Please answer this ASAP
By 1990 five firms had emerged as the dominant actors in fresh fruits and veg Western Europe and North America. These were the ex-banana giants: Chiquita, Dole, and Del Monte Tropical; and the two new upstarts: Polly Peck International and Albert Fisher. The move was part of a larger planned restructuring under which Polly Peck developed its electronics, foods and leisure businesses into three largely independent companies. n less than ten years, under this growth-by-acquisition strategy, PPI's market capitalization went from only $300,000 to $1.7 billion at its peak. It became a holding company for a worldwide group of over 200 direct and indirect subsidiary companies. With pre-tax profits of $161.4 million, net assets of $845 million and 17,227 employees, he Polly Peck group was one of Britain's top one hundred quoted companies. Polly eck and its subsidiaries were the largest employer in northern Cyprus (after the state) with 7,500 employees there. ittempt to take the company private 1 August 1990 Nadir came to the view that the company was undervalued and then nnounced that he was taking it private. Almost as suddenly later that month he nnounced that he had changed his mind. Scanned with CamScanner Chapter 2: A BRIEF HISTORY OF CORPORATE GOVERNANCE Collapse An independent investigation by the Accountants' Joint Disciplinary Committee found that during 1988 Polly Peck made 24 separate payments to its subsidiaries in Turkey and northem Cyprus, totaling some $58m. The following year Polly Peck paid out $141m in 64 different deals. The report said that "Mr Nadir was able to initiate transfers of funds out of [Polly Peck's] London bank accounts without question or challenge. Further he was able to conceal his actions until such time as the cumulative cash outflow became so great that the group was unable to meet its obligations to its bankers." In 1990, Polly Peck's board became so worried about the money transferred into Northern Cyprus that it confronted Mr Nadir and asked him to return it. He refused. The accounting regulators found that the Inland Revenue had been investigating transactions by a Swiss nominee company, Fax Investments, in shares in Polly Peck and another company run by Mr Nadir's son, Birol. It found a trail of transactions which indicated that money had come from Polly Peck businesses in northern Cyprus to Fax. When confronted about these deals, Mr Nadir told Polly Peck's auditors, Stoy Hayward, that one of the group's Northern Cyprus businesses "provided what were in effect personal banking services for certain Turkish and [Northern Cypriot] residents". The auditors described this arrangement as "extremely unwise transactions". On top of these massive money transfers and "unwise transactions", the regulators found that some of Polly Peck's assets had been secretly registered in Mr Nadir's name. These were all in Northern Cyprus and had a net book value of $25.5m in 1989. In addition the Didima Hotel development in Northern Cyprus, valued at $15.5m, and $6.7m worth of other buildings, had no registered owner. Nadir said he was holding the assets "on trust" for Polly Peck businesses. On 20 September 1990, the Serious Fraud Office (SFO) raided South Audley Management, the company that controlled the Nadir family interests. The raid triggered a run on Polly Peck shares with the price practically in free fall. Trading in the company's shares was su. oended on 20 September 1990. PPI's problems became apparent from the structure of the group's debts. The company had over $100 million in short-term revolving lines of credit. Even more debt consisted of long term loans for which Nadir had offered Polly Peck's shares as collateral. On 29 October 1990 an ex-parte application for Provisional Liquidation was granted at the High Court in London to the London Branch of the National Bank of Canada. The Directors of Polly Peck met on 31st October 1990 at their London HQ and undertook a course of action leading to Voluntary Administration.Chapter 2: A BRIEF HISTORY OF CORPORATE GOVERNANCE Questions for discussion 1. Discuss the advantages and disadvantages of letting just one person make all t important decisions in a company. 2. Where do you think the principal blame lies: with the banks who extended loans PPI without due caution or with PPI who borrowed well beyond their capacit Why? 3. What lessons can be learned from this case? 4. Which stakeholders suffered most as a result of PPI scandal? How?Chapter 2: A BRIEF HISTORY OF CORPORATE GOVERNANCE A considerable number of antiques were located at the HQ offices of the company in Berkeley Square, London. The book value attributed to these was around $6 million, but upon later inspection and independent valuation the total sum was stated a approximately $2.5 to $3 million. Ultimately the company collapsed, and charges were brought against Asil Nadir for 70 charges of false accounting and the theft, which he denied. In 1991, Polly Peck Group transferred all of its Vestel Electronics shares to one of it subsidiaries, Collar Holding BV, which was based in the Netherlands. Following the collapse of the Polly Peck Group, PPI was placed in administration. In November 1994, Ahmet Nazif Zorlu acquired PPI from the administrator by buying the entire share capital of Collar Holding BV, which at the time held 82% of the Polly Peck's issued share capital. Leaving the UK and returning Nadir left the UK just after his $3.5 million bail had lapsed, while the detectives who were watching him were off duty to save overtime pay on a bank holiday. He left on a ligh aircraft to France, where he flew on to Turkish