The History of Clive Peeters Foundation to its Collapse Finance Essay

This report is about the history of Clive peeters foundation to its collapse. It has been examined under various accounting methods like, analysis credit history and various types of ratio analysis based on financial statement from 2006 to 2009. This presentation has been included the compare and contrast with some other companies. Basically, highlighted on the causes of collapse, current status of company like, Voluntary administration, receivership, liquidation. The major findings point out that the company had serious defects in its business policy and ultimately failed to deliver due to its heavy reliance on debt attached with some other factors like: bad image caused by the theft of the company accountant, too much discounting, company size and recession. It is concluded with the company foreseeable future by my own view. Contents Page no

Company Overview

1

Different types of companies

1

Analysis various Ratios and comments

3

Reasons - collapsed of Clive Peeters ltd

6

Status of quo of Clive peters

8

Clive Peeters foreseeable future

9

References

10Table of contents

Company Overview:

Clive Peeters was one of the largest retailers of electrical appliances which have operated in Melbourne under its present ownership since 1993 and in Brisbane since 2001. The Company was trading as Clive Peeters in Victoria, Queensland, New South Wales and Tasmania, and trade as Rick Hart in Western Australia. It had more than 140 brands and over 20000 individual product models. With 44 stores and about 1300 staffs, it has been suffered by a gigantic financial loss. Earlier three months just before collapsed, it was expected to be the operating loss $4.5 million. It has carried on a huge corruption in its accounts department. A payroll officer had stolen $20 million. Because of Scandals of accounting fraud, huge debts, operating loss, competition with its rival companies, and Model of Sales & marketing policy were the main causes of collapse. Clive Peeters' financial woes have deepened as bank creditor NAB called in receivership to seize control of the company. And as a result, it was being placed into voluntary administration. Harvey Norman acquired 32 Clive Peeters retail stores and the company's commercial network for $55 million. (Overview: Clive Peeters Limited Website)

Different types of companies:

Under corporation act(s 112), mainly two type of companies are permitted to be registered. One is proprietary company another is public company. According to the s 112, proprietary company is classified as - limited by share, - unlimited with share capital. Likewise, public company is classified as public company, - limited by guarantee, - unlimited with share capital, - no liability company. Other titles of companies would be listed corporation, Disclosing entities, Foreign companies, No- Liabilities companies, Text book 8th edd page no3, 5

Clive Peeters Limited:

Clive Peeters is a public company limited by share capital and its ABN is 52 058 868 018. It is a listed company of Australia stock exchange. The Company was incorporated in Victoria on 5 February 1993 and acted as the trustee for the Clive Peeters Electrical Trust (Trust) from 1993 to 31 March 2002. On 1 April 2002, the operating activities of the Trust were shifted to the Company. The Company got hold of all of the shares in Clive Peeters Wholesale Pty Ltd in January 2005. All of the shares of Clive Peeters Home Entertainment (Brisbane) Pty Ltd and Clive Peeters Appliances (Brisbane) Pty Ltd were held on trust for the Company until 1 July 2005 at which time those shares were acquired by the Company. The Company was registered as a public company in Victoria on 14 July 2005. On 20th September 2005, Clive Peeters Limited fully acquired and took control of the Rick Hart Group as well as acquired the business of Michael King Hawthorn Pty Ltd (MK), at the same time.

CPA Australia:

CPA Australia Ltd (CPA Australia) is a leading advocate of sound corporate governance. CPA is the very important member of Australian Stock Exchange Corporate Governance Council (ASXCGC). It develops corporate governance principal and recommendations (CGPR). It is an unlisted company and limited by guarantee. CPA Australia ABN is 64 008 392 452. According to Company Accounting Leo Hogget Sweeting Redford, p 5. CPA Australia limited by guaranty that means no required share capital for its formation. A public company limited by guarantee is one of which members guarantee to contribute a certain amount in the event of liquidation. Source: (CPA Australia wesite)

SingTel Optus Pty Ltd.

