Federal Liberal MP Craig Kelly is fighting allegations he was a de facto director of his family furniture company that is alleged to have traded while insolvent.

Before entering federal parliament in August 2010, the Member for Hughes worked as an “export manager” for the Chipping Norton-based firm, DV Kelly Pty Ltd, that attempted to make money by importing flat-pack furniture from Asia and onselling it to Harvey Norman.

The firm, founded by his parents Lawrence and Raima Kelly in 1962, hit trouble in December when winding-up orders were issued by the tax office. It shut its doors in January owing creditors and staff more than $4 million. Administrators and liquidators Cor Cordis have been appointed to pick over the wreckage.

While not listed as an official director of the family firm, Cor Cordis has raised the possibility that Kelly and his brother Jason may have acted as “de facto” directors, placing them at risk of prosecution under Australian law.

Under the Corporations Act, directors can be held personally liable for insolvent trading and may have their assets seized under a court order. The may face civil penalties, including pecuniary penalties of up to $200,000.

In an official administrator’s report (part 1 and part 2) published last month, Cor Cordis partner Ozem Kassem alleges that his “investigations in the company’s affairs have revealed that the possibility that Messrs Jason Kelly and Craig Kelly, sons of Mr Lawrence Kelly and Mrs Raima Kelly, may also be a shadow/de facto directors of the company”.

“Further investigations will need to be undertaken by a Liquidator, if appointed, to determine whether Mr Craig Kelly is in fact a shadow/de-facto director and/or Mr Craig Kelly’s ability to meet any judgment made against him for insolvent trading in the event that it is proven that he is a shadow or de-facto director,” it reads.

The follow-up liquidator’s report, dated March 1, notes that Craig Kelly’s father Lawrence had subsequently denied the allegations, informing them that Craig Kelly had “not had any involvement with the company’s [sic] for the past two (2) years apart from providing advice on the legal proceedings mentioned earlier herein”. “… the Official Liquidators will be conducting further investigations in this regard,” it reads.

Kelly also strongly denies close involvement, telling Crikey that he had stopped working for DV Kelly in 2009 to launch his bid for a seat on the green leather: “It’s an important thing as far as my reputation goes and I feel that these guys have done the wrong thing by me by making a completely baseless allegation.” Kelly has contacted Cor Cordis to air his concerns and was “considering pursuing legal action”.

“The insinuation about myself is completely baseless and categorically untrue,” he said.

The Cor Cordis report notes that in “at least” April 2009 the company may have been trading while insolvent. Craig Kelly did not nominate a specific month in 2009 in which he ceased work when pressed by Crikey. After leaving the firm Craig Kelly has represented the company in several outstanding legal matters in an attempt to keep it afloat.

AISC searches reveal that until March last year, he continued to serve as a director of three related companies — Homewares Depot, Valentino Franchising and Valentino Home Fashion — that share directors and business addresses with DV Kelly.

In his maiden speech to the House of Representatives in November 2010, Kelly described a close relationship to the business, remarking that he come to parliament after “… working ridiculously long hours in a small family business and trying to do the best for his family”.

“I have won export contracts in over 25 different countries throughout the world, and this has given me the unique opportunity to travel extensively, and to learn from different cultures and the way they approach business,” he said.

According to Cor Cordis, the company’s cash flow began to dry up when Kelly’s father Lawrence suffered a stroke in 2009 and the business began to be controlled by Jason Kelly. Jason Kelly is named by the administrators as the “ultimate source of decision making within the company”.

The firm’s collapse left three full-time staff and six-part time staff — unrelated to the Kellys — missing $325,540 in unpaid wages, superannuation and leave. Kelly’s parents, and another director, John Kelly, seem not to not to hold sufficient assets to pay secured creditors, which include Harvey Norman finance arm NCF (owed $130,000) and St George bank ($2 million) and unsecured creditors including the Australian Tax Office ($760,000). The liquidators report states the company may have fudged its financial position to NCF in order to secure additional cash.

Cor Cordis has invited the company’s creditors to immediately come forward if they wish to fund the insolvent trading claim.