Corporate Governance: Lessons from Corporate Collapses and Global Financial Crisis

CORPORTE GOVERNANCE

Question 1
Owing to the reasons of the globalisation and complex business practices, there have
occurred a range of corporate collapses. The said corporate collapses highlight the needs of
the stringent provisions in the corporate governance codes and the rules for the better control
over the ones in the power and the protection of the interests of the various associated
stakeholders (Tricker and Tricker, 2015). The following segment would shed light on the
various popular corporate collapses in Australia, as described follows.
One of the earliest corporate collapses include that of the Bond Corporation Holdings
Limited which was an international conglomerate, the business operations of which ranged
from real estate, brewing, media, and natural resources. The owner Alan Bond would
consistently engage in acquisition of interests in various companies (Carnegie and O’Connell,
2014). However, the business collapsed in the event of the economic downturn when the
company was in attempt of buying an iron-ore extraction company in Western Australia. The
said acquisitions were financed by the risky borrowing such that the overall debt balances of
the company had reached $7 billion which made the company technically insolvent.
The second case of the corporate collapse included that of the Girvan Corporation, which is
stated to be prime example of the breach of the agency theory. From the finance point of
view, the continuous rise in debt combined with the high negative operational cash flows
were the main culprit of the corporate collapse. However, the management of the entity made
use of the creative accounting practices to hide the liabilities. The company was in limelight
by virtue of supplying the shareholders, creditors and the other stakeholders with misleading,
distorted information, leading to conflict of interest of different parties.
The third case of the corporate collapse was of the Rothwells Ltd, which was a merchant
bank and was formed by Mr Laurence Robert Connell. The bank was in lime light because of
the backing offered to a number of high profile business figures. However, the period of 1987
witnessed stock market collapse followed by the financial difficulties to the merchant bank.
In reality, the bank was always insolvent and the same was not depicted in the books on the
discretion of the management (Bongiorno, 2015). The striking fact was that a huge amount
was pumped into the bank in an attempt to save it with the efforts of the high profile
personalities of Australia.