,” he asked in his letter of April 2019. “Have you got sales lined up in the pipeline and how many, I am hearing this could be a large number.”
He also complained about the lack of any surplus payments by the company to him.
“Could you explain the reason for not even a dollar extra over the minimum amount payable off the sale loan amount.”
ACBF has been unsuccessful in its attempts to get a licence.
Pattenden expressed frustration that the company was struggling to stay solvent, apparently worried about its ability to pay his companies what was owed.
“As the financier with three million on the line there are a lot of questions I need answers to that I am legally entitled to ask … you have a legal obligation to report and update me on important changes in the business, the Company’s financial state, again I say at present I am being told nothing,” Pattenden wrote on 19 April 2019.
“From what I am hearing and now have no say in how you run the companies, I can only suggest and recommend you look at and reduce your overheads dramatically, legal fees are astronomical, but understand some of these cannot be avoided.
“Cut back on staffing until you have the income coming in via sales to warrant them, i.e. make redundant all dead wood.”
The consortium made 15 “repayments” to Pattenden, but stopped abruptly after claiming that Youpla had overpaid Crown, Pattenden’s other company, in a separate transaction for insurance premiums. Pattenden rejected the idea Crown owed Youpla money as “someone’s wrong theory” and suggested Youpla instead pay Crown from a “$300,000 slush fund” it held. This fund was held as a buffer to allow the company to pay out quickly to Aboriginal families for funeral expenses.
Pattenden suggested ACBF did not need to have so much money to pay claims because the number of customers it had was dwindling – and suggested that in future, he might ask for more.
“Being the numbers have dropped so dramatically and the claims are not so high, Crown may be requesting 50% of these monies be returned until such time the full amount is warranted,” Pattenden said in the letter.
A battle over tax
In previous years, ACBF-Youpla had been lucrative. Before 2001, when it held insurance with Axa, the French multinational was making more than $300,000 from the $1m a year ACBF paid in premiums.
But in March 2001, Axa pulled its coverage, telling ACBF that “continuing the relationship between AXA and ACBF will not be in either AXA’s or ACBF’s, or more importantly in the ACBF members’ best interests”.
Pattenden couldn’t find another insurer to take on ACBF, so in 2002 he set up his own – Crown – based in Vanuatu, where insurance companies needed only $200,000 in capital, compared with the $5m required in Australia.
Crown stepped into Axa’s shoes. ACBF paid Crown premiums, and in return Crown funded the benefits that ACBF paid when members died.
Pattenden resigned as a director of ACBF in 2002, although he continued to own most of the company.
However, the Australian Taxation Office did not like the new insurance arrangement.
The ATO contended that Crown was part of the same group and was doing business in Australia. In 2008, after a five-year investigation, it slugged Crown and Pattenden with tax bills of at least $6.4m – later media coverage put the total at $15m – and banned him from leaving the country.
Pattenden fought back, eventually succeeding in the federal court in overturning the departure prohibition order. In November 2011, the Administrative Appeals Tribunal also found in his favour, ruling that Crown was not doing business in Australia and therefore did not have a tax bill to pay there.
In March 2010, he embarked on a complex restructuring of his business empire that resulted in ownership of ACBF and Crown moving from him personally to Just Solutions.
Pattenden then sold his shares in Just Solutions to a new Vanuatu company he also controlled, Bu Teck.
The purchase price was $29.8m, but Pattenden didn’t receive any money on the day. Instead, the amount was treated as a loan from Pattenden to Bu Teck. The effect was to transform the streams of dividends from ACBF and the profits from Crown’s insurance premiums into repayments of a loan, rendering them free from tax. As a result, over the decade between 2010 and 2020, Pattenden received almost $21m that ultimately came from ACBF customers, and was able to legally avoid paying any tax in NZ, Australia or Vanuatu.
The restructuring also made Pattenden a managing director of ACBF again, according to documents seen by the Guardian.
A memorandum of understanding from 26 March 2010, signed by Pattenden on his own behalf and as director of Just Solutions, records: “Just Solutions Limited undertakes to ensure Ron Pattenden remains as managing director of Aboriginal Community Benefit Fund until such time as he is unwilling or unable to continue.”
Given his previous dealings with the ATO, Pattenden was aware that any suggestion Crown was telling ACBF what to do could be a problem. He also received advice in 2013 that Crown “cannot be operating a business in Australia” without risking tax and warning him against sending an associate to meet ACBF in Australia, with instructions from Crown.
Can any money be retrieved?
By 2019, the federal opposition, Asic and NGOs who had been supporting some of the thousands of worried Aboriginal policyholders, all expressed concerns about ACBF-Youpla’s solvency across the three funeral funds it was operating.
Even as the position of the funds worsened, it continued to pay insurance premiums due to Crown. Crown received a total of $1.27m in premiums from Youpla in 2019 and 2020, company accounts show.
Fund No 2 collapsed in November last year, and the other two followed in March. Now, more than 13,000 people have likely lost all that they have paid into the fund, as the liquidators pick through what’s left.
In a report to creditors in March, the group’s liquidator, David Stimpson, said he was “aware of allegations of funds transferred improperly out of the group”.
“These allegations will be investigated and recovery action pursued if appropriate,” he said in his report. He said he had begun gathering records “to properly determine if monies have been improperly transferred out of the group, the dollar value involved and the prospects of recovering some or all of those funds”.
Asked by Guardian Australia about transfers of money to Pattenden’s Vanuatu companies, he said these would be “part of a thorough investigation that is being undertaken”.
He expects the investigation to take more than a year.
“There are investigations to be conducted, legal advice on a number of matters to be obtained, court applications and potentially litigation to undertake to recover funds into the administration,” he said.
“Those all, inherently, take time.”
In the meantime, Stimpson is seeking funding to cover existing claims.
“I can’t tell you where the funding will/may come from, but I am looking at more than one avenue for funding and am hopeful it will come together soon,” he said.
