The Qintex Collapse and Its Impact on Investors

This article discusses the Qintex collapse and its impact on investors. It explores the legal, ethical, and governance issues arising from the scandal. It also examines the implications on investors and the lessons learned. Find all the information you need at Desklib.

Running Head: QINTEX COLLAPSE 1
THE QINTEX COLLAPSE, AND ITS IMPACT ON INVESTORS
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Introduction
Qintex Ltd was an Australian financial services company that came to its peak in
1986.Its main shareholder was Christopher Skase. On 21st October 1989, Qintex Australia
Ltd Filed for Bankruptcy after the company failed to provide the necessary financing for a
debt payment due by the end of October 1989. The filing of bankruptcy was an indication of
mounting financial pressure on the company. Extravagant life of its owner, Christopher Skase
together with prolonged strike damaged the company's interest’s rates. During these
challenging times, Christopher Skase began moving huge amounts of money into foreign
bank accounts (Yeung, 2012).By the end of 1989, Skase began falling out with the
company’s board, demanding that the board approves the payment of $13.5 million to a
private company that he owned, and they declined. However, the amount had already been
transferred. He had also threated to leave the company if he didn’t get a pay rise. Due to such
pressures, Qintex collapsed, leading to the collapse of the State bank of Victoria .Skase later
fled to Spain with a personal debt of $ 172 million and a corporate debt of $ 1.7 billion
(Warren, 2016).
Legal, ethical and governance issues arising from the scandal
People like Christopher Skase and others have attained global notoriety due to their
disputed ethical conducts. The Qintex scandal gave rise to accusations of money laundering,
tax evasion and dishonesty on astounding scales. All through, Mr. Skase was assisted by a
number of legal and accounting professionals to make the fraudulent transactions. These are
just some of the instances in which legal professionals had been the handmaiden to ethical
failures. Nevertheless, the number of legal professionals and accountants that were involved
in the incidents were small and the circumstances under which a handful of professionals

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facilitated such unethical conducts are often determined by the beliefs that were accepted by
the limited professional organisations as a whole.
Notably, the legal profession contains multiple practitioners often believe that the job
is to help advance the cause of the client offering what to do and thus it is lawful. Lawyers
and auditors who looked at the Qintex case through a technical perspective operated in an
ethical void where the only question became of their through process was “is it lawful?” or
were there any possibilities within the accounting standards to act on behalf of Mr. Skase?
Byrne, (2009) indicates that “legal experts who adopt a technical approach often believe that
they are acting positively, bound by high ethical obligations to offer their professional
services the best way they can.”Now, we cannot propose to dismiss the perspective out of
hand. In Qintex case, it was absolutely necessary to incorporate Lawyer’s knowledge and
skills in order to advise the board on the way forward regarding Christopher Skase’ demands.
In circumstances when Christopher Skase forfeited his liberty and when the entire
board was ranged against his demand, having legal precedence could have been the most
appropriate ethical procedure with an uncompromised commitment to safeguarding the
positive interest of the company (Parker, Rosen, & Nielsen, 2009). However, it was ethically
void for Mr. Skase to directly demand transfer of money from the company without first
considering his general duty to offer good services as the chairman with the goal of the entire
board in mind- advance the company’s interests. (Smith, 2011).Therefore, Mr. Skase should
have considered drawing ethical lines that he should not have crossed
While the advice by the boards was constructive for Mr. Skase to understand where
the company stood financially, it is arguable that the accounting desk should not have gone
forward to facilitate such ethical objectionable goals. This implies that, Mr. Skase could have
simply distinguished between the giving of advice from the company board and other

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professionals services designed to positively guide the company toward its goals. For Mr.
Skase did contrary to what was expected of him. He Took a role in violating the rules of
the company and getting his hands dirty .
Carnegie, & O’Connell, (2014) indicates that all members of the professions without
restrictions enter into an agreement with the public.The board members are required to access
to a certain form of work, as they ought to act as caretakers for the public .This implies that
they are meant to offer an informal layer of protecting and improving the company.
Crisis in Corporate governance, like in the case of Qintex is always cyclical. Reforms
and stringent regulations often occur during the time of recession, or corporate collapse.
During the period of Qintex expansion, active interest in the conformance aspects of
governance diminished, as the company and the key shareholders became more concerned
with the best ways of generating wealth, rather than ensuring any loopholes within the
governing mechanisms are closed (De Silva Lokuwaduge, & Armstrong,2015).
It is important to note that mechanisms of governance are always changing and
dynamic. Such changes puts a lot pressure over an organisation’s board , as they are
expected to make the most appropriate decisions on behalf a company .The highly
publicised case of Australian Highflier, Christopher Skase later prompted the labor
government to establish a process of establishing new corporate laws in the early 1990s. This
modified the focus towards reform and the passage of the law “Corporate law simplification
Bill.” However, this was commenced as an ongoing process of reform in an effort to
strengthen the country’s corporate and business regulations (Azim, 2012).One of the major
corporate governance issues in this case in the infringement of the Corporate Law Economic
Act, 1980 which had been the major corporate governance regulation in Australia, drawing
most of its key aspects from the British and US advancements in this area (Di Lernia, 2010)

