How did the intangibles get on the balance sheet in the first place? Simply from an accounting perspective, the asset is a debit, then what was the credit? Was it an income item? Were intangibles used to inflate income and under what accounting treatment was this allowed?
The Vocation Limited along with its group was one of the largest vocational training providers in Australia. This group was publicly listed in Australian Stock Exchange and had 22 corporate entities. The group conducted the operation of providing vocational training through online and face-to-face courses. One of the reasons for liquidation is the poor operational procedure of the company. This procedural problem has forced various government clients to review the effectiveness and appropriateness of the courses provided to the student. The another reason that led the company to liquidation is that due to the adverse effect of the review the funding that was received by the government clients are repaid.
The primary problem comes from the different sets of decision-making issues and operational issues that has resulted towards misrepresentation of financial statements, non-adherence to different sorts transparency and good governance practices. The company was engaged in providing numerous sets of educational services and thereby was dependent upon the feedbacks and reviews gather from both individuals and government clients. The number of students seeking educational courses at its Avana, TDA and other colleges, under the purview of the group, has been left with no other options apart from dropping a year or seeking education elsewhere (Preiss, 2015). The subsequent evaluation of the different sets of courses has resulted towards aggravating the prospects of the company as large form of operational and financial performance issues were cropping up. The problem ensued when the Bawn and Aspin colleges received less than favorable reviews resulting in loss of grants and contracts from Victorian Government. There high quantum of degradation faced by the company in terms of depleting levels of reputation has resulted in long terms repercussions upon the company’s financial stability.
The anticipated announcement to be made by Victorian Department of Education has resulted in the company seeking lifting of voluntary suspension of trading in the ASX during October 2014. This was followed by earning update coupled with change in management structure with departure of CEO and MD Mark Hutchison 28.01.2015 Vocation on block as CEO resigns. (2015). The reviewing of strategic positioning of the company followed by effort made on the part of the company to disclose financial information has failed during the latter part of 2015. Therefore, the request made on behalf of the management regarding resuming of trading activities failed resulting in an extension on the suspension. As of 30.11.15, the company was on the verge of dissolution resulting from the high magnitudes of customer contact terminations (delisted.com.au 2016). The recent sets of nonpayment of listing fees for the ASX resulted towards extended suspension of trading stocks (The rise and fall of Vocation. 2014). Three primary issues in the current case arise from the degree of mismanagement in terms of company operations showcased by the company performance. The inconsistency in terms of asset management and managing of operations resulted in insolvency on the part of organization. The degree of irrationality on the part of the company towards non-disclosure of financial information in turn has extended suspension of trading of Vocation Limited’s stocks.
Operational and Financial Performance Issues
The suspension of securities of Vocation Limited from trading in the ASX coupled with the lack of support from different sets of shareholders tends to display the magnitude of financial management issues. The companies under the group tend to represent dormant class of assets thereby resulting in deficiency towards repayment prospects. The subsequent failure on the part of the group in several class action lawsuits along with the premises of unethical corporate behavior and mismanagement of stakeholder’s interests has had a cascading affect on different degrees of financial metrics (16-334MR ASIC commences civil penalty proceedings against Vocation Limited (in liquidation) | ASIC - Australian Securities and Investments Commission. 2016)..
The fluctuations and subsequent drop of the different stock prices has ended in several lawsuits that were conducted upon the company by its different stakeholders that complained regarding the policies implemented by the government. The materiality principles state the fact that adequate disclosure of company policies can in turn be beneficial for undertaking relevant financial and investment decisions. By depriving the material knowledge regarding Vocation’s stakeholders, the company has aggravated its financial performance. Thereby, the class actions cases have resulted in the stakeholder getting the required degree of compensation to the aggrieved stakeholders.
On analysis of the financial statement, it can be seen that the company acquired several business in 2014 and has made significant growth in the revenue. The primary expense of the group is relating to the delivery of the course, contract costs and employee cost. These expenses increased in the year 2014 due to the expansion activity of the company. In 2015 due to operational inefficiencies, there was a significant reduction in the revenue of the company. In 2015, a review was ordered by the DDECD on the three courses offered by the company and its group in order to ensure compliance. It is concluded from the review that some students were enrolled in wrong courses. It was further highlighted in the review procedure that few of the quality procedure of the group were inadequate and hence the company faced reputational damage that adversely affected the profit and finance of the company. The direct impact of the adverse review was that approximately $20 million of the government funding was withdrawn from the company and as result, the operation of the Aspin and BAWM was ceased (How the threat of class actions resulted in financial ruining of Vocation. 2015). There was further review that was conducted by the government that further highlighted the operational weakness of the company as a result $27 million government funding was withdrawn.
