Vanuatu insurer arrangement draws $250k penalty for founder; executive who failed to act also found in breach
The Federal Court has banned a funeral fund founder from managing companies for 15 years and found that the group’s chief executive breached his duties.
The court handed down Australian Securities and Investments Commission v Pattenden (Liability and Penalty – Pattenden) [2026] FCA 1616 and Australian Securities and Investments Commission v Pattenden (Liability – Jones) [2026] FCA 1617 on 30 October 2026.
Three group companies ran funeral funds aimed mainly at Indigenous communities. Each insured its members’ lives with Crown Insurance Services Limited, a Vanuatu company that the founder and a fellow director ultimately owned. On 4 September 2017, Crown doubled the monthly premiums for one company’s fund. The court found that the increase created a substantial risk that the company would become insolvent within about four years, leaving members without cover.
The founder admitted that he failed to consider the impact of the Crown arrangements or pursue alternatives, and that he preferred his own and Crown’s interests to those of the companies. He agreed to pay a $250,000 penalty and $50,000 towards ASIC’s costs of the proceeding.
The court accepted the agreed orders, finding that the founder had tied the companies, for many years, to an insurer in which he had a substantial interest. It placed the penalty towards the lower end of the permissible range.
The chief executive, later also a director, contested the case. The court found that he knew of the premium increase by early November 2017 but did not undertake or ask for any analysis of its impact. It held that his inaction breached his duty of care and diligence under s. 180(1) of the Corporations Act 2001 (Cth) for all three companies.
The court found that he knew the founder had an interest in Crown, and that NSW Fair Trading had told him in April 2018 it was concerned one company and Crown might not be dealing at arm’s length. His duties, the court said, required that he “at least initiate a discussion with the other directors” about the board’s make-up or decision-making. He did nothing.
The court found that the only plausible explanation was that he did not want to act against the founder, whose business he hoped to buy. It held that he breached his duty to act in good faith and for a proper purpose under s. 181(1).
However, the court rejected ASIC’s improper-use claim, finding that his inaction did not involve a “use” of his position.
The court will determine penalties and costs against the chief executive later.