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Most of the issues arose after concerns were raised about the legal remedies available
when transactions were conducted through international borders. Considerations were drawn
to issues of cross borders insolvency claims to the interest of Christopher’s Skase.It is
important to note that the increasing involvements of the Australian economy in international
trade was creating multiple problems in that the Australian legal system was having
challenges meeting, and that such challenges might further persist. This Qintex case revealed
a number of aspects within the Australian law that were not previously considered as a
separate subject in the area of cross-border transactions (Agboola, & Salawu, 2012).
The legal glitches in cross-border dealings created two categories of risk for Qintex.
The first one was being implicated in a dispute that involved the rules of more than one state.
Such disputes were usually marked with intolerable levels of cost, complexity, and delay.
From an Australian business outlook, they are undeviating legal risks of conducting
transactions outside Australia (Shepherd, & Ridley, 2015). The second risk was the failure of
the law to offer support to Qintex while conducting cross-border transactions. As a result, the
failure resulted in weak enforcement of the law and multiple gaps that Mr. Skase utilised to
apply for the transfer of a huge amount of money to his trust funds
Essentially all businesses are based on integrity and trust in their relationship with
investors and thus even the development of conflict of interest, can significantly destroy the
reputation of a company. Since Mr. Skase was a senior director of Qintex, the collateral
damage on the company was huge as stakeholders began losing conviction in the integrity
and ethical capacity for fair dealings of the company. Systemic corruption was also was
associated with weak corporate laws and governance where and Mr. Skase used the
opportunity for his self-dealing. Notably, developed industrial economies are not immune to
the institutions and corporate weaknesses, and the Australian business community is no

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exception. Mr. Skase used such weaknesses in the Australian to consistently put his own
interest far ahead of those of the Shareholders, with apparently no institutional restraints until
he was eventually convicted (Sivathaasan, 2016).
Increasingly rigorous regulations on constant disclosure later established insisting that
any new development at a listed organisation that is material to its share price required to be
revealed to the market as soon as possible. The Audit Reform and Corporate Disclosure Act
2003 ,has now introduced a much more important requirement for all listed organisations in
an effort to ensure constant disclosure by the executive members and encouraging the ASIC
to scrutinise any potential breaches of the disclosure regulations ( Houqe, Easton, & van Zijl,
2014). However, such regulation does not prevent Mr. Skase cases from making fraudulent
transactions, as there are always new misalignments that often later result in dealings with
toxic consequences to a company. Even as Mr. Skase enriched himself, the Australian
financial institutions and government were forced to spend billions of dollars of public
resources in expensive compensation and lawsuits (Ali, O'Brien, & Ramsay,2017).
Corporate governance
In the case of Qintex, it was not relevant for the organisation to allow such
transactions of it was not capable of dealing with the consequences .Company law gives
exceptions if the perusal of such transactions by the senior executives are really for the
benefit of the company. Moreover, Section 180 of the corporate Act requires senior
executives to act with diligence and care as they are the key directors of the organisations.
Such duties are also featured prominently under the common law but later reinforced by the
integration of the corporate Act (Armour, et al., 2009). It is important to note that the rules of
internal management also offers guidance concerning the obligation of a director in acting
with care when handling money from investors. However, section 134 has never been clear as

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it allows company management to make decisions based on company laws. Such a loophole
allowed Mr. Skase to demand transfer of money to a trust company using his capacity as a
senior executive of Qintex.
The company law in Australia provides three major sources which are the common
law, the company constitution, and the statute law. The obligations of senior directors of
companies are designed to promote positive governance and ensure that company directors
work for the benefit of the organisation (Chen, Ramsay, & Welsh, 2016). Mr. Skase was
required to put the interests of the organisation before their own personal interest. However,
he infringed the regulations under company law. After these mismanagements, Qintex
completely fell apart and the board was forced to renounce their earnings with other
partnerships. Moreover, the company was earning approximately $1.2 billion were recalled
back in 1988, which was only 30% of what was reported. As a result, the share prices fell to
mere pennies and its huge financial buoyancy vanished. Shortly after the loss, Qintex was
pronounced bankrupt.
Qintex Shareholders didn’t benefit from Mr. Skase greed. Those that were having
financing of their pension funds in the organisation lost almost everything. As a result, the
government began working to begin a restructuring process that would reduce such losses in
the future .A $20 million lawsuit followed the collapse , where shareholders were demanding
compensation for their worthless stocks . Moreover, the scandal destroyed more than $ 2
billion in savings and investment plans (Anderson et al., 2012).
A major lesson learned by the shareholders is that the organisation can be as ethical or
unethical as they wish. They will treat stakeholders, creditors, partners, and employees
however they want. In some cases, they might even act at their best short term interest, but
there are also other alternatives to conduct themselves with care and focus on the long-term

