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Our Case Study Presentation

Presented by……Bright-Sparks
Group name: Bright-Sparks
Program: MBA(Evening) Batch: 32nd, Section: A
Department of Finance

ID Name
32022 Raufur Rahman Tamal
32040 Humayun Kabir Rajib
32024 Naser Uddin Mahmud
32019 Joy Dip Paul
32055 Mahbubur Rahman
Now Presenting...(M-1)

Raufur Rahman Tamal

ID: 32022
 Company Profile
Company name Polly Peck International (PPI)
Former type Public Company
Founded 1940
Headquarters London (UK)
Chairman and CEO Asil Nadir
Employees 17,000
Industry Textile
Product Textile
Bankrupt and broken up 1990
 Asil Nadir Early Life
 In May 1941 Asil Nadir born in Asil Nadir

Cyprus to a Turkish Cypriot family.

 In 1959, Nadir family emigrates to
London.
 Not long after arriving in London,
Asil Nadir travelled to Turkey to study
economics at university in Istanbul.
 Asil Nadir Early Life (Cont.)
 He did not complete his studies, but married Aysegul and
returned to London.
 Asil Nadir joined the family business and set up a clothing
company called Wearwell.
 Despite fierce competition, Wearwell prospered under
Nadir’s management and branches were opened outside
London.
There seems little doubt that Asil Nadir was a charismatic and
hard-working businessman.
 In 1993, Asil Nadir flees to northern Cyprus.
 Case Summary
In October 1990, Polly Peck, a large UK quoted company,
was placed into administration. At the beginning of
August 1990 the share price had stood at 418p, but by 20
September 1990 it had fallen to 108p. This represented a
loss of nearly 75 percent of their value in under two
months. At this point, trading in the shares was suspended
by the London Stock Exchange and Polly Peck collapsed
with debts estimated at £1.3bn.
 Case Summary (Cont.)

The Serious Fraud Office (SFO) prepared a case against

Asil Nadir, chairman and chief executive, accusing him
of theft and false accounting, but before the trial could get
under way Asil Nadir dramatically fled the UK in 1993
for the comparative safety of northern Cyprus. It seems
that, until the legal process is finally completed, many of
the questions relating to Polly Peck will remain
unanswered.
Now Presenting...(M-2)

Humayun Kabir Rajib

ID: 32040
 Case Summary (Cont.)
Polly Peck Key Events
Year Key events
1973 Wearwell is floated on London Stock Exchange
1980 Nadir gains control of Polly Peck
1982 Niksar water-bottling plant set up in Turkey
1983 Vestel joint venture (with Thorn-EMI)
1989 Company name changed to Polly Peck International and
headquarters moved to Berkeley Square, London
1990 Polly Peck buys Del Monte and 51% stake in Sansui 1990
Nadir announces private bid for Polly Peck (August); Nadir
interviewed by SFO (September); Polly Peck placed in
administration (October); Nadir arrested (December)
 Question: 01

Discuss the advantages and disadvantages of allowing

one individual to act as both chairman and chief
executive of a quoted company.
 Answer of question: 01
The chairman and Chief Executive Officer (CEO) have
different types of interest to a quoted company. When the
same person holding these both positions, there must have
some advantages and disadvantages.
Advantages:
The CEO, as the manager of the corporation, has a superior
knowledge of the operations of the business. When that
role is unified with his role as Chairman of the Board, one
person occupying both of these roles may better be able to
lead the corporation and to identify any problems that may
arise.
 Answer of question: 01 (Cont.)
Advantages:
This can provide superior knowledge to the board and
increase the information available to it. This unified
leadership structure creates efficiency by allowing the
unified executive to operate in both capacities at once. The
other board members can have confidence that their
Chairman/CEO is fully aware of the corporation’s
strengths and weaknesses, along with what issues need to
be addressed moving forward.
 Answer of question: 01 (Cont.)
Disadvantages:
This is further complicated by the fact that the CEO is hired
and fired by the board. An independent Chairman of the
Board can create an independent source of authority with
tangible authority to address the concerns of the board.
This independent perspective creates an opportunity for the
board to more effectively address any abuses that may
occur, and to address any concerns about the performance
of the CEO.
Now Presenting...(M-3)

