How Can The Corporations Law In Australia Be Changed To Prevent Another Hih Collapse?

3375 words - 14 pages

IntroductionIn order to critically discuss ways which the corporations law could be changed to prevent another HIH collapse, one must first identify the reasons for the collapse. Once these reasons are identified it will provide the information as to how the corporations law could be changed and whether the US approach to regulation of corporate governance after the Enron collapse is a more appropriate approach to reform of corporate governance regulation.Purpose of CorporationsCorporate structures in Australia are based on the member approach of corporate control. The achievement of corporate goals and profit maximisation is monitored by the owners of the corporation, the members. It is to they whom corporate management is accountable. The key is to align the interests of those who control the company with the interests of those who own it. Since corporate entities play such a significant role in business and investment activity, government in Australia has sought to achieve a balance between effectively regulating corporations whilst at the same time not hindering the development of an efficient and competitive business environment. Once there is an appropriate balance, then efficient mechanisms to establish and promote good corporate governance will be ensured without placing the business under excessive burdens.Australian Corporate GovernanceAustralia's corporate governance framework consists of legislation, accounting standards, ASX listing rules, and voluntary self regulation. The Corporations Act 2001 (Cth) attempts to ensure that companies adopt the best practice for corporate governance principles. It does this by setting out minimum standards, whereby companies are free to establish higher standards of self governance if they so specify in their constitution. The rationale behind heightened corporate governance is that investors and stakeholders will be likely to invest, thus the corporate governance brings with it tangible benefits. However it has been a lack in this corporate governance that has allowed for the recent spate of world wide corporate collapses.Because of this, there has been renewed interest in the adequacy and appropriateness of corporate governance practice, disclosure, and deterrence measures contained in legislation and professional standards for accounting, auditing, and ethics. Reforms in the legislation are aimed at restoring confidence of the shareholder and other stakeholders.HIH CollapseSurprising to some, the Royal Commission did not find fraud to be behind the collapse of HIH. Instead, poor corporate governance leading to unsound choices in acquisitions and corporate strategy based on the misconception of available moneys that was non existent. According to the report of the Commission, the primary reason behind the collapse of HIH was its mismanagement of its core business, that is, the pricing of policies and providing for insurance claims. The most significant of the poor commercial decisions made by HIH...

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