Governance and Fraud: Corporate Bankruptcy Risk Analysis Report

This report examines the impact of corporate governance on corporate bankruptcy risk, focusing on the principles and recommendations of the ASX Corporate Governance Council. It evaluates the adoption of these principles by Mineral Resources and Slater and Gordon Group, summarizing their board compositions over the last three years. The report also analyzes the strengths and weaknesses of corporate governance at TFS Corporation (Quintis), highlighting the contribution of corporate governance practices. The analysis includes an assessment of material sustainability, remuneration governance, risk management strategies, and ethical responsibilities. Key issues include the termination of supply deals, valuation concerns, and the impact of short sellers. The report concludes by discussing the consequences of corporate governance failures, including liquidity crises and the need for recapitalization.

Running head: GOVERNANCE AND FRAUD
Governance and fraud
Name of the Student
Name of the University
Author Note

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Table of Contents
Requirement 1:...........................................................................................................................2
Evaluating the depth of adoption of ASX CGC principles by Mineral resources and Slater and
Gordon Group:...........................................................................................................................2
Summary of composition of boards over the last 3 years:.........................................................3
Requirement 2:...........................................................................................................................5
Strength and weakness in TFS corporate governance:..............................................................5
Contribution of corporate governance at TFS Corporation:......................................................7
References list:...........................................................................................................................9

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Requirement 1:
Evaluating the depth of adoption of ASX CGC principles by Mineral resources and
Slater and Gordon Group:
The principles and recommendations set out in the practice of corporate governance is
to ensure that the listed entities are likely to achieve good corporate governance outcome so
that most of the reasonable expectation of investors are met. There are mainly eight principles
as set out by the council and it comprise of board structuring to add value, laying solid
foundations for oversight and management, safeguarding of entity in corporate reporting, act
responsibly and ethically, making balanced and timely disclosure, remunerating responsibly
and fairly, managing and recognizing risks and respecting the security holders rights
(Asx.com.au 2018).
It is required by the corporate governance principle and recommendations that
companies should make disclosure of any material exposure to environmental, economic and
risks associated with social sustainability. As assessment of issues of material sustainability
has been conducted by Slater and Gordon group. Moreover, it has been ascertained from
reviewing of environmental, social and governance risks that a thorough review with respect
to the indicators and aspects tabled in the Global reporting the company has conducted
initiatives of “G4 sustainability reporting guidelines”. The role of remuneration governance
during the reporting period is to ensure that Salter and Gordon limited meet the requirement
of guidelines of council of ASC corporate governance comprising of recommendations and
gender diversity principles (Beekes et al. 2015). Group also conducts regular reviewing of
uncertainties and risks that could that would have an impact on objective achievement and
business strategy. Group in a competitive environment for rewarding executives fairly adopts

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contemporary executive remuneration strategies. In addition to this, ethical responsibilities of
organization have been fulfilled in accordance with code of ethics.
Mineral resources have designed safety strategies that focus on consolidation of
making considerable improvement in the process of business. It is ensured by organization
that critical risky activities are managed and identified with clear accountabilities for critical
control verifications. Remuneration policy of Mineral resources is designed in such a way
that it helps in addressing the stakeholder key concerns. Structure of remuneration is designed
for creating strong link between performance that is based remuneration scheme and strategic
priorities of company. Board in engaging with shareholders for understanding their concerns
has invested considerable time and efforts. The aspect of strategy of company is maximizing
creation of the long-term value of shareholders by way of generating superior return on
invested capital. Creating of transparency between performance and direct linkage is the
principle guiding remuneration decision of company (Donelson et al. 2015).
Summary of composition of boards over the last 3 years:
The board of Slater and Gordon group comprise of executive, non-executive directors
and managing director. In financial year 2016, there were six non-executive director, one
executive director, one managing director and company secretary.
As a part of process of recapitalization, Slater and Gordon group renewed the senior
management and board in year 2017. This recapitalization provides the best opportunity for
securing the employees, firm and client’s future. While there were six non-executive
directors, one managing director and one executive director of the group. Within the firm, the
diversity is shaped by variety of characteristics that encompasses different ways of thinking
and enabling them to serve client in a better way to a diversified range of clients. At Slater
and Gordon, the commitment of board is to maintain and create a workplace that is inclusive