Cyprus, which has no extradition agreement with Britain and until 26 August 2010 he remained a fugitive in norther Cyprus, which is only recognized by Turkey. Peter Dimond, the pilot who flew him out o Britain, was convicted of aiding a fugitive, but the conviction was quashed once it wa determined that the bail had lapsed. In 1996, Mr Nadir's aide Elizabeth Forsyth wo convicted of laundering $400,000 stolen from Polly Peck and sentenced to five year. Ten months later, she too was freed by the Appeal Court. A government minister, Michael Mates, resigned in 1993 following persistent pres coverage of his close links to Asil Nadir which had led to Mates writing to the attorne general questioning the handling of the investigation by the Serious Fraud Office. As Nadir has persistently claimed that the charges that he stole more than $30m from the company are "baseless" and has claimed that the SFO abused its powers, making a fai trial impossible. In 2002 the accounting disciplinary body, the Joint Disciplinary Tribunal fined Stoy Hayward $75,000 for its role as group auditor to Polly Peck. Erdal & Co, th north Cypriot accounting firm was also fined for its audit of the north Cypriot subsidiarie of Polly Peck in 1988 and 1999.! In July 2010 it was reported that Asil Nadir intended to seek bail to return to the United Kingdom to face the 66 counts of theft. Over the year his business interests have shrunk. His hotels were sold to pay off tax debts in 1994, h bank Endustri was taken over by the Central Bank of Northern Cyprus in 2009, and Kib newspaper, a TV and radio station are all that remains of his known empire.Chapter 2: A BRIEF HISTORY OF CORPORATE GOVERNANCE CASE STUDY POLLY PECK INTERNATIONAL Absolute power corrupts absolutely This case has been written by two of my students (Nasir Ghara and Atif Jahangir) as a class project, on the basis of publicly available information and is intended to be used purely for classroom discussion on various aspects of corporate governance. It does not aim at accusing any person or organization of any wrongdoing. Polly Peck International (PPI) was a small and barely profitable United Kingdom textile company which expanded rapidly in the 1980s and became a constituent of the FTSE 100 Index before it collapsed in 1991 with the then colossal debts of $1.3bn. The Polly Peck scandal, and Chief Executive Asil Nadir's escape, along with a number of corporate scandals, spurred on reform of UK company law, leading to the early versions of the UK Corporate Governance Code. On 26 August 2010 Nadir returned to the UK to be charged on certain terms. Historical Background The company was founded by Raymond Zelker and his wife Sybil in 1940 as a small fashion house operating in London. Early in 1980 Restro Investments, a company controlled by Asil Nadir, a Turkish Cypriot, bought 58% of the company for $270,000. Nadir took over as Chief Exc - tive on 7 July 1980. On 8 July 1980 Polly Peck launched a rights issue to raise $1.5m of new capital for investments abroad. In 1982 Nadir began the early ventures. These included Uni-Pac Packaging Industries Lid, Voyager Kibris Lid, and Sunzest Trading Lid, three companies incorporated in the Turkish Republic of Northern Cyprus. Uni-Pac was a corrugated box manufacturer and packaging company formed to take advantage of surplus citrus fruit being grown in Cyprus, which was forecast to produce a minimum of $2.1 million profit. Voyager Kibris Lid was used to purchase the Sheraton Voyager Hotel in Turkey and to build resort hotels in Northern Cyprus. In September 1982 Nadir acquired a major stake of 57% in a textile trader, Comell. whose shares were considered penny shares. Cornell rose from 26p to over 100p as soon as Nadir's interest was confirmed. Nadir had Cornell sell a rights issue, raising $2.76 million. This capital, plus a further to million from Polly Peck, was used to set up the 'Niksar' mineral water bottling plant in Turkey. Niksar subsequently sold an estimated 100 million bottles of water to the Middle East. Scanned with CamScanner Chapter 2: A BRIEF HISTORY OF CORPORATE GOVERNANCE In 1983, Nadir also began expanding PPI's textile business by purchasing a 76 percent stake in Santana Inc. in the United States, and a majority stake in InterCity PLC in the UK. Nadir then extended PPI's textile operations into the Far East, acquiring a majority stake in Impact Textile Group in 1986, and by increasing PPI's existing stake in Shuihing Lid. to 90 percent. In 1987 PPI acquired a majority interest in Palmon (UAE) Lid., a manufacturer of casual shirts. In April 1984, PPI also diversified into the electronics business by acquiring 82 percent ownership of Vestel Electronics, one of the largest publicly traded companies in Turkey. Vestel manufactured colour televisions, Betamax video recorders, air conditioning units, audio equipment, microwave ovens, and washing machines. PPI's success in the electronics business was substantially enhanced in early 1986 when Akai of Japan decided to join Ferguson, Salora, and GoldStar as licensors to Vestel. Subsequently, PPI also acquired house-wares manufacturer Russell Hobbs. By 1989 Polly Peck had become an international player by acquiring a 51% majority stake in Sansui (a Japanese electronics company on hard times). This was one of the first foreign acquisitions of a major Japanese company listed on the Tokyo Stock Exchange. Also in 1989, Polly Peck bought the former Del Monte fresh fruit division for $875 million from RJR Nabisco, which had previously acquired it. Polly Peck then gained the ultimate accolade of being admitted to the FTSE 100 Share Index in 1989. egetables in
