Reasons Behind The Collapse Of Clive Peeters Limited Finance Essay

The intent of this study was to discourse the grounds behind the prostration of Clive peeters limited, one of the taking electronic contraptions Sellerss in Australia and analyze these grounds to make an ultimate decision on the hereafter of this company. Research for this study was based largely on this company ‘s one-year study for fiscal old ages 2006-2009, ciphering assorted debt ratios and web based researches done on Clive Peeters Limited prostration done by experient faculty members.

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The major findings indicate that the company had serious defects in its concern construction and finally failed to present due to its heavy dependence on debt coupled with some other factors like: bad image caused by the larceny of the company comptroller, excessively much discounting, company size and recession.

This study besides sheds visible radiation on the current place of the company and explains different methods of external disposal: receivership, voluntary disposal and settlement.

Company Background: Clive Peeters Limited

Clive Peeters Limited was one of the taking computing machine and electrical contraption retail merchant throughout Australia. The first shop for Clive Peeters Limited was opened in Melbourne manner back in the old ages of 1972. Since so it expanded its concern to other provinces of Australia including: Victoria, Queensland and Tasmania. In the twelvemonth of 2005 Clive Peeters took over Rick Hart, a concatenation retail shop located in Western Australia ( Company Overview: Clive Peeters Limited Website ) .

Around August 2010, Clive Peeters Limited failed to pay ASX ‘s listing fee which disabled them to be listed in Australian Securities Exchange ( ASX ) . Just few yearss before Clive Peeters Limited losing their ASX place, their comptroller was found guilty of beliing accounting figures for paysheet and stealing a gigantic sum of 20 million dollars. Harmonizing to a batch of critics Clive Peeters Limited ‘s death was caused due to this bad image created by their comptroller to the populace. Soon after that Clive Peeters Limited went into administer ship. About that clip Harvey Norman took over 32 of the Clive Peeters Limited ‘s and Rick Hart ‘s shops.

Harmonizing to Gerry Harvey the individual who bought most of the shops of Clive Peeters Limited, Clive Peeters Limited may hold been merchandising as bankrupt for the last two old ages before acquiring into disposal ( Recent Highlights: on Clive Peeters Limited ) .

Types of Companies

Normally companies in Australia are registered with Australian Securities and Investment Commission ( ASIC ) under the corporations act. The two chief subdivisions of companies are: Public Companies and Proprietary Companies. Proprietary companies are of two types: Limited by Share and Unlimited with portion capital. On the other manus, public companies can be of four chief types. These are:

Companies Limited by Shares: Normally as per s.9 of Corporations Act whereby the liabilities of the members of the company is merely limited to the unpaid sum of portions held by them ( Australian Corporations Act, 2001 ) .

Unlimited with Share Capital: In this instance members of the company normally have no bound on their liability towards the company.

Company Limited by Guarantee: Company formed on the rule of holding the liability of its members limited to the several sums that the members undertake to lend to the belongings of the company in the event of it being wound up.

No Liability Company: In this instance company is formed on the footing that members of the company would bear no liabilities towards the company ( Harris et al 2009 ) .

Clive Peeters Limited was a public company prior to its prostration. It was besides listed in Australian Securities Exchange ( ASX ) index. Its chief country of concern was retail. Before it collapsed it was runing as company limited by portions. This meant that members of the company were its stockholders and their liabilities were merely limited to their unpaid sum of capital. This company was listed in the ASX meant that the portions of the company was available to the populace and they could merchandise them easy separately or through their agents. This meant that as stockholders they all were members of the company and would be affected if something is to go on to Clive Peeters Limited.

There are tonss of differences between the companies based on their types. Clive Peeters is a public company limited by portion capital and ASX listed company where CPA Australia is a public company limited by warrant and ASX unlisted company. CPA Australia limited by guarantee that means no needed portion capital for its formation. A public company limited by warrant is one of which members guarantee to lend a certain sum in the event of settlement.

Kimberley Diamond Company NL was a public company with no liability but it had a portion capital and it was listed before 2008. The chief gross bring forthing beginning was diamond excavation and geographic expedition.