Customers and Stakeholders Impact
The company suffered from the loss of several institutional customers and this mainly due to the negative reviews of the public surrounding the organization. The review about the organization was regarding the enrollment of the students in such courses, which were inappropriate. The quality procedures of the group were also inappropriate. The funding by the government in reviewing the groups were withdrawn as it was resulting in expenses and this resulting in the ceasing of the operation of Aspin and BAMW (How John Dawkins' Vocation went wrong. 2016). The organization suffered several reputational damage due to the review conducted upon it. This caused a decline in the referral of the Vocation group by the third party. The company witnessed a great decline in the revenue due to the negative reviews getting prevalent. And this was compounded by the disposal of its various groups. In the financial year 2015, the group’ revenue suffered a great decline and this was accompanied by the loss resulting from the disposal of the assets. Mainly the factor that relates to the customers contracts has been at the forefront in terms of unsatisfactory level of financial performance (Ferrierhodgson.com. 2016).
Goodwill and relationships were mainly attributable to its decline. The provisions of revenue also increased due to the increment in the legal and the consulting fees. This resulted in the termination of the customer contracts and resulted in the unavailability of the funds for operations and the key stakeholders support was lacking due to which the operation of the company under this group was ceased. Therefore, it is sought that appointing the voluntary administrator would be the better option so that the interest of the creditors, shareholders, staffs and the students of the organization is protected. The organization should also consider the strategic reviews so that all the available options are considered.
There were several issues regarding the disclosure of the obligations by the company, which resulted in the commencement of the action lawsuits of the several classes. Some of the information that was disclosed to the creditors was considered inappropriate. The indispensable information relating to the disclosure needs to be provide to the creditors The proceeds realized from the sale of the intellectual property would be made available to the creditors if the proceeds from the non circulating assets would have less priority over the secured creditors of the first ranking until the time the debt is repaid fully. Other includes the details that are generated from the proceeding of the litigation and the potential recoveries. The various details that the ongoing concern receives from the sale proceedings should also need to be disclosed. The company made not all the necessary disclosures to its stakeholders.
The Review and Consequences
In order to overcome these operational inefficiencies identified in the review the solution that can be suggested is to provide appropriate work force for various operation that is needed to be performed. Further, there should be proper checks and balances so that no process of the company is unchecked. The company should also conduct operational audit in order to identify weakness and gaps that exist in the operation.
The suggested solution will help the management of the company to identify the problems that exist in the operations. This will help the management to plan appropriately so that the weakness could be overcome. The suggested solution will not only help to improve the operational capacity of the company but it will also affect the financial condition of the company. The financial condition is improved as the operational errors are removed and the reputation of the company is improved. The only weakness of this suggestion is the cost involved in the implementation of the operational audit. On analyzing the condition, it can be said that the benefit of the operational audit much surpasses the cost so in order to avoid the liquidation the operation should be implemented.
The limitation of examining the operation of the company is that it is a long and time-consuming process. In order to avoid liquidation, the solution cannot give immediate result and thereby is not of any pertinence in case of improving the current sets of liquidation measures.
The obligation to make the disclosure is included in the guide of reporting principles of the company and the practice of corporate governance need to be disclosed. This is regarded as the central to the governance approach of ASX and the company needs to provide a well-reasoned explanation as per the council of ASX corporate governance. The ‘’if not, why not’’ approach concerning the adherence towards the ASX guidelines tends to foster good corporate governance practices amongst the different companies that are listed on the ASX (asx.com.au 2016).
The above report focused towards evaluating the reasons behind the financial performance of Vocational Limited and evaluated the different factors that arise out of the dissolution. The report has been prepared in conjunction with different news reported over the past two years regarding the operations that has arisen from managerial and financial circumstances.
References and Bibliography:How the threat of class actions helped kill Vocation . (2015). Financial Review. Retrieved 5 October 2016, from https://www.afr.com/business/how-the-threat-of-class-actions-helped-kill-a-company-20151203-glec6g
delisted.com.au (2016). Retrieved 5 October 2016, from https://www.delisted.com.au/company/vocation-limited
asx.com.au (2016). Retrieved 5 October 2016, from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf
Preiss, S. (2015). Up to 12,000 students in limbo after Vocation collapse. The Sydney Morning Herald. Retrieved 5 October 2016, from https://www.smh.com.au/business/banking-and-finance/up-to-12000-students-in-limbo-after-vocation-collapse-20151126-gl8xfw.html
16-334MR ASIC commences civil penalty proceedings against Vocation Limited (in liquidation) | ASIC - Australian Securities and Investments Commission. (2016). Asic.gov.au. Retrieved 5 October 2016, from https://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-334mr-asic-commences-civil-penalty-proceedings-against-vocation-limited-in-liquidation/
Vocation on block as CEO resigns. (2015). Theaustralian.com.au. Retrieved 5 October 2016, from https://www.theaustralian.com.au/business/news/vocation-limited-on-block-as-ceo-resigns/news-story/476f37171d68701a687a1b24c3373ce5
The rise and fall of Vocation. (2014). Financial Review. Retrieved 5 October 2016, from https://www.afr.com/news/policy/education/the-rise-and-fall-of-vocation-20141031-11fmvu
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