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and diversified for retaining and attracting quality employees (Media.slatergordon.com.au
2018). Ethos of organization is based on profound, social justice and abiding by the respect
for institution and law ensuring that legal system fairly and equally treat people.
Responsibility of board is to ensure that interest of shareholders and overall strategy of
business are aligned with the arrangement of remuneration strategy (Shimeld et al. 2017).
Their commitment is to drive alignment between expectations of shareholders and
arrangement of shareholders. Role of board as per board charter is defined as approving
strategic direction of group.
The board of Mineral resources looks forward to continuously guide the company
along the exciting path and the proven strategy will continue to benefit all shareholders of
company. In September 2017, mineral resources appointed a female non-executive director
intended to increase proportion of women in the team of senior leadership. There was
improvement in gender diversity of business by developing gender diversity strategy. The
composition of board for financial year 2017 comprised of non-executive chairman,
managing director, two independent non-executive director, lead independent non-executive
director and company secretaries (Tricker and Tricker 2015). While in year 2016, the board
comprised of managing director, non-executive chairman, two independent non-executive
director and company secretary. The board that helps in maintaining market alignment
continuously monitors the remuneration policy. In year 2015, the member of board comprised
of non-executive chairman, managing director, four independent non-executive director and
company secretary. Policy of board is to conduct periodic review of approach used for
remunerating non-executive director so that fees charged by them remain competitive (De
Zwart 2015).
Board of Mineral resources focused on development of new business initiatives for
generating significant future shareholder value and assisting growth of organization as a

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whole. The primary consideration of the board is capital allocation that takes into account
various opportunities available and making investment for maximizing long-term shareholder
value. It is identified by management and board of Mineral resources that achievement of
objective of group requires to have an uncompromising commitment to environment
performance, safety and corporate governance (Mineralresources.com.au 2018).
Requirement 2:
Strength and weakness in TFS corporate governance:
Strength of corporate governance:
The management team and board members of Quintis are committed to high standard
of practices of corporate governance. Practices of corporate governance of Quintis comply
with the Corporation act, 2001, Company constitution, Australian securities exchange and
other applicable regulations and laws.
Quintis also complies with the latest corporate governance principles and
recommendations of council of ASX corporate governance.
The company has a written document policy on relevant procedures and information
disclosures. Such procedures focus on continuous disclosure of compliance and making
improvement in access to information to investors (Safari et al. 2015).
Workplace diversity is one of the important practices of corporate governance that
recognizes the benefits of board and gender diversity incorporating retention of employees,
high quality employees and deriving benefits from newly acquired talent (Cumming et al.
2016). The diversity strategy of Quintis deals with reviewing of succession plan for ensuring
that there is appropriate focus on diversity and culture development that takes into account

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employees domestic responsibilities. Responsibility of Quintis also lies in monitoring,
implementing and reporting on the measurable objectives that are established by human
resources.
Company performs the application of practices of risk management strategies that
helps in improving decision making, reducing uncertainty, protecting stakeholders,
supporting the achievement of financial, operational and strategic objectives and ensuring of
regulatory compliance (Council and Exchange 2014). Quintis ensure a strong risk
management culture for maintaining the strategy of managing the risks.
Weakness of corporate governance:
The supply deal of Sandalwood grower Quintis with Galderma was terminated and
the information about termination was not conveyed to the top management and board of
directors. It was reported by Swiss dermatology giant dermatology that a formula used in the
Benzac skincare containing pharmaceutical grade sandalwood oil was discontinued. This
particular fact depicts the complete failure of corporate governance.
Valuation of TFS Corporation was questioned because of its unlikelihood of obtaining
finance resulting from poor corporate governance practices, as it was believed that company
does not have sufficient capital for maintaining plantations to maturity.
The research report published by Glaucus triggered that corporate turmoil and price
crash of Quintis marked and indicated the major assault of Australian soil through a new
breed of hedge funds known short sellers. Such investors bet on the stock of company for
publicizing their position. Such short sellers have been terrorizing companies that was
witnessed in terms of attack on Quintis. Therefore, this particular incident corporate
governance highlighted the need of board and management to be prepared for such short
selling attacks. Management of Quintis was targeted because it misleads investors about

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operational and financial performance. Allegation was imposed on company that operation of
company was done on Ponzi like structure that made the valuation of shares at zero
(Donelson et al. 2015). Products such as Sandalwood that are used in perfumes, incense and
traditional medicines take decade to grow. It was pointed out that Quintis relied on capital
raisings to investors and pay debts indicating difficulty in cash flow. It was said that note
generated by Glaucus littered an egregious and substantial inaccuracies. However, the call
made by Glaucus was right that led to the collapse of stock by 78% that shook the confidence
of investors.
Contribution of corporate governance at TFS Corporation:
The dive in share price of Quintis resulting from suspected shortcomings imposed
question on directors and executives. Investors of company were suspicious about note holder
that was led by fund manager of US, BlackRock that pursued for gaining control over the
company. This particular scenario questioned the shareholders possible prejudices. Quintis
delayed the annual accounts by putting net assets at worth $ 317 million and valuing
plantations at $ 437.6 and thereby offsetting debt of amount $ 460.7 million. A tumultuous
year was followed after the collapse of organization that eroded sales and damaged
confidence of investors and thereby putting the balance sheet of organization under extreme
pressure. The shares of company were further shredded by raising concerns over the contracts
of substance along with sales absence in China. Company relied on selling new plantations to
outside investors with most of the five million trees quite long time away from harvest. This
was done for supplementing revenue from sale of oil and sandalwood. Investors were
deterred by negative sequence of events as most of plantation historically generated sales
revenue (da Costa 2017).