Naser Uddin Mahmud

ID: 32024
 Question: 02

Should the banks have been more cautious in lending to

Polly Peck and to Asil Nadir?
 Answer of question: 02
Yes, the banks should have been more cautious in lending
to Polly Peck and to Asil Nadir. The reasons are
discussed below:
1. At the same time, Asil Nadir was both chairman and
chief executive of Polly Peck Company. He was a
whimsical person and some of his decisions were
volatile. Sometimes all the major decisions were taken by
Asil Nadir without discussion with other board of
members. For this reason, the banks should have been
more cautious in lending to Polly Peck and to Asil Nadir.
 Answer of question: 02 (Cont.)
2. It was difficult to a single person properly operating and
monitoring many businesses in the different location. So,
the banks should have been more cautious in lending to
Polly Peck and to Asil Nadir.
3. Polly Peck had made investment in weak currency
against stable and strong currency which depreciated the
value of the company and it continuously faced
exchange losses. For this reason, the banks should have
been more cautious in lending to Polly Peck and to Asil
Nadir.
 Answer of question: 02 (Cont.)
4. Polly Peck’s most part of the revenue was generated in
northern Cyprus which international status was unclear.
However, Polly Peck’s much revenue was generated in
Turkey which shared border with Iraq. On 2 August,
1990 Iraqi armed forces attacked Kuwait, then its
revenue faced additional element of risk. So, the banks
should have been more cautious in lending to Polly Peck
and to Asil Nadir.
5. Polly peck issued shares, right shares, and debt for its
financing purpose. Additional loan amount would make
Polly Peck and Asil Nadir defaulter.
 Answer of question: 02 (Cont.)
6. It faced liquidity crisis in 1 October, 1990. However, Mr
Nadir was not succeeding in selling anything including
his personal assets. It is clear that if the bank issued loan
for Polly Peck and Asil Nadir, there would be chance of
becoming defaulter. For this reason, the banks should
have been more cautious in lending to Polly Peck and to
Asil Nadir.
7. Before providing loan, every bank determines the credit
worthiness of potential borrowers through five Cs
(Character, Capacity, Capital, Collateral, and Condition).
 Answer of question: 02 (Cont.)
The banks had aware of activities of Polly Peck and Asil
Nadir by the newspapers and several reports. Polly Peck
and Asil Nadir violates the five Cs which are given
below in the following table:
No. Five Cs Violation of five Cs in this case
a. Character: Character refers to a Upto 1989, it was assumed that its
borrower's reputation. character was good but in the mid
1990, its character faced question.
b. Capacity: Capacity measures a Polly Peck and Asil Nadir had been
borrower's ability to repay the loan lost capacity in October, 1990.
by comparing income against
debts.
 Answer of question: 02 (Cont.)
No. Five Cs Violation of five Cs in this case
c. Capital: Capital is the amount of In 1990, Polly Peck and Asil
money in which bank considers the Nadir had big chance to become
amount of contribution of borrower. defaulter, if they would get
If the borrower contributes the large capital from bank.
amount of capital in investment, it
may reduce the chance of default.
d. Collateral: Collateral helps to secure Polly Peck and Asil Nadir did
the loan such as property or large not have sufficient collateral
assets. against loan amount.
 Answer of question: 02 (Cont.)
No. Five Cs Violation of five Cs in this case
e. Condition: Condition refers to Upto 1989, it was assumed that
the interest rate and amount of Polly Peck and Asil Nadir’s
principal. condition were good but in the mid
1990, they were unable to meet the
condition.
Outcome of five Cs: The violation of five Cs created negative impression
about Polly Peck and Asil Nadir among banks for this reasons the banks
should have been more cautious in lending to Polly Peck and to Asil Nadir.
Now Presenting...(M-4)

