Rezwan Khandakar Pyash (5220981)
Tuesday 6.30-8.30
Summary;
The Australian corporate world was shaken by the demise of another major collapse, named One.Tel in 2001. One.Tel went into liquidation being the fourth largest telecommunications company in Australia who boosted more than two million customers and were operating in eight countries.
One.Tel Limited was established in 1995 in Sydney by two well-known entrepreneurs, Jodee Rich and Bradley Keeling. The company grew at a very substantial rate, and accomplished a great deal in a short time. One.Tel’s dramatic up-rise and decline was caused due to lack of corporate governance including weaknesses in internal control, financial reporting, audit quality, unethical practices by auditors as well as directors.
One-Tel, one of the ASX’s fastest growing companies, posted an operating loss of AU$291 million in the year of 2000, and ceased its operations in May 2001.
One.Tel started to grow very rapidly after its establishment. It started with 1000 subscribers in 1995 but in a span of 4 years its turnover was $326 million with 642000 subscribers and had an operating profit of $9.9 million. However, though its sales revenue were increasing with each passing year but the cash conversion ratio was too low. Which means though the sales were increasing but the company was getting short of cash.
During 1998-1999, the company was expanding rapidly which required cash and as the cash conversion was low, and One.Tel was paying their suppliers in cash. The company was getting short of cash. While sales revenue increased per year but cash collection were not fast enough to back up rapid expansion the company was undergoing. In 1999-00 cash collections were reduced by 55% than last year though One.Tel was paying their suppliers on cash. Merrill Lynch forecasted that One-Tel would run out of cash by April 2001. And eventually it did. By March 2001, One.Tel’s cash reserve got reduced to A$35 million and within a month, on 19 April 2001, the company’s cash balance plummeted to A$25 million.
Though the company was on the verge of collapse, nobody seemed to care. The 1999-2000 expenditures show that, the company bought telecommunication licenses in March 2000, which cost them A$523 million. Which is ridiculous and the amount. The amount was ten times of what telecom giants like Optus, Vodafone, and Telstra had paid to get the similar kind of licenses during that period.
The unethical practices of directors and auditors also made the collapse swift and abrupt. Because they knew the real situation but were silent. In 1998-99, 3 directors along with the board chair’s combined remuneration was $2.3 million compared to after tax profit of $6.9 million of the whole company whereas in 1999-2000, 5 directors earned A$ 15.5 million which included which included a performance bonus of around $6.9 each for both the CEOs. It’s the year when the company incurred a staggering loss of $295.9 million.
We can say the directors...
