CORPORATE LAW

Group no-6
Ahmed- (31) Shama-(32) Santosh- (33) Soloman-(34) Kanishk- (35) Shudhodhan-(36)

winding up

INTRODUCTION MEANING OF WINDING UP:

Process of putting an end to the life of a company. In the course of such a dissolution, its assets are collected and debts are paid off. Winding up is the prior stage and dissolution is the next.

Types of winding up

Winding by the court Voluntary winding up

Procudure of winding up by court

Appointment of liquidator Statements of affairs Report by official liquidator Custody of companys property

Procedure for voluntary winding up

By ordinary resolution By special resolution

Case study

CASE STUDY ON WINDING UP THE FALL OF BARINGS BANK

INTRODUCTION

Barings was founded in 1762, by Francis Baring who set up a merchant banking business in Mincing Lane in London, UK. It became one of the mot influential financial houses. Barings provided loans to Argentina, US, Canada and several other American countries. In 1890, Barings was on the verge of bankruptcy when Argentina defaulted on bond payments. The crisis led the bank to withdraw all its business on the North American continent.

Continued

Barings then took up the business of providing consultancy to small British firms on investing in stocks and bonds. They also advised wealthy people including the British royal family on the management of their assets. In the 1980s, the bank started operating in the US again. In 1984, Barings acquired the stock broking arm of Henderson Crosthwaite, which later became BSL. Prior to its merger with the banking business (Barings Brothers & Company) in 1993, BSL was run as a separate company.

Continued

The Barings Future in Singapore (BFS) was incorporated in September 1986. It was established to look after the banks Singapore International Monetary Exchange (SIMEX) trading operations. Nicholas William Leeson, was the General Manager of Barings Future in Singapore (BFS). Leesons job was to make arbitrage profits by taking the advantage of price differences of similar contracts on the SIMEX and Osaka stock exchange.

REASONS/EVENTS LEADING TO THE FALL

Not having authority, Leeson traded in options and maintained un-hedged positions. Acted beyond the scope of his job, and was able to conceal his unauthorized derivatives trading activities.

Due to the senior managements carelessness and lack of knowledge of derivatives trading, the bank landed up in a major financial mess.

Continued

Leeson traded on derivatives that were of different types and in some cases were of mismatched amounts.
In his capacity as a GM, Leeson was given the authority to hire traders and back office staff. Leeson used an error account 88888 to conceal the trading losses, and made cross trades to deceive the management.

Result of Leesons Trading Activities

Period Reported (mil) Actual (mil) Cumulative Actual (mil)
- GBP 23

Jan to Dec 1993

+ GBP 8.83

- GBP 23

Jan to Dec 1994

+ GBP 28.529

- GBP 185

- GBP 208

Jan to Feb 1995

+ GBP 18.567

- GBP 619

- GBP 827

The cumulative actual represents Leesons cumulative losses carried forward

WHY DID IT HAPPEN?

Analysts felt that this disaster happened for the following reasons:

Improper Control Procedures. Separation of Front and Back Office Duties. Lack of Supervision/Involvement of Senior Management.

THE END RESULT

Shock in financial markets
On February 26, 1995, Barings was declared insolvent under the UK Insolvency Act, 1986. The bank with a total net worth of $900 million had suffered losses in excess of $1 billion. A week later, all the assets and liabilities of Barings Bank and its subsidiaries (except BFS) were acquired by the International Netherland Group

STEPS BARINGS COULD HAVE TAKEN TO AVOID THE COLLAPSE analysts: According to some

The misrepresentations and arguments given by Leeson were not water-tight, and could have been easily probed into with a little vigilance.
By using a simple software program, the senior management could have easily calculated the margins required in Leesons trading operations, and could have arrived at the conclusion that he was asking for significantly more money.

Contd

Involvement of senior management

Balance of authority & responsibility Proper Control Procedures

Thank you