Study On Legal Protection Of Stakeholders -Myassignmenthelp.Com

Question: Discuss About The Study On Legal Protection Of Stakeholders? Answer: Introduction Until 2016 Dick Smith Holdings Limited was a top name in the electronic components, electronic goods, and electronic project kits market in Australia. The company had a wide chain of retail stores that used to sell these electronic products to the consumers. Dick Smith founded the company in the year 1968 in Sydney with him and his wife as the owners of the company; however, in the year 1982 Woolworths Limited acquired the company. In the year 2016, the company was dissolved by creditors liquidation process. It is shocking to imagine that a company of $520 Million in valuation could fall so dramatically with in a period of three years, i.e. from 2013 to 2015. The dramatic fall of the company was due to the evens that occur during this period of three years that ultimately resulted in the dissolution of the company by creditors liquidation process in the year 2016. Analyzing and assessing the reasons of this dramatic collapse of one of the brightest companies in Australian Stock Exchange is the main objective of this document (Bill 2016). Though it seems that the ending story of Dick Smith Company has been written during these three year period from 2013 to 2015 however, it was nearly a half century ago that it was almost predestined that the company will end up in liquidation process which materialized at the beginning of 2016. In early January 2016 the companys banks called in the administrator to bring an end to the corporate veil of the company. The brief time that the company was lis ted in ASX and the prosperity of the company even shorter period was only an illusion. Background The period in which the company was in the hands of Woolworths Limited since it was acquired the company in the year 1982. During that period even when Woolworths was performing excellently, the company never mentioned its acquired company, i.e. Dick Smith as a well performer that should have made the investors as well as other stakeholders more aware of the probable fate of the company. In the year, 2012 Woolworths Limited took the company off its hands by transferring the company to Anchorage Capital. Anchorage Capital brought the company at a price of $115 Million in the year 2012, the company i.e. Dick Smith had no cash in hand at that time. A year later the company was floated with a valuation of $520 Million is a clear indication that the valuation was a faux and there was significant manipulation in accounting records to come up with that valuation (Giacalone and Rosenfeld 2013). Prospect of Fundraising In the year 2013, the company in its prospectus for fund raising asked its investors to invest in the business to earn substantial amount of return on their investments by showing the valuation of the company at $520 Million. As already mentioned there was significant manipulation to the accounts of the company to show such enormous valuation of a company which Anchorage Capital was bringing at a price of $115 Million with little cash in its hand. The window dressing of financial statements though helped the company initially but finally it the lack luster performance of the company caught up with it thus, resulted in subsequent dissolution of the company. Manipulation of accounts and Accounting policy The income statements of the company is analyzed for the last few years to assess how the accounts have been manipulated by the management to suppress the deteriorating operating and financial condition of the company over the last five years. According to the financial statements of the company sales in the year 2012 was $1369.5 Million which is far outstretched than the actual sales. The Profit after tax of the company in the year 2012 of $13.2 Million again an aberration of its actual performance. As a result of the manipulation of accounting records the financial statements showed a way better picture of the company than the actual position of the company. Due to the window dressing of the companys financial performance and position the company continued payment of dividend to its shareholders which further deteriorated the financial position of the company. The trend of manipulation of accounts continued as the 2013 results though showed a reduced amount of profit after tax at $ 6.7 Million, it was still way more than the actual profit of the company (Speelman et al. 2014). The manipulation of the accounts by charging depreciation at lower rates than should have been charged, by not providing for expenses which needed to be provided, by inflating sales, and suppressing the expenditures the management showed a better picture of the company than the reality. The manipulation of the accounts of the company could have easily been detected had the auditors been more cautious and careful in discharging their duties and responsibilities in accordance with the professional code of conduct and ethics to which they are subjected to. The sales figure of the company showed an increase as per the income statement of the company in the year 2014 with $1227.60 Million and the astonishing fact was the after tax profit of the company which according to the income statement of the company was $42.10 Million, highest in the last five years. A careful study of the financial st atement would have made it clear that unlike other years the company had charged much less amount of depreciation in its books. The sudden change in charge of depreciation along with reduction in the amount of provisions made for different expenditures as compare to the amount of provisions made by the company in earlier years are clear indications of manipulations of accounts. The sales figures were inflated to show better operating results of the company than the actual performances of the company in these years. In fact just the year before the company went into creditors liquidation, i.e. in the year 2015 the company according to its financial statements showed an after tax profit of $43.40 Million which is the highest amount of after tax profit that the company has posted in last 10 years of its operations (Creasey et al. 2016). Considering that the company went into compulsory liquidation process as a result of petition of its banks it is amply clear that these sales figures a s well as the consequent after tax profit figures all are inflated to show a better financial position of the company than the actual financial position of the company. In 2016 after continuous failure on the part of Dick Smith Holdings Limited to fulfill its commitments towards the banks the company went into a creditors liquidation process. This clearly shows the lack of transparency in financial reporting and accounting process. Corporate Governance and transparency in financial reporting The responsibility of the management of an organization is to not only manage the financial and operational activities of the organization but at the same time to give necessary importance to the corporate governance aspects of an organization. Corporate governance is the accumulation of different processes, systems and methods used by the management to direct and control the operations of an organization to achieve its objectives. The company had huge chain of retail stores however, the way it operated its retail chains across the country it left lot to be desired. The management in these retail stores of the company across different parts of the country did not had any standard set of operational rules and regulations. Thus, the management of different retail stores used