Crunch Fitness company started operating in Melbourne in January 2016. The company experienced significant growth and expansion since it had listed on the ASX with only 20 fitness centres. By January 2019 they were running 300 fitness centres across Australia. Their cash flows had grown significantly over the four years of operation. Crunch Fitness company was led by senior management who had aggressive expansion strategy, relying heavily on borrowings from the banks. Moreover, the management focusing on short term targets and not considering long term impacts, encouraged high risk taking. The Board was also ignorant of the risk facing the company. The company went from a positive cash flow of $400 million from its operating activities in its 2018 full year accounts to a deficit of almost $150 million in the second half of 2019. In February 2020, its Board concluded the company had insufficient cash to repay nearly $1 billion of debts to creditors and appointed administrators to take control of the company. Few months later Crunch Fitness ceased its operations.

A. Identify at least five signs of poor corporate governance that led Crunch Fitness company to fail?

B. Explain the problems identified over the years in relation to executive remuneration and discuss how these relate to corporate governance.

C. Discuss the aspects of corporate governance and board mechanisms that could have served to limit the likelihood of Crunch Fitness company failure.