The NSW Attorney- General is setting up an inquiry aimed at stopping computer resellers from taking large deposits to fund the purchase of computer parts.
The action follows a spate of complaints against dealers for doing just that. The Australian Securities Commission (ASC) and Department of Fair Trading (DFT) are currently investigating five companies they have received such complaints about.
One of those is Newcastle dealer Keith Morton. The ASC last week in the Australian Federal Court moved to ban Morton from being a director again in a company.
The ACS and DFT have alleged he asked for and was taking deposits from customers while his company, Forem-Freeway Enterprises, was insolvent.
Tim Phillips, the ASC's NSW dir-ector of enforcement, told ARN: "Unfortunately there are people buy-ing and selling computer parts like a commodity market."
Dealers were asking for ridiculously high deposits to fund the buying of parts, he said.
"From our perspective that is not acceptable. A reasonable deposit would be in the order of 10 to 15 per cent, and consumers should be wary of anyone asking for more," Phillips said.
"You can't rely on your customers to provide you with your trading cash."
Phillips said the action against Morton commenced in September 1997 and arose from the ASC's concern about the large number of complaints being received by the DFT about large deposits being taken, sometimes the full price of the PC, with no delivery of the product.
"The company was insolvent. It didn't have sufficient funds to build the PCs that were being ordered. There were something like 300 people who had paid an average of $1000 each as a deposit without ever getting their goods," he said.
"The PCs were costing him about $1800 to $2000 to build - so he needed about $600,000 just to complete the orders that existed and upon which he had taken deposits. He just didn't have that $600,000, so we were forced to put him into liquidation."
Last week, the ASC moved to ban the former director from holding a similar position in the future. In proceedings on May 28, Morton was given until July 7 to present written submissions to the judge about whether the restrictions should apply.
Since the closure of Forem-Freeway, Morton has subsequently opened another shop, Freeway Computer Company, and continues to do business in a sole trader arrangement.
"Unfortunately we can't prevent that from happening," he said. "As a sole trader, he is personally liable for all debts incurred by Freeway Computer Company."