The Failed Corporations; A Lesson to Learn

1- South Sea Bubble (1711-1720)

Investors had no idea of how their investments were being utilized in the business by the directors. The troubles arose when Spain entered in war with Britain. Directors, knowing the situation, started selling off their investments secretly. This led to a depressing effect on the investors' confidence . As a result issuing shares in the UK was banned (until 1825) and investors started shifting their investments to the U.S. Some historians name this collapse as mother of all failures.




2 - Polly Peck International, PPI (1940-1990)

Asil Nadir, a Turkish Cypriot, took over a major share in PPI as a Chief Executive. The company was mainly in to the electronics trading, but later entered into the trading of foodstuff competing with giants like Chiquita and Dole. A millions of pounds of funds were transferred to subsidiaries in Northern Cyprus in form of payments. These companies were being run by Asil Nadir's son. The company started to default on its payments to creditors which alarmed the board and authorities.Ultimately, the company collapsed.




3 - Maxwell Foundation (1970-1992)

Robert Maxwell misappropriated the funds, including the Mirror Group pension fund, to finance his loss making ventures. Neither the auditors nor the board were able to prevent this misappropriation which led to miserable failures.




4- Barings Bank (1762 - 1995)

Nick Leeson headed the trading of derivatives' operations in Singapore. This business was being run/managed during a 'deregulation period'. There were no controls, segregation of duties and no division between front and back office. The traders were accounting for the transactions either incorrectly or fraudulently and reporting inflated profits to the head office. Nick Leeson was gambling the bank's money (or the public monies). The money kept arriving and Nick Leeson kept gambling. It was the Kobe earthquake which caused a stock market crash (which affected all the tiger economies) resulting in a loss of £800 million to Barings Bank. Ultimately, Barings bank was sold to ING for £1.




5- Enron (1985-2001)

An Energy company headed from Houston, Texas was run by Kenneth Lay, the chairman, who entered in to contracts to deal in energy derivatives. The company had set special purpose entities for off balance sheet financing, in order to channel funds into Enron without the need of reflecting the substance in the accounts, i.e. hide its debt. The company was downgraded by various credit rating agencies impacting the investors' confidence. The share prices were on a free fall and the company faced some serious issues with the cash flow. The results were the same: Wind it!