Singapore telecommunications Limited is listed on the Australian and Singapore stock exchanges. It's a private limited company and limited by share capital. SingTel is the parent company of Optus since 2001. In the Asia pacific region Optus is operating one of the largest strong and strategic telecommunications businesses.(ASX website) Kimberley Diamond Company NL: Kimberley Diamond Company NL is an Australian public company. The main revenue generating source is diamond mining and exploration. It was a public company with no liability. No liability abbreviated NL (ss 148-149) . According to s 112(2) of Act, a no liability company has some criteria to register 1.has a share capital, sole objects are mining purposes and under s 9 mining purposes are defined. According to Company Accounting by Leo Hogget Sweeting Redford, eight edition, p 6. Kimberley Diamond Company NL was a ASX listed Company before2008. After that it company was acquired by Gem Diamonds Australia Pty Ltd, and removed from the official ASX list.source: (www.ibisworld.com.au) Here, above discussion we can able to find out all four companies including Clive petters ltd. Are different nature different formation even different activities. Clive Peeters is a public company limited by share capital and ASX listed company, CPA Australia is public company limited by guarantee ASX unlisted company nature is corporate governance, SingTel Optus Pty Ltd is a private company limited by share capital and listed on both the Australian and Singapore stock exchanges, nature of business telecommunications. And Kimberley Diamond Company NL was a public company with no liability but it had a share capital and it was listed before 2008.nature of business was mining.

Analysis various Ratios and comments:

Debt Equity Ratio:

It points to what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth. Year 2006 = 87.6/71.6=1.22 Year 2007 = 118.1/77.6=1,52 Year 2008= 174.8/80.2 = 2.18 Year 2009 = 150.8/69.4 = 2.17 Analyzing the result of Clive peeters, we can say that there was really aggressiveness in finance invested for its rapid growth. We can see from the above figures that Clive Peeters Limited's debt-equity ratio increased significantly over the years from 2006 to 2009. This meant that over the years Clive Peters Limited had relied a lot on borrowings from external lenders for their business activities.

The Debt Ratio:

It indicates what proportion of debt a company has comparative to its assets. The formula of debt ratio= Total liabilities / Total assets For the year: 2006: Debt ratio =87513000 / 159161000 =A 0.55 2007: Debt ratio = 118114000 / 195672000 = 0.60 2008: Debt ratio = .1991433000 / 5367682000 = 0.68 2009: Debt ratio = 150775000 / 220178000 = 0.68 Analyzing results of all years, it found that all debt ratios were less than 1. That means, its indicated indicates thatA a company has more assets than debt.

Current Ratio:

A liquidityA ratio that measuresA a company's capability to pay short-term obligations The formula is: Current Ratio = Current assets/ Current liabilities. The ratio is mostly used to give a suggestion of the company's ability to pay backA its short-term liabilities with its short-term assets. The higher the current ratio, the more capable the company is of paying its obligations. A ratio underA 1 suggests that the companyA wouldA beA unable to pay offA its obligations if they came due at that point. Here, Clive peeters current ratio was: For the year 2006: current ratio = 115,251000 / 8,3475000 =1.38 For the year 2007: current ratio = 140526000 /114,882000A = 1.22 For the year 2008: current ratio =4,813,101A 000 / 1,830,538000= 2.63 For the year 2009: current ratio =158,853A 000 / 111,208A 000=1.43 It indicating that clive peters current ratios was entering into danger zone up to 2009.

Acid Test Ratio:

This test indicatesA whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. Companies with ratiosA of less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Acid test ratio =Cash + Accounts Receivable + Short-term Investments / Current Liabilities There is an another formula= Current Assets - Inventory / Current Liabilities Acid test ratio, for the year: 2006: = (115, 251000 - 74061000) / 8,3475000 =0.49 2007 = (140526000 - 98906000) / 114,882000A = 0.36 2008 = (4,813,101A 000 - 2550283000) / 1, 830, 538000= 0.42 2009: = (158,853A 000 - 108080000) / 111,208A 000= 0.46 Its proved that over the period Clive peters was not capable to pay current liabilities. The Times Interest Earned (TIE) Ratio: The formula is: Earnings before Interest and Taxes (EBIT)

=

Total Interest Charges (IT) For the year: 2006=19.51 /1.4 =13.94 2007 =20.57 /27.02 =0.75 2008 =17.03 /16.07 =1.04 2009 = - 11.65/3.42= - 3.42 From the above calculations are showing Clive Peeters Limited's Times Interest Earned ratio dropped significantly to a negative figure on 2009 which eventually forced Clive Peeters Limited to be declared as bankrupt

Reasons - collapsed of Clive Peeters ltd.:

The collapse of Clive Peeters did not come as a shock to many in the retail sector. it appeared that the company had been punched by a $20 million accounting scandal in august 2009 , than industry experts had realised that it would be fallen into deep trouble within shot time. Earlier this year 2010 Clive Peeters was expected its operating loss for the three months to March 31 be $4.5 million The key creditor of clive peters in Banking sector Natioal Australian Bank ( NAB ) formerly placed Clive Peeters into receivership. It was the moment of its fallen down .

