Iconic Victorian discount retailer Dimmeys is close to administration, as yesterday it copped a $3 million penalty for breaching product safety laws.
Dimmeys and distribution company Starite Distributors were penalised $3 million and $600,000 respectively for breaching product safety laws on girls’ padded swimwear, baby bath toys, cosmetic sets and basketball rings.
The Federal Court also ruled the director of both companies, Douglas Zappelli, be fined $120,000 and banned from managing corporations for six years.
Zappelli took over the running of the 160-year-old company in 1996 and within that time Dimmeys has been involved in four cases of selling hazardous products or items which were incorrectly labelled.
Sign up for SmartCompany newsletter.
Free to your inbox every weekday
Both Dimmeys and Starite have also been banned for six years from selling items with high safety standards or which require warnings.
TressCox Lawyers partner Alistair Little told SmartCompany this decision demonstrated the power of the courts to influence all aspects of a business when justified.
“It (the court) realised it wasn’t enough to just impose a fine,” he says.
“They had no belief that Dimmeys would be able to sell these products within the law.”
Following the court decision, Dimmeys legal compliance officer Ken Hampson was quoted in The Ageas saying the store intended to appoint an administrator within days.
“We propose to put the company into voluntary administration and have taken steps toward that,” Hampson says.
“We believe that will enable Dimmeys to continue to trade as a viable company and we are in talks with other parties about this.”
If Dimmeys is placed in administration, it puts the jobs of 500 employees at risk.
However, Hampson says the intention is to keep the business trading as normal and enter an arrangement which would allow it to pay the fine as an isolated debt and trade the business under another entity.
SmartCompany contacted Hampson for comment, but received no response prior to publication.
Little says if the business is placed in administration, debt won’t necessarily be the motivating factor.
“It could also be the fact that the managing director has been banned for six years. He can’t act as a shadow director, he can’t have any role in the actual administration of the business,” he says.
“He could have a job there, but he can’t have any role in determining the company’s course. If you lose your managing director, it can make things very difficult.”
Dimmeys has also been ordered to pay for the destruction of the unsafe goods.
The products had been sold between January 2011 and March 2012. The duck and turtle bath toys were deemed a choking hazard, the basketball rings failed to meet safety standards, the skincare packs were incorrectly labelled and the girls’ swimwear did not have appropriate safety tags.
While the penalties for the case were only handed down yesterday, in June this year Dimmeys was forced to publicly recall the unsafe items.
In 2001, Dimmeys was fined $160,000 for selling children’s pyjamas which didn’t meet fire safety standards, while in 2011 it was slammed with a $400,000 penalty for selling unsafe children’s dressing gowns.
The latest action was brought by Consumer Affairs Victoria, the first case the watchdog has taken to the Federal Court, after an investigation revealed 14,000 unsafe items were being sold by the retailer.
Little says the maximum penalty per offence is $1.1 million.
“The judge appeared to take account of the fact that Dimmeys financial position isn’t particularly strong,” he says.
“There’s no point imposing a larger penalty if the company can’t pay it, it just results in the business going into liquidation.”
Little says if Dimmeys breaches the court imposed ban on selling high safety standard products for the next six years, the court would be able to wind up the company.
“It’s treated as contempt of court. Usually a fine is handed down, but if it’s particularly bad, it’s possible the individual involved could be imprisoned,” he says.
“It could also issue an order for the winding up of the company.”