Question 1 - HIH Insurance

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 Insurance's collapse.

Your report will cover the following tasks:

1. History of HIH Insurance.

2. 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.

3. Analyse the management practices of HIH Insurance and identify the areas where there was breach of directors' duties, rights and responsibilities.

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

5. "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?

6. From interview, identify four emerging reporting trends of Corporate Governance Parameters in the Australian financial service sector.

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

8. You need to provide references to any information sourced from books, website, publications etc.