Singapore telecommunications Limited is listed on the Australian and Singapore stock exchanges. It ‘s a private limited company and limited by portion capital. SingTel is the parent company of Optus since 2001 and listed on both the Australian and Singapore stock exchanges. ( ASX Website )

Debt Analysis of Clive Peeters Limited ( 2006-2009 )

Debt-Equity Ratio

Normally a debt equity ratio indicates the sum of debt a concern has borrowed from external loaners in comparing with the proprietor ‘s equity. This gives an thought out of the whole equity how much a concern has borrowed and how much it has received from its proprietors. Normally a debt equity ratio can be calculated utilizing the undermentioned expression:

Entire Liabilities/owners equity

If the ratio is excessively high, it means that the concern is excessively much dependant on external funding and these external loaners have higher hazard in instance the concern becomes bankrupt.

For Clive Peeters Limited the debt equity ratio was following get downing from twelvemonth 2006 to 2009:

For 2006:

87.6 / 71.6

= 1.22

For 2007:

118.1 / 77.6

= 1.52

For 2008:

174.8 / 80.2

= 2.18

For 2009:

150.8 / 69.4

= 2.17

We can see from the above figures that Clive Peeters Limited ‘s debt-equity ratio increased dramatically over the old ages from 2006 to 2009. This meant that over the old ages Clive Peters Limited had relied a batch on adoptions from external loaners for their concern activities.

Current Ratio

This ratio helps users to calculate out the ability of a concern to pay its short term liabilities. The expression for current ratio is as follows:

Current Assets/Current Liabilitiess

If a company has a higher current ratio, it indicates that the company would be able to pay its short term liabilities like: debts and payables utilizing its hard currency, stock list and receivables.

For Clive Peeters Limited the current ratio for the period of 2006-09 are as follows:

For 2006:

115.3/83.5

=1.38

For 2007:

140.5/114.9

=1.22

For 2008:

193.0/138.0

=1.40

For 2009:

158.9/111.1

= 1.43

This clearly indicates that Clive Peeters Limited ‘s ability to pay its current liabilities like payables and debts were clearly diminishing utilizing its current assets like hard currency, stock list and receivables over this peculiar period of clip which certainly is non a good mark. This implies that Clive Peters Limited was unable to pull off its hard currency decently and had a terrible loophole in their hard currency direction system.

Debt Ratio

A debt ratio refers to the sum of the debt a company has in respects to its assets. It is calculated utilizing the undermentioned expression:

Entire Debt/Total Assets

The higher the ratio indicates the lower the opportunity of a company to pay its debts utilizing its assets.

For Clive Peeters Limited the debt ratio for the period of 2006-09 are as follows:

For 2006:

87.6/159.2

=0.55

For 2007:

118.1/195.7

=0.60

For 2008:

174.8/255.0

=0.68

For 2009:

150.8/220.2

= 0.68

The figures clearly indicates an upward motion of debt ratio which indicates over this peculiar period Clive Peeters Limited ‘s debt in comparing to its assets increased rather tremendously.

Acid Test Ratio

This ratio helps users to calculate out whether a company can pay off its current liabilities like payables and debts utilizing merely its hard currency, receivables and current investings but non utilizing its stock list.

If this ratio falls below 1, a company normally has to work out its scheme with utmost cautiousness so that in instance of bad times they do non fall into any fiscal adversity and go unable to pay their debts. It is calculated utilizing the undermentioned expression:

( Cash +Accounts Receivables + Short Term Investments ) / Current Liabilitiess

For Clive Peeters Limited the acerb trial ratio for the period of 2006-09 are as follows:

For 2006:

41.2/83.5

=0.49

For 2007:

41.6/114.9

=0.36

For 2008:

61.7/138.0

=0.45

For 2009:

150.8/220.2

= 0.46

From the figures it is rather clear that through out the whole period Clive Peeters Limited ‘s acerb trial ratio was below 1 which indicates that in instance of fiscal adversity Clive Peeters Limited would confront trouble to pay off its current debts utilizing its hard currency, receivables and other signifiers of short term investings.

Timess Interest Earned Ratio

Again this ratio is used to bespeak whether a company would be able to pays its debts. It is calculated utilizing the undermentioned expression:

EBIT/total involvement payable on bonds and other debts

This ratio normally indicates how many Numberss of times a company can pay its involvements on debts utilizing its pretax income. Sometimes if a company is unable to keep a certain times involvement ratio may enable its creditors to set about farther actions.

