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1a) Outline the key duties of directors.
The directors are effectively the agents of the company, appointed by the
shareholders to manage its day to day affairs. The basic rule is that the directors
should act together as a board but typically the board may also delegate certain of its
powers to individual directors or to a committee of the board. As a director you must:
 Act within powers. Director must act in accordance with the company’s
constitution, and only exercise their powers for the purposes for which they were
given.
 Promote the success of the company. Director must act in the way they
consider, in good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole. Success will generally mean
a long-term increase in value but fundamentally it is up to each director to decide,
in good faith, whether it is appropriate for the company to take a particular course
of action.
 Exercise independent judgment. Director must exercise independent judgment
and make their own decisions. This does not prevent director from acting in
accordance with the company’s constitution or an agreement which the company
has entered into.
1b) Outline the arguments for the directors of Forge Group Ltd that they
carried out their duties.
There are argument which the directors cannot access the detailed company records
to complete the report that required. Either director or non-executive directors, they
do not have access and no basis on which to prepare the report to the extent that
answers need to be sourced from company records even Forge Group was a large
and complex organization with a large finance team and sophisticated IT systems.
So, as the solution Forge Group Companies’ directors were granted an extension of
four weeks to lodge the report. By this argument, it shows that the directors of Forge
Group Ltd carried out their duties as well as to make sure the operation of the
company is going well.
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1c) Outline the arguments for shareholders, creditors and employee that
director of Forge Group Ltd did not carry out their duties.
There are arguments construction overruns and issues in the cost estimates for the
Diamantina and West Angelas power station contracts resulted in writedowns, and
according to the administrators Ferrier Hodgson, a loss of $326.5 million for the
seven months to end of January 2014, and debts of more than $207 million. Ferrier
Hodgson noted the following issues between what the company had budgeted for
and what actually occurred. Actual work in progress income for the period was
$126m below management’s forecast. Labour costs were $70m over budget.
Material costs were $55m over budget. Work-in-progress Overheads were $22m
over budget but how the company ended up in that situation appears to lie at the feet
of management.
Both power station contracts were acquired when Forge bought out CTEC in 2012.
But according to the administrators, the due diligence conducted on CTEC appears
insufficient or the issues raised were overlooked by Forge – including major
concerns over CTEC’s ability to complete the DPS project at forecast margins. Forge
still went ahead with the acquisition. That may have been driven by Forge executives
incentivized based on earnings per share growth, and their lack of significant
holdings of shares in the company. So the Forge Limited Company trading without
being cover to payment.
Bonuses and salary based in part on EPS growth can be achieved relatively easily
by acquiring new businesses. The result is instant growth in earnings, but most
acquisitions do not end up adding value. As a result, they were not incentivized to
think as shareholders and unable to paid high salary for the employee.
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1d) Give Your Opinion And Justification, As To Whether The Directors Of Forge
Group Ltd Carried Out Their Duties?
No, the director of Forge Group didn’t carry up their duties. Because in our latest
research mansion about that the announcement on 20 February 2014 by listed
litigation funder Bentham IMF Limited has 'flagged' a shareholder class action
against the failed Forge Group Limited, 'alleging misleading and deceptive conduct
and breach of continuous disclosure obligations' and that it will allege Forge knew or
should have known about, and disclosed, problems with power station contracts from
early 2013.IMF Investment Manager, Tania Sulan, said that this was 'a classic case
of a company and its Directors breaching fundamental obligations to shareholders
and the market' and that they expect to see 'a large number of shareholders sign up
to the action'. The press release says the decision to proceed will be conditional on
the size of the claim being sufficiently large. The Australian reported that it was
'understood' that the action might also target individual directors 'if their recoverable
assets are deemed to be sufficiently large.
Furthermore, in their financial statement request the true and Fairview statement and
in by Section 438B of the Act requires the directors to give an Administrator a
statement
about
the
Company’s
business,
property, affairs
and
financial
circumstances. In their correspondence, the directors requested an extension for the
following reasons. But in the case the directors do not have access to the company
records or the company finance team who have been terminated to complete either
require access to detailed company records. Forge Group was a large and complex
Organization with a large finance team and sophisticated IT systems. The nonexecutive Directors have no access and no basis on which to prepare report to the
extent that answers need to be sourced from company records. In these
circumstances I request that directors of Forge Group Companies be granted an
extension to complete the Section 438 report so as to allow an opportunity to discuss
with the practicalities of who can provide the requested financial information from the
Company records, which not secure.
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1e) Compare and Contrast the Concepts of Utilitarianism and Kantianism.
