CORPORATE FAILURES

Dr. AbdelGadir Warsama Ghalib

Understanding the reasons for corporate failures and the ways and means of stopping or rectifying such failures, is always of paramount importance. Some of the reasons that could cause corporate failures may include issues that relate to the equity ownership of the corporation, directorship and management of the corporation, structure issues ... etc.

The equity ownership of companies as a matter of fact and law takes different ways and forms, such as, family ownership or partnership ownership or equity shareholding ownership. Each of the mentioned categories has got, if we could say, it’s pros and cons.

Regarding family ownership, we have to mention that, many companies diminish or disappear from the scene after the first or the second generation establishing or starting the business. Failures could occur in family business due to lack of capital, business information shortage, lack of vision, conflict of interest or other reasons.

With reference to partnerships, being simple or general, the failure of the corporation could happen to differences between the partners regarding the business or future activities of the partnership. Lack of industry or good market or business. The partners or one of them, also, may face some financial or logistical problems that affect his \ her role or involvement in the company.

Equity shareholding companies are not free from such instances and they face certain difficulties regarding ownership of the company. This is obvious from the fact that we seldom notice the involvement of most shareholders in the activities or affairs of the company. Many shareholders are completely ignorant about what is happening in their company and this attitude, in certain cases, led to the failure of the company.

In some instances, with reference to this type of companies, the board of directors or the senior management of the company could be the direct cause for the failure of the company. This happens when they are not exercising or performing their duties properly and there is no body or authority to question them due to the absence or misapplication of the corporate governance rules.

The management of companies and corporations requires leadership with vision and mission. This vision and mission should be maintained in all cases, being family companies or equity shareholding companies. The proper management of corporations includes good planning for present and future operations in a satisfactory way and method that leads the business of the corporation to add real and material value for its shareholders & stakeholders.

The law, the company law almost in all places, includes certain specific provisions that should be followed all through the life span of the corporation. These provisions, we believe, will safeguard the interests of the companies and could help in escaping the risks that cause corporate failures.

The company laws include some provisions regarding the absolute right of the shareholders to closely follow the affairs of the company during the annual meetings or at any other time as they see appropriate. The required mandatory disclosure by the management of the company to the shareholders and the competent authorities is a continuous legal requirement that should always be implemented. Disclosure, no doubt, enables the shareholders or the required party to take the appropriate steps in the appropriate time.

The are many other legal duties, such as, the duties of the external auditors and their mandatory role in safeguarding the genuine interests of the company, the shareholders and the community in general. The external auditors are required by the law to inform the competent authorities in certain cases where there are clear unattended serious violations by the management.

The law gives the competent government authorities the right to intervene at any time and take the required appropriate actions to safeguard the interests of the company or the shareholders. We believe that, the legislator gave such legal

authority to the external auditors and or the competent authorities so as to enable them to take corrective actions to escape, avoid or mitigate corporate failures.

In certain cases, we have noticed that, certain governments are always ready to take drastic measures and steps to avoid failures of certain corporations that represent the national image. In this respect, of course, Governments take such measures based on legal authorization and this authorization can be used in all cases because the law applies with respect to all corporations being small or big corporations.

Generally speaking, we could say that the law includes many ways and means to help in the proper implementation of corporate governance in companies. Such measures could help to a great extent in avoiding many corporate failures. However, we believe that, the shareholders in companies should take more positive actions to improve the affairs of their companies and this could lead to positive progress and keep their companies far away from failures. Please, make sure to take care of the affairs of your company, to maintain its existence and survival... You are responsible...