The corporate regulator is pursuing former directors of a collapsed funeral fund that marketed insurance to Aboriginal families, over allegations they oversaw a vulnerable structure that exposed members to unaffordable premiums.
The Youpla Group schemes, formerly known as the Aboriginal Community Benefit Fund (ACBF), collapsed last year, leaving thousands of mainly low-income families unable to pay for funerals.
The federal court proceedings, pursued by the Australian Securities and Investments Commission (Asic), are chiefly concerned with the scheme’s alleged use of an offshore insurer, the Vanuatu-based Crown, which Asic alleges was controlled by two of its directors, Ron Pattenden and Jonathan Law.
Asic alleges the ACBF entities paid substantial sums in insurance premiums to Crown, benefiting the two directors who it said had a conflict of interest.
The Crown policies were renewed annually, and in 2017 Crown doubled the size of the premiums it charged ACBF, which weighed on the funeral scheme’s financial position, Asic said.
By continuing to insure with Crown, ACBF’s plans were left vulnerable to unaffordable premium increases. There was also a risk that the funeral funds would have insufficient reserves to meet ongoing liabilities to pay death benefits to members, according to the regulator.
“First Nations people took up policies with ACBF to ensure their family members had cover for their funeral expenses,” Asic’s deputy chair Sarah Court said.
“Asic alleges the defendants maintained the arrangement with Crown which moved funds into an overseas company owned and controlled by two of the directors and did not act in the best interest of the ACBF entities and members.
“The payments to Crown impacted the viability of the ACBF entities and put at risk their ability to meet their commitments to members.”
Breaches of directors’ duties, including alleged governance failures and misconduct, can attract a maximum penalty of $200,000 for each breach.
A 2022 Guardian Australia investigation revealed Pattenden collected more than $20m in tax-free income from the business through a complex web of offshore companies. ACBF was a private Gold Coast-based business and falsely gave the impression it was an Aboriginal organisation.
It was previously found to have engaged in misleading and deceptive conduct and was ordered to compensate some Aboriginal customers.
The ACBF had its licence to sell new products withdrawn after its conduct was exposed at the 2018 banking royal commission.
Asic is also seeking to have the five former directors, which includes Pattenden and Law as well as Bryn Jones, Michael Wilson and Geoffrey Clayton, prevented from managing corporations.
The first case management hearing has been listed for 7 September 2023.
In a separate proceeding, Asic has also alleged ACBF caused substantial harm to First Nations people by falsely representing that it was owned or managed by Aboriginal persons and that its funeral insurance was approved by the First Nations community.
Last year, Asic sought a record and “very severe” penalty of $7.5m against ACBF-Youpla for its “deliberate and knowing conduct of preying on vulnerable Aboriginal people” over years of operation.
Nerita Waight, the chief executive of the Victorian Aboriginal Legal Service, welcomed the civil proceedings were underway but said they would not provide any financial compensation to the community members affected, including 80 of their clients.
“Vals is pleased that civil proceedings are finally being issued against former Youpla directors. This will provide some accountability for the company’s reprehensible conduct,” Waight said.
“However, this civil action isn’t going to help our community. If Asic is successful, the directors will be forced to pay penalties to the government but not to our community members.
“Our community feel like what happened to them was criminal and the punishment that should follow should not be limited to civil action. Those that lost thousands of dollars to a company that misleadingly held itself out to be community controlled need to be compensated.”