From in this cases, journalist Paul Garvey discuss about the senior managers are
make allegedly detail expenses incurred ahead of the group’s slip into
administration. If compare the concepts of Kantianism the senior managers do not
follow the term. Kant argues that human reason facilitates human autonomy. For
example, we can make decisions about how to act and the overall course of our
lives. Thus, we can also reason to right behaviour. Kant’s idea is that the Categorical
Imperative should function as a decision rule for right action. The general idea
behind the Categorical Imperative is that you shouldn’t act on motives you wouldn’t
want to be universal law so, in essence, you shouldn’t do what you wouldn’t want
others to do. The manager don’t use Kantianism forge manager don’t take right
decision and he is involve allegations, suggest that the senior manager cashed out
their leave entitlement Carlie this year and relocated to Sydney at the company’s
cost. The senior manage must knew and carry out their wealth of company but forge
manager lack of self-interest. All of this boils down to a test of your motives if your
motive for action (maxim) passes the categorical imperative, your action is
permissible.
For utilitarianism, you may use whatever means act on whatever motives are
necessary to achieve an end that increases happiness. It doesn’t matter why you did
the action, only that the end result is an increase in happiness. Another mean of
utilitarianism is an ethical philosophy in which the happiness of the greatest number
of people in the society is considered the greatest good. According to this
philosophy, an action is morally right if its consequences lead to happiness (absence
of
pain),
and
wrong
if
it
ends
in
unhappiness
pain.
Since
the link between actions and their happy or unhappy outcomes depends on the
circumstances, no moral principle is absolute or necessary in itself under
utilitarianism. If compare to the Paul Garvey’s allegations are founded, their mention
the Australian revealed on that senior forge managers had been relocated to Sydney
at significant expense in the month after forge first revealed the power station
contract issues that ultimately proved fatal. Furthermore the spending and the
rumours of the annual leave pay out have angered some forge shareholder whose
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holding now appears worthless. Therefore reason the manager are not use
utilitarianism concepts and the manager don’t have motives to achieve make their
share holder happiness with their action.
2a) Outline general factors that company directors and management need to
consider in relation to risk.
Risk is the possibility that a company will have lower than anticipated profits, or that
it will experience a loss rather than a profit. Business risk is influenced by numerous
factors, including sales volume, per-unit price, input costs, competition, overall
economic climate and government regulations. The factors that company directors
and management should consider in relation with risk is commitment and support
from top management, communication, culture, organization structure, trust, and
information technology (IT).
Commitment and support from top management concept refer to the highly needed
support and approval from top management for risk management. The essence of
commitment and support from top management supports the effective decisionmaking process in order to manage risk. Commitment and support from top
management is important in every kind of management and it is thus an important
factor for risk management.
Communication is another important consideration for effective risk management.
Communication plays an important role in risk mitigation. It provides opportunities for
clarification, for making sense of the organization’s progress, and for members to
discuss how to improve the organization and the impact of using different risk
mitigation strategies.
The importance of culture within effective risk management is that knowledge
transference requires individuals to come together to interact, exchange ideas and
share knowledge with one another. Moreover, culture creates individuals who are
constantly encouraged to generate new ideas, knowledge and solutions.
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Organizational structure provides the concept, guideline, direction and support to the
employees that is conducted by the steering committee. The business and financial
world is in constant fluctuation. The environmental condition will change and
somethings new will develop gradually over time, while others may sweep the
market quickly. Organizational structure must be reviewed regularly and adjusted to
adapt to changing financial environments. The management’s role is to recommend
policies for managing risk, the committee’s role is to respond to review and approve
them, and it is the management’s role once more to implement them and report back
on their operation
Risk management needs cooperation and teamwork encourages success. Trust
among an organization’s members is an important prerequisite to changing those
related to alliances, thus mitigating risk, as organizations are unwilling to adopt
alliance-like organizational structures that make them vulnerable to the fluctuation of
the environment
Company director and management need to consider IT as an important factor in the
face of increasing competition, higher performance levels, globalization, and
liberalization. IT plays a key role in achieving an organization’s objectives. IT relates
to all aspects of the business processes, including access to a shared infrastructure
consisting of knowledge, human assets, core competencies, resource allocation,
performance management, project tasking and communication support.
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2b) Critically evaluate specific risk pertinent to Forge Group Ltd.
The risk pertinent to Forge Group Ltd is merger and acquisition risk. The acquisition
of CTEC Group is considered as major element in the demise of Forge. Many
companies are looking at merger and acquisition (M&A) activity as a wise way to put
their cash to work. Before they move forward, however, corporate executives need to
be aware of some dramatic shifts in the global landscape for strategic transactions.
