MAA763 Assignment 1: Analysis of Governance and Fraud at TFS/Quintis

This report examines the corporate governance and fraud issues at TFS Corporation (renamed Quintis), focusing on the strengths and weaknesses of its governance structure, its contributions to the company's demise, and the role of BlackRock. The analysis highlights TFS's initial strengths, such as risk management and a competent board, contrasted by weaknesses including unethical practices, misleading information, and poor communication with investors. The report details how these issues, alongside unrealistic investment expectations and failure to disclose crucial information, led to the company's downfall. Furthermore, it explores BlackRock's involvement, including its substantial investment and eventual control after privatization, which resulted in significant losses for public stakeholders. The report also discusses the CEO's remuneration amidst financial losses and the impact of poor communication among non-executive directors. Overall, the study underscores the critical importance of sound corporate governance and transparency in financial operations.

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

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Question 1
(i) The failure in the case of corporate governance has always been one of the biggest issues in
case of the TFS. This company has been famous for the production of the Indian sandalwood and
they have been losing their place because of the issues faced by them. The analysis of the
corporate governance structure will be analyzed in this paper. The strengths and weaknesses of
their corporate governance structure have resulted in this sort of position for the organization.
Strengths
 In order to discuss about the risks, it should be said that the company TFS had been able
to identify the risks within their organization and able to manage the risks properly. They
had the proper and enough information about the management that they were able to
implement some important decisions about their investments (Fowler, 2018). In the first
six months of their financial year their overall performance had been pretty good. This
has proved the fact that the TFS Company had a very well built structure for themselves.
Therefore, their performance had been quite good for the semi financial year. Through
this framework, the company was able to identify some risks and understand the
opportunities for investments within the organization.
 The board structure of the TFS Company was very good as well. The board were full of
experts and their decision making power was very powerful as well (Fowler, 2018). The
skills of the people could bring in the commitment of the people through the better
performance in the semi financial year. After submitting their taxes and revenues, their
financial position was very strong indeed.

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 The efforts of the company to make the rebranding were very much crucial. In the month
of March in 2017, the name of the company had been changed to Quintus to TFS
Company that was the first step for the company (Fowler, 2018). They used some
celebrities for the celebrations and future promotions of the company. This is how the
company could interact with the investors.
Weaknesses
 In many cases, the company proved to be very much unethical and they were
irresponsible as well. The company did not make proper research work on the
investments and thy failed to have an idea about the probable situations that might arise.
The corporate governance statements from 2013 to 2017 have revealed such things.
 All the companies should make their operations in the most honest manners. The
management of the company had disclosed some wrong information about the company’s
operations in front of the people (Fowler, 2018). They also did not think about the effects
of this activity on the minds of the common people. This is why their corporate
governance had impacted negatively on their overall performance and their relationship
with their stakeholders. This is why the people of the organization were not able to take
some proper actions or steps because information given to them was completely false.
 The investors of TFS Company (Quintis) had been denied of getting all the necessary
information because the organization did not provide them with it. As a result, the
investors were misled about the proper investment and they did not agree to invest on the
company.

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(ii) Contribution of the TFS Company in the decay of the company
Some information regarding the company had not been given properly by the
organization. This is why it became extremely problematic for the company to take the necessary
actions regarding the investments. The company should have involved some risks and they
should have disclosed these factors to the investors (Fowler, 2018). Without the proper investors,
it would almost be impossible for the organization to release the information to the investors.
They did not figure out the risks properly and this was the very reason as to why the company
had collapsed. The expectations of the company from the investment opportunities were almost
imaginary and unrealistic. This is why they did not provide the proper information to the
investors but their expectations were really high indeed.
The company had primarily promised the investors that they would be paying their
dividends within the first two years of the initiation of the project and they would be paying the
entire principal amount within 7 years (Fowler, 2018). In reality, it would be almost 15 years
since they would begin to generate the profits. This is why their corporate governance structure
had completely failed to convince their investors and ask them to stay in favor of them. In the
media release they had made some positive statements about their growth possibilities in the
future. However, it did not prove to be fruitful enough by any means. Apart from this scenario,
another issue has also been brought under consideration (Fowler, 2018). The board of TFS
Company or Quintis had confirmed that there was a supply deal with the Galderma and it was
terminated in December of 2016. This news had not been communicated efficiently with the
board of directors or the top management. Therefore, this can also be considered as a scam or
scandal by all the means (Shankar 2017).