For Clive Peeters Limited the Times Interest Earned ratio for the period of 2006-09 are as follows:

For 2006:

19.51/1.4

=13.94

For 2007:

20.51/27.2

=0.75

For 2008:

17.3/16.7

=1.04

For 2009:

( 8.1 ) /14.1

= ( 0.57 )

From the above Numberss we can easy understand that over the old ages of clip Clive Peeters Limited ‘s Times Interest Earned ratio dropped dramatically to a negative figure on 2009 which finally forced Clive Peeters Limited to be declared as insolvent.

Cause of Clive Peeters Limited ‘s Collapse

One of the major subscribers of Clive Peeters Limited ‘s prostration was the larceny by its ain company comptroller for an sum of $ 20 million dollars. In her two twelvemonth period as an comptroller of Clive Peeters Limited, Ms. Sonya Causer had been involved in stealing of about 19 million dollars deserving of money which subsequently she used to purchase herself 44 belongingss and expensive autos and jewelry. Harmonizing to the prosecuting officer in charge of this instance a primary cause of the prostration of Clive Peeters Limited was this larceny and the bad image that they earned due to this incident.

Apart from this, excessively much debt and adoptions from external creditors were another ground held for Clive Peeters Limited ‘s prostration. During the clip it was dining it used rather a significant sum of debt to spread out its concern but every bit shortly as the economic system was hit by a recession a people stop purchasing luxury goods like plasma TVs and LCD TVs Clive Peeters Limited started to see its effects.

To increase their volume of gross revenues Clive Peeters Limited kept on supplying price reductions to their clients. Since their price reductions were on reasonably much all through the twelvemonth, when the economic system was hit by recession and people stopped purchasing their merchandises they could non even reach their breakeven.

The size of Clive Peeters Limited is another of import factor to be considered. With merely 45 shops across all over Australia it would be considered as a reasonably a medium company comparison to its direct rivals during that clip like Harvey Norman. Harvey Norman could easy supply immense price reductions to its clients and still could do net income border due to its size but it ‘s non as same for Clive Peeters Limited. But Clive Peeters Limited tested to follow the schemes of Harvey Norman and finally paid the monetary value.

Overall it can be concluded that Clive Peeters Limited had serious defects in their concern theoretical accounts which finally made them to pay in a heartfelt way. Trusting on excessively much debt, excessively much discounting, and following its rivals ‘ schemes and non coming up with some distinguishing schemes were the chief grounds for its death ( Thomson 2010 ) .

Status Quo of Clive Peeters Limited

Clive Peeters Limited collapsed and went into voluntary disposal on 19th of May, 2010. During that clip the appointed decision makers started to look into whether the company could be preserved through a title of company agreement or a sale ( Stafford et al 2010 ) .

There are different types of external disposal in instance a company is in fiscal adversity. The chief three of them are as follows:

Receivership

Voluntary Administration

Liquidation

Both receivership and voluntary disposal are methods to maintain a company alive during their clip of fiscal adversities. The chief difference between them is that in instance of receivership, the procedure is being initiated by one of the secured creditors of the company. Normally they appoint a receiving system who tries to sell the assets of the company in order to retrieve the money of the company ‘s creditors. On the other manus, in instance of voluntary disposal, an decision maker is appointed by the tribunal who tries to maintain the company afloat by reconstituting its schemes, selling portion of it and cut downing the costs incurred by the company.

Liquidation is the procedure by which a company is brought to a complete terminal. All the assets and belongingss are distributed amongst company ‘s creditors following a certain order. After the company is liquidated it would no longer be in that name and the company would be de-registered from Australian Securities and Investment Commission ( ASIC ) . ( Harris et al 2009 ) .

Decision: Personal Position on the Future of Clive Peeters Limited

We all know that portion of the Clive Peeters Limited ‘s concern was bought by Harvey Norman Holdings Limited after it went into voluntary disposal. Its original name was kept as it is and its staffs in some of its shops were being able to maintain their occupations. In my position, though Harvey Norman has bought portion of its concern, to maintain the company afloat more money demands to be injected and its whole concern construction needs a restructuring. Otherwise, it is traveling to be really hard to maintain Clive Peeters Limited from acquiring liquidated.

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