In Forge, the directors took decision to purchase CTEC in order to boom their
business but failed to consider the risk they would face by purchasing the other
company.
Management risk also can be seen in Forge Group Ltd. The management of Forge
and the management of CTEC might have different perception on the business
principals, aims and operation. Forge management would have kept a closer than
usual eye on the project for any signs that it was not performing as expected. It
seems that the risk management practices, policies and systems employed by Forge
were inadequate.
The other risk pertinent to Forge is business risk. It is the risk that overall business
strategy and plan will be ineffective for example the business fails to meet its
revenue target. The DPS and WAPS projects were expected to increase the earning
by $10.8 million in 2013. But the projects revised 2013 estimates shows 102.7 million
project margin loss for both projects. The cost overruns on these two projects led to
the profit downgrade and contributed to the resulting shortage of cash.
Compensation and benefit risk can be pertinent to Forge which it is the risk that
compensation will be misappropriated. Bonuses and salary based in part on EPS
growth can be achieved relatively easily by acquiring new businesses. The result is
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instant growth in earnings, but most acquisitions do not end up adding value. The top
management tend to act on self-interest even though they knew the risk
accompanied in acquiring the business.
3a)Examine the remuneration information of FGL’ s board of directors and key
management personnel. Using this information, draw some conclusions as to
the actions of directors and key personnel.
According to the key management personnel change schedule it shown that two
executive director and a managing director terminated in 2012 and consistently two
non-executive director was resigned in 2013. Hence, for replace the terminated
managing director Mr.Peter Hutchinson FGL’s board appoint Mr.David Simpson at
9th of July 2012 as managing director and CEO of the company. Beside that
according to remuneration information table 2 in the case it shown only for the new
executive director Mr.David Simpson get all benefit of the company and other former
executive director and non-executive director are only received some of the benefit
from the company. Thus, in some situation there got relationship between the
resignation or appointed with the benefit their received from the company. As inform
earlier the company managing director only received all the benefit by that may be
other co-director will unsatisfied when they only received the cash salary and fee and
as well performance related cash bonus. So, they might be resigned their work
because of not enough benefit. Beside that, on the respectively year 2012 and 2013
FGL undertook a major acquisition meant the takeover of two major projects which
The Diamantina Power Station(DPS) Project in Queensland, Australia and the West
Angelas Power Station(WAPS). It was a main and challenging project which make
director become very stressful maybe because of that some of directors resigned
their work. Moreover, the FGL’s company also have a high expected that these major
projects would add USD7.5 million and USD10.8 million in EBITDA in 2012 and 2013
respectively but unfortunately the project fall in loss more than their expectation.
Hence, company might be reduce the benefit of director or terminate the managing
director. Likewise, at the same time some of other also appoint as non-executive
director may be they influence in salary based of current non-executive director who
get high salary year by year.
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3b) Explain director independence. In your view, appraise the independence of
the FGL directors. Evaluate whether this was in FGL’ s best interest.
An Independent director known as an outside director is a director of a board of
directors who does not have a material or financial relationship with company or
related persons, except sitting fees and also they do not own shares in the company.
In some sources state non-executive directors are different from independent ones in
that non-executive director are allowed to hold shares in the firm while independent
directors are not. In my view the FGL directors are most of them non-executive
directors are independence director because as per the remuneration information all
the non-executive director and former non-executive director didn’t own any share or
personal cash or non-cash benefit from the company. Although most of the director
didn’t hold the share at the company but as per table it shown 2 of the non-executive
director hold share in Forge Group Ltd. So, both non-executive director assume as
non-independence director. Hence, the company must terminate them after engage
with the shareholding in the company.
Next table showed that the management compensation and ownerships of shares
which very minor ownership of shares in FGL by directors. The ownership of ordinary
shares held as of June 30, 2013 by the directors of the company.
David Simpson, Managing Director
David Craig, Non-executive Chairman
Nil –
6,000 shares
Marcello Cardaci, Non-executive Director
Nil
John O’Connor, Non-executive Director Nil
Gregory Kempton, Non-executive Director 5,000 shares
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(653,396 performance
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REFERENCES
1. https://en.wikipedia.org/wiki/Independent_director
2. http://www.businessdictionary.com/definition/utilitarianism.html#ixzz3q1yS2w
3. http://www.abc.net.au/news/2014-03-14/mining-engineering-group-forge-mayhave-traded-insolvent/5321926
4. https://philosophyfactory.wordpress.com/2011/05/30/kant-vs-utilitarianism-2/
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