different corporate practices to run business operations (Finkler et al. 2016). This played a crucial role in the outcome of the companys failure. It is important for any organization to have a standard set of corp orate governance rules and regulations that are to be followed by its employees and workers to help the organization in its endeavor to achieve its desired objectives. As a result of lack of corporate governance rules and regulations in the retail stores the company failed to make optimum utilization of its resources which contributed to the ultimate dissolution of the company (Cui ey al. 2016). The financial reporting of the company is another aspect of its functioning whether the transparency was quite low. In fact, a look at the financial statements over the last decade until its ultimate dissolution will make it clear that the management has changes its accounting policies and principles quite frequently. The changes in the method of charging depreciation on fixed assets to reduce the charge of depreciation in the last few years of its business operations was a clear effort on the part of the company to portray a better financial and operating position of the company than the actual reality. The company has also not followed the international financial reporting standards in order to prepare and present the financial statements of the company rather it has only followed the domestic mandatory standards to prepare its financial statements. Thus, the lack of transparency in financial reporting of the company has always been an issue with the stakeholders of the company. Th e fact that the company-undergone changes in the ownership structure because of firstly being sold to Woolworths Limited in 1982 than again to another company in the year 2012 have also not helped the matter. Because of the changes in ownership the financial reporting processes has also undergone significant changes that have only further reduced the transparency in financial reporting process (McKinney 2015). Appointment of administrator, receiver, and liquidator Since its listing in the ASX in December 2013 the company lost more than 80% of its initial, listing prices of its shares as of January 04, 2016. This compelled the management to request for halt in trading of its shares. However, the very next day, i.e. on 5th of January, 2016 National Australia Bank and HSBC Bank of Australia, two of the major creditors of the company, placed it into administration as a result of continuous failure on the part of the company to fulfill its commitment towards them in respect of the loan and borrowings (Cox and Hazen 2016). The board of the company appointed McGrath Nicole as administrators whereas the creditors, i.e. the two banks mentioned above, appointed Ferrier Hodgson as the same. Subsequent to this event on January 12 the Chief Executive Officer of the company, Mr. Nick Abboud stepped down from his post in the company. However, on 25th February, 2016 Ferrier Hodgson announced that they have failed to secure buyer / buyers for the company and t hus, have decided to close down the 363 DSE stores in different parts of Australia and New Zealand. As result of this decision, almost 2500 jobs were lost, these are the workers working in these stores. However, the online business of Dick Smith in Australia and New Zealand along with the trademark of the company was purchased by the Ruslan Kogans founded Kogan.com; though the liquidators and the receivers of Dick Smith did not disclose the amount paid by Kogan to acquire the online business and the trademark of the company. The creditors of the company according to the reports have suffered a loss to the tune of Australian $260 Million because of the liquidation of the company. The final settlement with the creditors of the company was made on 25th of July 2016 with whatever left of the company as on that date after the completion of the liquidation process. However, no proper account of liquidation process was published but the unsubstantiated report suggested that the creditors o f the company suffered a huge loss because of the liquidation of the company (DeTienne and Wennberg 2013). Position of creditors re receivership and liquidation The position of the creditors of the company is very difficult to express in words. According to the reports they have suffered losses of paramount proportion as a result of the complete failure of the company. The two major creditors of the company, i.e. the National Bank of Australia and HSBC Bank of Australia, who have put the company into administrations suffered huge losses too along with other creditors (Nowicki 2015). The total loss to the creditors as a result of the liquidation and subsequent dissolution of the company was well above Australian $250 Million and the two banks were the major creditors to lose huge amount of funds in the process. However, there was no other option left to these creditors as the company failed repeatedly to fulfil its commitment of repayment of loans and borrowings on time. The major reason for the inability of the administrators and receivers to not been able to realize the assets of the company was the lack of interests on the part of the buye rs to acquire the company. Thus, the liquidators were compelled to close down the 363 DES stores in Australia and New Zealand which if, could have been sold by the receivers would have helped them to realize substantial amount of profit to repay the part of debt to the creditors of the company. Thus, the position of the creditors of Dick Smith Holdings Limited was financially very fallible as they lost huge amount of funds as a result of the failure of Dick Smith and its subsequent dissolution. Directors Duty The directors of the company have certainly failed to fulfill their responsibilities towards the company which culminated to the final dissolution of the company. However, the worst fact was the involvement of some directors in insolvent trading which is not acceptable and is a punishable offence under the Corporations Act, 2001. The role of the directors of Dick Smith Holdings Limited in insolvent trading should have been investigated and if found guilty of such offence the guilty directors shall accordingly be punished. The directors found guilty of insolvent trading shall be personally liable to the creditors and other partiers in respect of the new debt incurred after the insolvency of the company. Thus, the directors of Dick Smith will be personally liable to make good the debts incurred by the company after the company has become insolvent (Brigham and Ehrhardt 2013). Conclusion: Based on the above discussion it is clear that the management of an organization has a huge role in the progressive development of such organization. Thus, the management should discharge its duties carefully to ensure that an organization is in the right path of achieving its objectives. The failure of Dick Smith is reminder to all of us the consequence of irresponsible behavior on the part of the management of an organization. References: Bill, A., 2016. From the Managing Partner.Newsletter. Giacalone, R.A. and Rosenfeld, P. eds., 2013.Impression management in the organization. Psychology Press. Speelman, E.N., Groot, J.C.J., Garca-Barrios, L.E., Kok, K., Van Keulen, H. and Tittonell, P., 2014. From coping to adaptation to economic and institutional changetrajectories of change in land-use management and social organization in a Biosphere Reserve community, Mexico.Land Use Policy,41, pp.31-44. Creasey, T., Jamieson, D.W., Rothwell, W.J. and Severini, G., 2016. 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