Professional Documents
Culture Documents
1 | Page
2 | Page
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 managements 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 CTECs 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.
2 | Page
3 | Page
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 didnt 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
Companys
business,
property, affairs
and
financial
3 | Page
4 | Page
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 Garveys 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
4 | Page
5 | Page
holding now appears worthless. Therefore reason the manager are not use
utilitarianism concepts and the manager dont 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.
6 | Page
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 managements role is to recommend
policies for managing risk, the committees role is to respond to review and approve
them, and it is the managements role once more to implement them and report back
on their operation
6 | Page
7 | Page
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
7 | Page
8 | Page
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 FGLs 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 FGLs 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.
8 | Page
9 | Page
Nil
6,000 shares
Nil
9 | Page
(653,396 performance
10 | P a g e
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/
10 | P a g e