The term corporate failure or corporate collapse refers to discontinuation of company's operations as a result of the company’s inability to achieve sufficient profit or revenue and to pay for the company’s operational or business expenditure (Dignam and Galanis 2016)
The failure of this company can be attributed to Bond’s juggling act with the company’s fund and manipulating debt. During the crash of the stock market, manipulation with a large amount of investor’s money became complicated and the company collapsed in bankruptcy (Lane 2016). The major reason for the collapse of this company was the continuous risky borrowings that the company made to finance a large number of acquisitions. From the year 1959-1974, Bond corporation acquired many companies of real estate, iron-ore extractions, breweries such as Pittsburgh Brewing, many Australian channels and so on, and all the money for investment in these companies was raised through debt (Lane 2016). The company’s basic corporate model to increase profits was continuous acquisitions and selling of various holding to clear previous debts. Soon the company’s debt column increased and the company reported considerable losses. Due to this mismanaged corporate governance and no focus on the primary business of the company, it became difficult for the company to survive and it declared itself bankrupt and collapsed.
The merchant bank soon was on the verge of collapse after the crash of the stock market in the year 1987. In the year 1987, when the stock market crashed considerably, the local investors ran to Rothwell's merchant bank to liquidate their money and safeguard their wealth (Prior and Costa 2018). To counter this reaction of the investors, Connell soon designed a recuse or relief package which also involved many Australian businessman. Laurie Connell also approached sought help from the then president of Australia Mr. Brian Burke (Lane 2016). Brian Burke assisted by giving a 150 million AUD to the Australian government as a guarantee for a short-term relief to the investors (Lane 2016). However, in the latter part of the 1980s, due to the political fallout and various changes in the political system, Brian Burke resigned and Peter Dowding took over as the new premier (Lane 2016). As a result, the other attempts of rescue package collapsed as Dowding did not support the relief package to protect the government’s interest. Consequently, Rothwell's merchant bank had to go into liquidation and collapsed, which resulted in heavy losses to Rothwell's investors and also the government (Miglani, Ahmed and Henry 2020). The company was under large debt and was unable to survive.
Thus, efficient corporate governance is very important for an organization’s success. From the above analysis, it can be stated that the major reasons for the collapse of three Australian companies Alan Bond Corporation, Laurie Connell of Rothwells and Girvan Corporation can be attributed to the crash of the Australian securities market in the year 1987, and the mismanagement of these companies (Miglani, Ahmed and Henry 2020). An important aspect of corporate governance is that companies should follow certain rules of social, regulatory and market environment and safeguard the future of the environment. On one hand, these companies expanded their businesses by acquiring more and more smaller companies and increasing their debt to finance these companies and on the other hand, the political fallout and the weak security market regulations majorly led to the collapse of these companies. Thus, high ethical standards and good corporate governance practices are an integral part of any company.
Australia was largely affected by the global economic crisis in the year 2008 (Prior and Costa 2018). The financial industry was de-regularised which led to the collapse of many financial institutions. This major issue aroused when financial institutions were bundling their loan assets with securities. This gave rise to major governance issues thus financial institution collapsed. The bundling of debt into securities exposed the financial institutions to high risk. The financial institutions made fragmented and weak investments decisions, due to which the shareholders of the various companies suffered heavy losses ((Miglani, Ahmed and Henry 2020). As a result, the indebtedness of companies increased and were unable to clear these debts. The companies were forced to undergo liquidation and collapsed.
Short selling, margin lending, securities lending practices, and financial advisory practices all came under scrutiny in the prolonged bear market and exposed regulatory weaknesses. Substantial financial wealth had been destroyed by the stock market collapse (Miglani, Ahmed and Henry 2020). Thus, to counter these situations and crisis government and the security regulation board introduced various changes to the corporate governance policies. The various codes, practices and policies of corporate governance are essential for efficient management of the organization and thus the business. Such corporate governance codes and policies serve as the basis of regulations. The government and the regulators of Australia need to enforce these corporate governance practices to protect and safeguard the interests of its shareholders and consumers.
One such regulation proposed was that the management of the company will be directly responsible for the ethical operations of the company. They are also accountable to protect the stakeholders from any financial losses (Klettner, A. 2016). Many banking and financial institutions revised their codes for providing lending to various companies. The companies are also now compelled and accountable to have a risk management team in place such as an audit team to check and prevent financial risk and other losses for its company and shareholders (Klettner, A. 2016). With the reformation in the corporate governance due to the crisis, the corporate governance now has three important aspects to it which are environment, governance and social aspects. Thus, the collapse of the financial institutions was majorly caused due to the failure of corporate governance, and this consequently led to the more organized corporate governance structure.
Dignam, A. and Galanis, M. 2016. The globalization of corporate governance. London: Routledge.
Lane, R.J. 2016. Unexpected corporate failures in Australia through the decades: commonality of causes. [Online]. Available at: http://reserachonline.jcu.edu.au/46597. [Accessed on 20th July 2020]
Klettner, A. 2016. Corporate governance regulation: the changing roles and responsibilities of the board of directors. London: Routledge.
Miglani, S., Ahmed, K., and Henry, D. 2020. Corporate governance and turnaround: evidence from Australia. [Online]. Available at: https://doi.org/10.1177/0312896220902225 [Accessed on 20th July 2020]
Prior, N. and Costa, G. 2018. Western Australia’s 10 worst corporate collapses. [Online]. Available at: https://thewest.com.au/business/a-scrap-heap-of-dodgy-deals-ng-b88723725z. [Accessed on 20th July 2020]
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