Joy Dip Paul

ID: 32019
 Question: 03

What do you believe are the main lessons that can be

drawn from the collapse of Polly Peck?
 Answer of question: 03
The main character of this case is Asil Nadir who first
appeared as a hero and legend after that he became the one
who hurts the whole shareholders and the business market
just for the sake of his own interest and selfishness.
1. Power and authority:
The company need to be diversified their powers in
different hands so that it will be remain competitive and
strong and will remain in the market as long as possible.
Like here Nadir was both the chairman and CEO and he
was investing blindly without any regard that will be the
effect of this investment on their company in the future.
 Answer of question: 03 (Cont.)
2. Internal and external auditor:
In the favor of company strength they need to keep eye on
their incoming and outgoing transactions and funds and to
be aware that the investment and decision taken by
organization is in the favor of their future. Here Nadir was
investing for the sake of his own future not for the future
and they did not ask for the invested amount from him.
 Answer of question: 03 (Cont.)
3. Strength and focus:
Nadir was clever and going good in expanding the business
of Polly Peck but for the best strength and competitive
organization they must keep their investment limited and
focus hard on where the invested before.
4. Bank and financial institution:
There should be a limit of loan and the bank and financial
institutions as well as the company must be aware of the
limitation of their loan. Nadir borrowed a lot of money on
company name and invested that loan in his own industry
but their company was still not aware of his act.
Now Presenting...(M-5)

Mahbubur Rahman
ID: 32055
 Question: 04

Identify the stakeholders who were most disadvantaged

by the collapse of Polly Peck.
 Answer of question: 04
Stakeholders are individuals or groups who have interest in
activities of the company and power to influence the
strategy of the company. Stakeholders are in an exchange
relationship with the company.
 Contribution: They supply important resources to the
organization.
 Inducement: They expect that their interests will be
satisfied by the company.
 Answer of question: 04 (Cont.)
Different stakeholders possess different levels of interest
and power to influence the company. More powerful
stakeholders have more interest.
Types of stakeholders Nature of Power to Level of
stakeholders influence interest in
strategy activities
Shareholders (Major stakeholder) Internal High High
stakeholders
Managers Internal Moderate Moderate
stakeholders
Board members Internal High High
stakeholders
Employees (Major stakeholder) Internal Low Moderate
stakeholders
 Answer of question: 04 (Cont.)
Types of stakeholders Nature of Power to Level of
stakeholders influence interest in
strategy activities
Creditors External Moderate Moderate
stakeholders
Customers (Major stakeholder) External Low Moderate
stakeholders
Suppliers External High High
stakeholders
Governments External High High
stakeholders
General public External Low High
stakeholders
Local communities External Low High
stakeholders
 Answer of question: 04 (Cont.)
In this case, the stakeholders were most disadvantaged by the
collapse of Polly Peck, they were identified as below:
1. Shareholders:
Shareholders were faced these disadvantages by the
collapse of Polly Peck:
Losing share capital:
In May 1991, the administrators had predicted that the shareholders
would receive 52 pence for every £1 but the administrators’ costs
amounted to £8.4m.
In British corporate history that the process of administration has been
a complete fiasco because the administrators’ costs were greater than
the recover money from Polly Peck’s.
 Answer of question: 04 (Cont.)
2. Creditors:
Creditors were faced these disadvantages by the collapse
of Polly Peck:
Losing debt capital:
In May 1991, the administrators had predicted that the
shareholders would receive 52 pence for every £1 but the
administrators’ costs amounted to £8.4m. By 1993, it
seemed that the creditors would receive only 4 pence in the
pound.
 Answer of question: 04 (Cont.)
3. Employees:
Employees were faced these disadvantages by the
collapse of Polly Peck:
a.Dismissing job: Asil Nadir had suddenly dismissed a number
of key staff. The dismissed staff included Martin Helme
(Finance director of Sunzest which was a subsidiary of Polly
Peck), Martin Brown (Sunzest executive) etc.
b. Becoming jobless: Polly Peck was the largest employer in
northern Cyprus with 8,000 employees. It had more than 100
employees redundant in Cyprus. The employees were feared
that there would jobless. Ultimately, their predication became
true by the collapse of Polly Peck.
 Question: 05