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goals. Risk tolerance and avoiding corruption can be a great thing, but it is the decision of the
corporation to choose how much risk they might take and at what cost ought to take (Greene,
& Allen, 2012). Qintex should have done their best to criticise Mr. Skase actions, but in the
ends, it's the boards' decisions that mattered.
Implication on investors
Beyond the impact on its shareholders themselves, Qintex collapse drained all
investments savings of most investors across the country who had put most of their
investments into mutual funds among other available channels that invested in the company.
Fortunately, at this point, there appeared to be no systemic threat to the financial markets as a
result of Qintex collapse, but the damage that resulted from the scandal to the financial
position of thousands of investors was significant (Anderson, et al., 2012).
Two major concerns of the individual investors to the scandal were: First, the
appearance of the managerial malpractices and second the claims from senior executives that
they were not aware that Mr. Skase had already transferred huge amounts of money to his
trust fund. The first concern is clear from the allegations themselves (Kirby, & Drury, 2012).
Mr. Skase was accused of generating accounting schemes that would make the investors
think that the company was profitable. As a result, the share prices went up but at the same
time, the shareholder’s investments were put under huge risk (Islam, Omran, & Hossain). The
second claim emanates from the boards own claims, where the very top executive claimed
that they were not aware of Mr. Skase actions. Moreover, it claimed that all the misdeed were
done without their knowledge because the whole business was a bit complex to understand all
the details.

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After the Qintex scandal, the commission of Australia’s security exchange had to
establish a tighter grip on company’s financial reports .Section 138 of the Company Act
comprised of different fundamental parts on ethics, but there are the five major sections that
they focused on. First, the senior executive of the company must approve in writing that they
have provided authentic financial statements to the best of their knowledge. Second, any
cross-border transactions ought to be approved by the Public accounting oversight board with
investigates are penalises companies that do not adhere to generally accepted principles.
Third, the Act put more regulations on auditing companies and they were no longer allowed
to offer consulting services to companies they are auditing. Moreover, all companies should
offer internal regulations that would ensure that shareholders and the investors are provided
with authentic financial disclosure.
Lastly , the Act provided that punitive actions of up to 30 years in prison might be
handed to all the involved parties in destroying the reputation of a company due to their self-
dealing. Another big change for the company is that it lost the trust of its investors. Prior to
the Qintex Scandal, companies were free to choose any auditing company. As a result,
companies could make close ties with certain auditors to make positive reports for their
company. Now such efforts cannot be achieved as companies must provide information
regarding any form of transaction they might be conducting and the rules they have put in
place to protect the investors (Anderson et al., 2012).
What would you do?
Qintex was a very innovative company, and its catastrophe can be drawn back to the
supreme arrogance bred by supreme success and some poor Decisions from both Mr. Skase
and other executive members. Mr. Skase made poorly conceived decisions and made cross-
border transactions of money meant for the investors that eventually led to reckless losses and

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ethical drift in corporate governance. The activities were facilitated by Qintex accounting
officers and largely missed by the board of directors among other watchdogs.
Qintex got into trouble due to a series of bad decisions, but that only gives a small
part of the entire story. Deep down, the corporate culture was completely damaged. They had
a huge number of people accepting too much risk, within all the structures of the company
executive, from the board of directors, to the accounting desks all the way to their day to day
operations (Warren, 2016).The board of directors knew about the flaws, but never did
something to rectify things before they turned worse. Therefore, I would ensure the strong
corporate culture is in place to avoid such scandals. This form of challenges could never have
happened in a culture of honesty, integrity, ethics and good corporate governance and the
major building blocks. It is important to note that CEOs and managers are the key players in
the process of implementing the building blocks (Tinker, Sy, & Saxe, 2016). If Christopher
Skase had focused on good corporate governance and the overall organisational culture he
would have induced ethical values in all other employees and Qintex and then this
catastrophe could be avoided.
Next, I would have informed the board of directors concerning the actual situation of
the transactions before making the transfers .The board relied on Mr. Skase to manage the
details of the company’s financial activities and thus he improperly transferred money to his
trust fund. Therefore, I would have implemented mechanisms that would keep an eye on all
the activities of the accounts firm like the one that approved Mr. Skase fraudulent transfers of
money because of them playing dual roles as a consultant and an auditor to Qintex. These
two occupations should never be allowed to be conducted by the same accounts firm.
It is important to note that reforms won’t come easily. There are multiple interests
lined up to oppose any reforms that disrupt the convenience and lucrative status quo, and

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that’s what could have happened to the company Act 2002. As initially drafted, the act
incorporated rations of audit firms. However, heavy lobbying by accounting firms, its rules
were reduced to requiring only rations from the manager to oversee audits (Hunter, 2013).
However, Teaching managers about various financial operation every ten years would ensure
that there is a proper understanding of the required terms of ethics and good governance,
Even though, this move would increase cost, it would be much more beneficial to the overall
success of a company .I believe this would be a small price to pay for an ethical culture
(McPhail, & Walters, 2009).
The benefits of a company that adheres to ethical conducts and the independence of
all institutions are observed. The financial market depends on authentic disclosure of
information concerning companies such as Qintex. By reinforcing our systems, we would be
able to reduce the possibility of another Qintex corruption. However, we should be willing to
endure the disruptive path towards achieving such reforms.

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