Huge debts slay of its endurance desires:

Clive Peeters' financial report for the six months to December 31 shows the company had total debt of $160 million at December 31.the reasons of this debt was it was trying toexpand its business as soon as possible, so that it had acquired some smaller competitors by increasing its debt. In the earlier boom years its business was good, because consumer has money and economy was going well , consumers were buying plasma tvs etc, but when , downturn of economy its debts become a headache since march 2009. NAB disagreed to cover its debt anymore. Within 12 months its become mostly sick business who could survive anymore. Market policy: Most whitegood retailers, Clive Peeters was being alive and passed away on its ability to stay alive on poor margins. In this sector, Harvey Norman, JB Hi-Fi and The Good Guys are constantly on sale and constantly offering discounts to tempt consumers. With discounts widespread retailers like Clive Peeters require to rely on volume.

Competition:

It's another reminder that in many sectors, the Australian economy only supports very big or very small companies. Clive Peeters had 45 stores where Harvey Norman's more than 100 stores,it may have found itself in a dangerous middle ground - not big enough to battle with the extent and financial power of Harvey Norman, and too big to be seen as a specialist niche retailer. While the Top company like Harvey Norman can avoid discounting wars and operate business its own desires by focussing on service. Specialist products or a certain area of the market, mid-sized player like Clive Peeters have no choice but to take on Harvey Norman at their own discount game. It's another reminder that in many sectors, the Australian economy only supports very big or very small companies.

Accounting Scandal:

Clive Peeters suffered with an accounting scandal when a Female payroll officer Sonya Causer, 39 allegedly stole $20 million. This fraud made a scary thing for its all investors and creditors, suppliers. Plenty of irregularities in accounting sector made really a unstable situation in market. Above discussions we can say, these were the main causes of Clive peeter collapse.

Status of quo of Clive peters:

At the first meeting of creditors held on 28 May 2010, Mr Brendan Richards and Mr George Georges of Ferrier Hodgson were appointed as replacement joint and several Administrators of the Clive Peeters group. At a second meeting of creditors held on 20 July 2010, determined to place some entities( Clivpee Ltd Clivwho Pty Ltd , Clivpkb Pty Ltd , Hi-Fi Corporation (WA) Pty Ltd , NTFQ Pty Ltd ,Rickhar Pty Ltd .) into Liquidation. For that, George Georges and Brendan Richards were appointed Liquidators pursuant to Section 499(2A) of the Act to wind up the Companies affairs and distributing its property. (Source:www.asic.gov.au) There are different kinds of external administration in case a company is in financial hardship. The major three of these are as follows:

Voluntary administration:

Voluntary administration works with insolvency process where the directors of a financially troubled company or a secured creditor with a accuse over most of the company's assets appoint an external administrator called a 'voluntary administrator'. Appointment of A voluntary administrator: commonly company's director, less commonly by liquidator, provisional liquidator, or a secured creditor.

Receivership:

A company most usually goes into receivership when a receiver is appointed by a secured creditor who holds security over some or all of the company's assets. The receiver's primary role is to collect and sell sufficient of the company's charged assets to repay the debt owed to the secured creditor. (Source: www.asic.gov.au)

Liquidation:

Liquidation is the winding up arrangement of a company's dealings. It engages realizing the company's assets, termination or sale of its operation, distributing the proceeds of realization among its creditors and dealing out any surplus among its stakeholders. (Source:www.asic.gov.au) Bottom of Form

Clive Peeters foreseeable future:

It is very difficult to survive in current situation if the current administrators be returned to the directors; it would not able to helping any way to reboots Clive peters. In my view, where its debt is massive against the assets there is no way to keep alive Clive peters for future competitive business arena. It is better to go into enter into liquidation of whole group of business. Another way, we all know that 32of the Clive Peeters stores were bought by Harvey Norman Holdings Limited after it went into voluntary administration. Its original name was kept as it is and its staffs in some of its stores were being able to keep their jobs. In my view, though Harvey Norman has bought part of its business, to keep the company afloat more money needs to be injected and its whole business structure needs a restructuring. Otherwise, it is going to be very difficult to keep Clive Peeters Limited from getting liquidated.

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