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The new plantations lead to booking of establishment fees of amount $ 86.9 million
that in last year that is 2015-2016 recorded $ 20.1 million as the operating revenue was half
to $ 97 million. Cash balance of Quintis had fallen to $ 25.4 million compared to $ 89.8
million in the last month. Quintis survived only on help it received from note holders, as it
was unable to meet the discounting oil and interest bills on notes for raising cash.
Furthermore, two targeted the troubled sandalwood company, Quintis or three class
actions of potential shareholders have the litigation backing because the company is headed
to appear for court. The statement made by Quintis about billing of twenty year deal of
supply of sustainably grown and pharmaceutical grade Indian Sandalwood oil to prestigious
customers was completely at odds along with the statements made about the Galderma
contract landmark significance. Failure of corporate governance was centered around the
Quintis failure to make disclosure of the loss of long-term supply contract with Galderma and
it intends to make recovery of loss that shareholders have suffered. Quintis withdrew the
earning guidance in year 2016-2017 along with slashing the forecast of sales of products from
range of $ 45 million to $ 55 million to $ 25 million to $ 35 million (Fowler, 2018). In the
current situation, the failure of its corporate governance practices has resulted in occurrence
of liquidity crisis. Therefore, the objective of organization is to go for recapitalization along
with the facing the most critical time for sales of plantation to new sandalwood investors.
Shares of Quintis remained suspended after it faced the corporate governance failure. A
further disclosure was accompanied in the downgrade of company that since June, 2015,
there was no shipping of oil by Galderma (Lcmfinance.com 2017).

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References list:
Asx.com.au. (2018). [online] Available at: https://www.asx.com.au/documents/asx-
compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 28 Mar. 2018].
Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness
of disclosures in Australia: A re‐examination. Accounting & Finance, 55(4), pp.931-963.
Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and
recommendations . ASX Corporate Governance Council.
Cumming, D., Leung, T.Y. and Rui, O., 2015. Gender diversity and securities
fraud. Academy of management Journal, 58(5), pp.1572-1593.
Curti, F. and Mihov, A., 2018. Fraud recovery and the quality of country governance. Journal
of Banking & Finance, 87, pp.446-461.
da Costa, A.P.P., 2017. Corporate Governance and Fraud: Evolution and Considerations.
In Corporate Governance and Strategic Decision Making. InTech.
De Zwart, F., 2015. Enhancing Firm Sustainability Through Governance: The Relational
Corporate Governance Approach. Edward Elgar Publishing.
Donelson, D.C., McInnis, J.M. and Mergenthaler, R., 2015. The effect of governance reforms
on financial reporting fraud.

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Fowler, C. (2018). Former Quintis boss returns as growers seek to take back control of
sandalwood empire. [online] ABC Rural. Available at:
http://www.abc.net.au/news/rural/2018-03-16/former-quintis-chief-returns-sandalwood-
grower-takeover/9544926 [Accessed 28 Mar. 2018].
Lcmfinance.com. (2017). Momentum growing in Quintis class action | LCM Finance.
[online] Available at: https://www.lcmfinance.com/momentum-growing-in-quintis-class-
action/ [Accessed 28 Mar. 2018].
Media.slatergordon.com.au. (2018). [online] Available at:
https://media.slatergordon.com.au/sgh-2016-annual-report.pdf [Accessed 28 Mar. 2018].
Mineralresources.com.au. (2018). [online] Available at:
http://www.mineralresources.com.au/images/2017_Annual_Report(1).pdf [Accessed 28 Mar.
2018].
Safari, M., Mirshekary, S. and Wise, V., 2015. Compliance with corporate governance
principles: Australian evidence. Australasian Accounting Business & Finance Journal, 9(4),
p.3.
Shimeld, S., Williams, B. and Shimeld, J., 2017. Diversity ASX corporate governance
recommendations: a step towards change?. Sustainability Accounting, Management and
Policy Journal, 8(3), pp.335-357.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA