Essays on Large Corporate Collapses: Analysis of Allcon Finance Group and Beechwood Home Builder Case Study

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. Some of the corporate bodies in Australia that have collapsed and this report will pay particular attention to include Allco Finance Group in the financial sector and Beechwood Home Builder in the construction sector. On the other hand, the well known global corporate bodies that have collapsed include Enron and WorldCom both from the United States. To some extent, the process of accounting and the ethics in the accounting profession has been blamed on the mishap that these corporate bodies are in. this is more especially in regard to reporting its financial performance. The purpose of the report First, to identify two corporate bodies that have collapsed in Australia in the recent past and a brief overview of what their failure entails Second, discuss what warning signs of impending corporate disaster were missed Discuss governance practices that were breached Discuss what role did the accounting profession play in the financial reporting of these companies     Collapsed corporate bodies Allco Finance Group Allco Ltd collapsed in 2008 following a debt of $1.1 billion.

The company syndicate came into the open when the Commonwealth Bank which Allco owes about $500 million gave up its rescue mission and put the firm under insolvency under Ferrier Hodgson Firm as the receivers of the group.

The work of the receiving firm was to break the company assets and sell them to pay its debts. The fall of the company that was in a very spectacular position in the financial industry, came as a surprise to many of the investors. In 2006 the company was worth about $5 billion and its two major shareholders David Coe and John Kinghorn were the market darlings.

The failure of the Allco Finance Group had started in 2006 when the company had invested $300 in private equity with Qantas Airline. Later on, after eight months the company posted a profit of $211.7 million. Immediately, this realization led to credit crunch when the company shares dived and financing banks were forced to review their loans with the company something that led many of the investors to dump their shares for the fear of losing financially (SmartCompany 2012). Beechwood Home Builder Beechwood home builders collapsed and put into receivership in 2008.

At the time the company was being put into voluntary administration and receivership, it owed $20 million to the clients in the form of unpaid debts. The company was one of the most successful and advanced construction companies in the country and was owned by Larry King a well-renowned entrepreneur. The company was put into receivership by its largest creditor BankWest who the company owed $10 million in debt interest. The remaining 50% of the debt was up for grab by the other creditors to the firm. Majorly, it had been pointed out that lack of fair trading and more especially with regard to financial reporting was the major cause of the collapse of this firm that had been successful in the construction industry for over years (SmartCompany 2012). Warning signs missed by corporate bodies According to The Australian Financial Review reports, Allco’ s fall from its position was very questionable, and if for sure it was really performing as reported by its accounts.

The company was estimated to be worth $5 billion by 2006 and was on top in terms of profit-making in the financial sector.

This is the first point where the question could have been raised as to how the company was doing its reporting and if for sure it was meeting its financial obligations especially in terms of paying its debts. As Adam Schwab puts it, there are those financial engineering boom-years when the cunning bankers and accountants report on large profits but do not on the savings that are there and which are being blown away through dubious means. In his book, the Pigs at the Trough, Adam Schwab uses an example of a young who built a childcare empire on sand which may seem very attractive but very unstable and can easily be blown away during bad weather to show how businesses are quick in making everything look good for short-term benefits without looking into the future sustainability of the business (Schwab, 2010). Second, the other sign that had gone without being noticed took place during the decision to invest $300 million in the private equity bid for Qantas was made.

This is because, even though the idea looked lucrative given the performance of the Qantas Airline, it was not clear how the investment decision was made.

Perhaps, this could have been informed by the speculation that Qantas Airline was to be very successful in the awakening of penetrating into different global markets. However, this never came to be, as the world financial crisis was on the looming. According to Adam Schwab, this was a sign of greed and something that has contributed greatly to the Worst World Economic Crisis since the great recession. This happens when investors make quick decisions to maximize their profits without taking into account the effect of such behaviors to ordinary investors.

What this means to the business is to try and create good business times also known as “ boom times” on very shaky grounds according to Schwab where most fortunes only exist on papers (Schwab, 2010).

References

Graeme, D and Frank, C 2007, Mission Im possible, Accounting Regulatory and Ethical Failure, London, Cambridge University Press

Schwab, A 2010, Pigs at the Trough, Sydney, John Wiley & Sons.

SmartCompany 2012, Finance giant Allco placed in administration, Retrieved on 25th September 2012, available at: http://www.smartcompany.com.au/Free-Articles/The- Briefing/20081105-Finance-giant-Allco-placed-in-administration.html

SmartCompany 2012, NSW home builder collapses, retrieved on 24th September 2012, available at: http://www.smartcompany.com.au/Free-Articles/The-Briefing/20080515-NSW-home- builder-collapses.html

Thomson, J 2008, 10 ways to lose your business in a downturn, Retrieved 25th September 2012, available at: http://www.smartcompany.com.au/Premium-Articles/Top-Story/20080331- 10-ways-to-lose-your-business-in-a-downturn.html

Thomson, J 2009, 25 Corporate Collapses-and lesson learnt, Retrieved on 24th September 2012, available at: http://www.smartcompany.com.au/strategy/20090212-25-corporate- collapses-and-the-lessons-learnt.html

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