Discuss the proposition that it is not in a quoted

company’s best interests for the director to own a
substantial proportion of the share capital.
 Answer of question: 05
“It is not in a quoted company’s best interests for the
directors to own a substantial proportion of the share
capital”

Now a days it is most debated topic for the quoted company.

In this situation directors are owned substantial proportion of
the share capital. So there is question arise, what is
substantial? In a quoted company, anything over 2% would
certainly be substantial. In this case Asil Nadir private share-
holding in Polly Peck amounted to 26%.
 Answer of question: 05 (Cont.)
• This is the question for the quoted company, is it best
interest for the quoted company or not? When director are
hold substantial proportion of share capital then what
happened?
• Certain more fundamental matters relating to a company
require a special resolution. If director hold 75% or more of
the shares he/she can ensure the passing of a special
resolution. If he/she hold more than 25% of the shares (i.e.
25% plus 1 share) you can block the passing of a special
resolution.
 Answer of question: 05 (Cont.)
• In this case Asil Nadir private share-holding in Polly Peck
amounted to 26%.So that Asil Nadir tries to take Polly Peck
into private group but this is not good for quoted company.
This action makes the investment more risky than before.
• If a director hold a majority of the shares (50% plus 1
share) he/she can pass or prevent the passing of ordinary
resolutions.
 Answer of question: 05 (Cont.)
Ordinary resolutions are:
• Approve a final dividend (though directors will generally
also have the power to declare interim dividends);
• Appoint or remove directors (in addition to the directors’
ability to appoint co-directors);
• (unless the company is a private company with only one
class of shares), authorize the directors to allot shares (and to
renew, revoke and vary such authorization);
• Determine the rights to be attached to any new shares which
are issued;
 Answer of question: 05 (Cont.)
• Approve long-term service contracts (lasting more than two
years) with directors;
• Approve loans to directors or substantial property
transactions with directors (or their connected parties);
• Pay compensation to a director for loss of office;
• Ratify breaches of duty by a director;
• Authorize political donations by the company;
• Appoint or remove auditors or agree limitations on their
liability;
 Answer of question: 05 (Cont.)

• Subdivide or consolidate shares;

• Issue bonus shares to shareholders.

So it is not in a quoted company’s best interests for the

directors to own a substantial proportion of the share capital.
 Some suggestions for this case
Polly Peck is a nice and interesting case in the Corporate
World for achieving the essence of Corporate Governance.
After studying this case, the following suggestions are given:
 The Chairman and CEO (Chief Executive Officer) is to be
different persons.
 All major decisions should be taken with the effective
discussion in the boardroom meeting.
 Investment is to be made in a country which will
politically and internationally be safe for business.
 The company needs to maintain proper accounting
standard and modern accounting procedures.
 Some suggestions for this case (Cont.)
 Some over diversifications may create danger. So,
diversification decision should be taken in an effective
and sensible manner.
 Unreasonable expectations of shareholders on the future
profits may create danger for them. So, they should
engage in investment decision by gathering information
on it, properly studying them and taking calculative risk.
 Making investment in a country which currency will be
depreciated at present and appreciated in the future
against home currency.
 Some suggestions for this case (Cont.)
 Additional information must be given in the footnote for
the stakeholders to make fair playing ground.
 Rumor may create barrier to make a proper investment.
Therefore, the investors must be careful about it.
 The bank and financial institutions should be more
careful before providing any loan. They should
investigate the past record of the company and the
reputation about loan payment.