Cullen Group allowed to keep trading after defaulting on debt

Assignment One – Articles Folio
Student Name: Brooke Armstrong
Student Id: 215 423 498
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Building regulator allowed Cullen Group to keep trading after it defaulted on debt
This article was obtained from ABC news and was dated the 28th November 2018. The
article outlines that the Queensland Building and Construction Commission (QBCC) was
advised of a default judgement against Cullen Group in March 2016. The QBCC had made no
changes to the company’s licence and later that year Cullen Group was forced into
insolvency.
In addition, the author outlines that QBCC felt that the default judgement was not
significant enough to change the licencing conditions of Cullen Group. It is understood that
just before the collapse of Cullen group, the operations manager was appointed director of
a new company Onpoint Constructions Pty Ltd. The Building and construction industry have
seen a significantincrease in phoenix activity and it is believed the increase is due to the
regulation of the industry.
It is clear from reading the article that there is not one clear ethical issue. It was identified
that the ethical issue consisted of corporatesocial responsibility, decision making issues and
corporate culture within the organisation. Cullen group had made commitments to projects
that they were not able to sustain andthat would be considered beyond their financial
capacity. Cullen Group’s actions to “commit itself to 43 million worth of new projects with a
bank overdraft of only 2 million” had no consideration of their impact on the creditors or
the community.
Cullen Group’s actions were self-directed, and it appears they attempted to “trade out” of
financial trouble, with no threat of liability for insolvent trading due to safe harbour
provisions. In this instance, Cullen group was only concerned with their short-term financial
gain at the expense and detriment of others. Directors of organisations have a positive duty
to prevent and understand the clear signs of insolvency and company’s financial position. It
is visible that the financial position of the company was questionable when they were
unable to pay creditors six months before being forced into liquidation.
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It is evident that Cullen group was trading whilst insolvent and continued to trade with
knowledge that creditors wouldn’t be paid for work they were engaged to do. In addition,
Cullen Group’s operation manager “being appointed as director of Onpoint construction”
possess a question of illegal phoenix trading. Illegal Phoenix activity is the attempt to create
a new company and continue the business of the previous company that have been
liquidated to avoid paying the debts.Illegal phoenix activity is against all moral expectations
of honesty, integrity and trust it also exhibits behaviour that is fraudulent in attempt to
defraud creditors.
In conjunction, the regulating body QBCC had made no changes to the company’s licence
and trading rights after being alerted about the default judgement, this consequentially had
further financial impact on sub-contractors and companies working for Cullen Group. The
QBCC had the obligation as a regulating body to further protect subcontractors and
creditors from risk by establishing a thorough investigation into the matter. This was an
opportunity for the QBCC to make an example of Cullen Group further deterring other
construction companies from continuing to trade whilst insolvent. As it currently stands, the
construction industry has a high number of corporate insolvency events, considering this,
the QBCC should have greater insight to the warning signs within the industry.
It is clear that the company’s actions were self-directed to avoid liquidation with the hope to
“trade out” of insolvency. These actions coincide with philosophy egoism, which defines
right or acceptable actions to maximise a person’s self-interest.Debeljak (2008), states that
egoism theory defines that an individual’s actions are “hard wired” to be selfish and act in
ways that are self-serving. Cullen Group felt the financial pressure and continued to engage
subcontractors with the hope to improve the financial position of the company and
therefore the director withoutconsidering the financial impact and long-term consequences.
This type of direction is based on the directors and employees within the company making
unethical decisions. They clearly valued the short-term needs of the organisation overriding
the lack of empathy and consideration for those who were never going to be paid.
Further to this, it is evident that Cullen group should adapt a deontology approach to ethics
within the organisation. This theory focuses refers to rights of individuals and the intentions
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that are associated with a particular behaviour rather than on its consequences. Kocyigit
and Karadag (2016), define this approach as presuming that there are duties that need to be
fulfilled and people act in such a way that is reasonable and responsible. Unlike other
theories, deontology approach to ethics are considered to have objectivity and intrinsic
value. Kocyigit and Karadag (2016). Having this ethical approach would assist Cullen Group
in taking further responsibly whilst acting in a reasonable, fair and equitable way.
Unfortunately, the actions of Cullen grouphave affected both the primary and secondary
stakeholders. A stakeholder is a group, individual or organisation that has a stake or claim in
some aspects of a organisations company, operations, markets or outcomes. In this article
the stakeholders who would be considered to be impacted to the actions of Cullen Group
would be the primary stakeholders this consists of the suppliers, customers, employees,
shareholders and the QBCC. The relationship between Cullen group and their primary
stakeholders should have mutual expectations built on trust and fair dealing. The impact on
the stakeholders of Cullen Group would consist of loss of income, potential closure and
uncertainty of job security.
Recommendations
The first area that the directors of Cullen group would need to address would be its ability
to have an effective corporate social responsibility program and risk management strategy.
Corporate social responsibility covers the relationship between organisations and the
society which they both interact (Kuriyan, 2012). It is perceived to be the responsibilities
that are inherent on both sides of the relationship, guiding an organisation to operate both
ethically and responsibly. It is important for organisations to continually devote their
resources and time to corporate social responsibility. This includes going above the legal
requirements and determining an appropriate level of CSR investment within the
organisation.
Corporate culture is also identified as an area that needs to be assessed within Cullen group.
With the clear unethical decisions that had been made within the group the corporate
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