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This type of misleading of information was completely a bad decision for everyone by all
the means. This news could be communicated to neither the top management nor the board of the
company. The shares of the company fell to 44% of the company and the entire loss of the
company rose to 64% (Guintis.com.au 2019). The termination of the contract had taken place but
the current board during that time did not have any idea about it. The board had taken this matter
very seriously and they wanted to ensure their stakeholders that they would not let this kind of
miscommunication be repeated again in any situation (Jasper and Brann 2017).
This kind of behavior by a public company like TFS Company was not all acceptable by
any means, Therefore, the situation deteriorated and everyone began to make criticism of this.
This kind of failure in the case of corporate governance is not at all expected and this will surely
have large implications on the customer base of the company. Some reports were also negative
about the corporate governance structure of the company (Guintis.com.au 2019). The top
management of the company had been identified to commit mistakes twice in the gap of three
months. This was during the time when they were unable to disclose sensitive information like
price of the materials to the stakeholders (Jasper and Brann 2017). This type of mistake was not
also acceptable at all. This is why they were held responsible for having committed such
mistakes.
The company also did not make amendments in their profit guidance for the years 2016-
17. It is because the company did not include the Galderma sales within their expectations
(Guintis.com.au 2019). Any type of specific or fixed volume was not mentioned in the contract
with this Swiss group company Galderma (Jasper and Brann 2017). These are the probable ways
in which the corporate governance structure of the TFS Company had led to the demise of the
company. This kind of inactivity and lack of information had been very much harmful for the

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company in almost all the aspects (Westbrook 2018). The celebrations of the company to enjoy
their plans about the future growth of the company did not last long at all. The report released by
the short selling firm based in United States had marred their celebrations in a big way. The
miscommunication among the stakeholders has been the main reason of failure for TFS
Company or Quintis that has defamed their reputation (Brann 2017).
(iii) Role of BlackRock in the demise of Quintis
The investments and the owning the shares by the BlackRock had been quite important
factors for the growth of the company as they thought it to be. However, it proved to be quite
worthless since the buying of the shares was completely worthless at one point of time
(Westbrook 2018). After the rebranding of the company, the organization had been privatized
and BlackRock agreed to the injection of $145 million to rejuvenate the company after it had
been collapsed. This is why BlackRock emerged with the maximum ownership of the company
by all the means.
As a result of this transition from a public company to a private company, the public
stakeholders of the company had lost all their shares and their investment was ruined. All the
100% investments of the company had been ruined and this factor resulted in the utmost
destruction of the company (Westbrook 2018). A year and half ago, all these investments by the
public stakeholders had amounted up to $600 million approximately. Glaucus had targeted
Quintis and all their shares had gone in vain (Shankar 2017).
The bondholders of the BlackRock had acquired the full control of the company. As these
investments had gone in vain, this proved to be a very negative thing for the company and the
rights and long-term interests of the creditors and employees were not at all protected by the

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company (Brann 2017). In March 2017, Glaucus Research Group told that all the shares of the
company were completely worthless. The report had also suggested that the Chinese client could
not be taken as a valid sandalwood buyer. So, this was completely a drastic step and it
aggravated the demise of the company.
Question 2
(i) The financial year for the Quintis was completely full of disasters. The company had been
going through a very bad financial year and the increase in the salary for the CEO was not at all
an important factor. As the financial performance was completely degrading, there was no need
for the issuing of the performance benefits for the CEO (Brann 2017). The company had ceased
to operate in stock exchange in the month of May. The company was in need of recapitalization
and this activity of being taken over by BlackRock proved to be a positive thing for the company
(Williams and McKinnon, 2017).
Effectively, the overall cash reserves of the company were around $89.6 million on 31st
December last year. On the contrary, the amount of cash reserves of the company had fallen
down to only $17 million. The annual report had been published after auditing and the total
amount of the net loss had been disclosed through it. The total net loss of the company amounted
up to $US416.8 million. The employees and the creditors had lost their faith in the leadership
group of the company.
This is why it was completely evident that the organization should not provide high
remunerations and performance benefits for the CEO. It is more important to consider since they
need to repay the interest within a given time. The lack of the proper corporate leadership has

