Case study

Background

Good corporate governance makes sure that the business environment is transparent and fair and that companies can be held responsible for their actions. On the other hand, weak corporate governance leads to waste, disappointment, mismanagement, and corruption. It is also significant to remember that although corporate governance has emerged as a way to manage large companies, it is equally vital in medium and small businesses. Regardless of the type of business, only good governance can deliver sustainable good business performance.

In the past, there have been many examples of companies becoming bankrupt/insolvent after poor corporate governance practices and HIH Insurance was one of them.

HIH Insurance Limited was a publicly listed company in Australia. Prior to its collapse in 2001, the HIH Group was the second largest general insurer in Australia and had operations in many other countries. On 15 March 2001, HIH Insurance Limited and a number of its subsidiaries were placed into provisional liquidation. Subsequently, on 27 August 2001, the companies that were in provisional liquidation were placed into liquidation.

Instructions to the student

• You are required to investigate HIH Insurance that has become bankrupt/insolvent following poor corporate governance practices.
• You are required to research the relevant documents that may include Audit reports, Newspapers, Articles on the events leading to the HIH Insurances collapse.
• Analyse & recommend how the events of HIH Insurance could have been prevented with effective safeguards, transparency and financial management.

• You are also required to interview relevant people to determine and confirm current corporate governance parameters and requirements in Australia today. You may consult anyone appropriate who is currently working in a large or medium corporation, private or public, such as other trainers, friends and colleagues. (Required for Task 6).

• The assessment is an individual work; you need to submit both soft copy and hard copy of the assessment.
• You need to maintain: Word limit of2000 words, Font size: 12, line spacing: 1.5.
• All tasks need to be completed.

Your report is to cover the following asks:

A) History of HIH Insurance.

B) Monitor the events leading to the collapse of HIH Insurance. Identify and analyse two breaches of Corporations Act 2001 and two ASX listing rules that HIH did not apply and/or adhere to.

C) Analyse the management practices of HIH Insurance and identify the areas where there were breach of directors duties, rights and responsibilities.

D) Analyse the Internal control procedures of HIH Insurance to determine the financial performance indicators.

E) The Board of HIH was compromised by the influence of senior management and failed to subject management proposals to sufficient scrutiny in context of the above statement, diagnose how did the HIH board fail to comply with responsibilities? What remedies could the board have put in place?

D)Write concluding remarks on the basis of your findings from previous tasks.