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Case Study of Corporate Governance

Case Study of Corporate Governance

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Published by James

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Published by: James on Jun 28, 2009
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06/07/2014

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1Introduction
The Australia corporate world has been shaken by the demise of another major company,the third such collapse in a matter of weeks. “One.Tel”, the country’s fourth largesttelecommunications company (telco), ceased trading on the Australian stockmarket onMay 28 and was put into the hands of an administrator after an investigation of thecompany’s financial situation showed it to be insolvent (Cook. T, 2001).The One.Tel collapse has lay off its 1,400 workers and also impacting on a host of smallcreditors owed thousands of dollars for goods and services. Many faced bankruptcy and,according to the reports, will receive nothing from the company windup. The fact thatworkers’ entitlements are under threat while the major creditors and company executivesare protected is a further embarrassment to the government which is trying to overcomethe hostility engendered by its big policies over the last five years (Cook. T, 2001).This assignment embarks on the issues leading to the collapse of “One.Tel” ; breaches of the corporate governance and persons involved; and how the breaches could have beenavoided.
1.1Company Background
One.Tel is the generic term used to describe a group of Australian basedtelecommunications companies, including principally the publicly listed One.Tel Limited(ACN 068 193 153) established in 1995 soon after deregulation of the Australiantelecommunications industry (Media Coverage).The company was established by Jodee Rich and Brad Keeling who had secured largeinvestments from Murdoch and Packer business empires (Media Coverage). One.Telattempted to create a youth-oriented image to sell their mobile phones and One.Netinternet services, with a slogan “
You’ll tell your friends about One.Tel”,
to draw theconnection between the brand and personal communication. One.Tel also has a mascot
 
known as
“The Dude
1
. Large murals were printed upon the garishly-painted walls of company’s offices all around the world. Internally, the company had a fondness for applying the One.-prefix to everything relating to the business: One.Dude, One.Team, etc(Media Coverage).
Chronological outline of One.Tel
One.Tel was listed on the Australian Stock Exchange (ASX) not long after it was foundedin 1995 to 2001. It went into voluntary administration on 29 May 2001 and intoliquidation, upon a decision made by creditors in the administration on 24 July 2001. It began business in May 1995 with a total initial seed capital of approximately $5 million.The ownership structure of the company was: Optus 28.5%; FAI 18%; James Packer 5%;Kalara Investment 50% (approximately). Kalara Investment was owned by Jodee Richand Brad Keeling (Media Coverage). PBL and New Corp’s support gave One.Telcredibility and cash base to fund it rapid expansion both domestically and overseas(Cook.T, 2001).The original thought process began with a simple initiative: they wanted to start a newtelephone company, one that the average person would understand. The company wasvery people focussed and focussed on the residential market, as opposed to corporate business. They wanted the consumer or everyday person in the street, to have access tothe entire suite of telephony products, which is why the company was marketed with thecatch phrase
“100% telephone Company”
. One.Tel had three core product offerings:fixed wire long distance, Internet service provision and mobile telephony (Wikipedia).Its business expanded greatly and included operations in the United Kingdom and severalother countries; it came to have 2.4 million customers world-wide including 500,000 inthe United Kingdom. One.Tel came to do business reselling Optus Mobile PhoneServices, reselling Telstra Local and Long Distance International Calls, reselling Telstra
1
The Dude was a cartoon-like depiction of a rather stupid man in his early twenties. His main role was toinform the public in television and print advertisements that even a stupid and lazy person such as himself could get a mobile phone with One.Tel (Media coverage)
 
Internet Services, selling pre-paid phone cards for long distance calls; and set about butdid not complete constructing a mobile phone network of its own. A huge expansion of activities and liabilities was involved in constructing the network, including contractscommitting expenditure of more than $1.1 billion with lucent Technologies. The Groupassociated with One.Tel employed 3000 persons throughout the world and had manysubsidiaries. In 1999 News Ltd and Publishing and Broadcasting Ltd made investmentaround $1 billion in One.Tel.One.Tel experienced huge trading losses and reductions in net realisable value in 2001 upto 29 May 2001. During this period One.Tel incurred net trading loss of at least $92million. In these months the liquidity position of One.Tel worsened by very largeamounts; from a deficiency of $24.5 million on February 2001 to a deficiency of $98.7million on 29 May 2001. The deficiency in liquidity precipitated the failure of One.Tel’s business. Facts were established on the deterioration which occurred in the financial position and performance of One.Tel from 1 January 2001 onwards. By 28 February2001, One.Tel actually requires a cash injection at least$270 million to continue itsexisting operations and meet current and reasonably foreseeable liabilities, and therequirement for cash injection was at least $287 million by 31 March 2001. One.Telwould also incur additional indebtedness to Lucent Technologies of approximately $365million for capital works relating to the construction of the network (NSW SupremeCourt, 2003).At its peak, One.Tel’s strengths were recognised in consumer marketing and informationsystems, intuitive platforms and resources based on R&D in the Australian NextGeneration Network, One.Tel continued to build quality, value for money telephony products and services while remaining a low cost provider (Wikipedia).
1.2One.TelCollapse
The company was specifically geared to making money through stockmarket speculation.Reports indicated the bonuses paid to Rich and Keeling were specifically tied to the rise

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