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been a problem for the company and the CEO does not at all deserves to be in the position to
achieve such a high salary (Williams and McKinnon, 2017).
(ii) Amidst such high amounts of financial losses for the company and loss of faith in the current
leadership has been quite a problematic matter for the TFS Company. It should be said that the
remuneration paid to the 4 non-executive directors is not at all appropriate due to their poor
communication and lack of proper leadership skills. Many concerns have been raised due to the
poor communication issues and the jobs of the farmers in the sandalwood farm are still in high
concerns as well. The situation created here has been quite serious for the organization and the 4
non-executive directors have not been able to find out the ways to confront with this issue
(Ecoinvestor.com.au 2017). Though many issues have been raised, the steps taken to curb down
the issue is not at all appropriate indeed. They had lost a major share of the customers but the
non-executive directors did not disclose these factors to the market. Therefore, the high
remunerations paid to these people are not all appropriate by any means.

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References and Bibliography
Brann, M. 2017. American short-seller zeros in on Quintis. [online] ABC Rural. Available at:
https://www.abc.net.au/news/rural/2017-03-31/soren-aandahl-american-short-seller-targeting-
quintis/8402194 [Accessed 4 Aug. 2019].
Ecoinvestor.com.au 2017. MD and Short Seller Action at Quintis. [online] Ecoinvestor.com.au.
Available at: https://www.ecoinvestor.com.au/Stories/Core-Shares/MD-and-Short-Seller-Action-
at-Quintis.htm [Accessed 4 Aug. 2019].
Finance.nine.com.au 2019. Quintis handed lifeline by BlackRock - 9Finance. [online]
Finance.nine.com.au. Available at: https://finance.nine.com.au/business-news/quintis-handed-
lifeline-by-blackrock/6042bf9c-fb99-452d-b07f-89fd49317fc4 [Accessed 4 Aug. 2019].
Fowler, C. 2018. Quintis shareholders group in bid to remove company directors. [online] ABC
Rural. Available at: https://www.abc.net.au/news/rural/2018-01-08/quintis-shareholder-group-
moves-on-directors/9309724 [Accessed 4 Aug. 2019].
Glaucusresearch.com 2019. [online] Glaucusresearch.com. Available at:
https://glaucusresearch.com/ [Accessed 4 Aug. 2019].
Guintis.com.au 2019. Quintis: The Trusted Guardian of Sandalwood Album. [online] Quintis.
Available at: https://quintis.com.au/ [Accessed 4 Aug. 2019].
Jasper, C. and Brann, M. 2017. Quintis hits back at vicious burn from US short-seller. [online]
ABC Rural. Available at: https://www.abc.net.au/news/rural/2017-03-23/quintis-responds-to-
harsh-glaucus-research-report/8378966 [Accessed 4 Aug. 2019].

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Shankar, V. 2017. Bloomberg - Are you a robot?. [online] Bloomberg.com. Available at:
https://www.bloomberg.com/news/articles/2017-05-11/after-winning-on-quintis-short-seller-
glaucus-scours-australia [Accessed 4 Aug. 2019].
Westbrook, T. 2018. UPDATE 1-Australian short-seller target Quintis appoints.... [online] U.K.
Available at: https://uk.reuters.com/article/quintis-bankruptcy/update-1-australian-short-seller-
target-quintis-appoints-administrators-idUKL4N1PG0IE [Accessed 4 Aug. 2019].
Williams, P. and McKinnon, S. 2017. Quintis dive continues despite MD buying stock. [online]
The West Australian. Available at: https://thewest.com.au/business/markets/quintis-dive-
continues-despite-md-buying-stock-ng-b88424817z [Accessed 4 Aug. 2019].