Internal Code: MAS5510
Accounting Assignment: Case Study:
Willbed Ltd (“Willbed”) has grown significantly since it was started over 30 years ago by brothers Sam and Mack Peterson. The business started out as a general export business but soon specialised in the exporting to live animals and grains to overseas markets. Today, the business is considered a market leader in the live export trade, owning several purpose build ships designed to carry live cattle. In addition, the company has a network of meat processing facilities and owns a number of properties where they directly grow grain for export.
In order to fund the expansion of the business, Willbed converted from a Pty Ltd to a Limited company approximately ten years ago to allow it to raise money from a select number of shareholders which included key customers, employees and other wealthy investors involved in the industry. Despite the company being a Limited company which is now considered to be a reporting entity, the company in many ways is still
operating as a family company without many of the sophisticated corporate governance procedures and processes in place. Communication with existing shareholders currently consists of a quarterly lunch where various updates are provided. The Board currently consists of;
1) Sam Peterson – Founder
2) Mack Peterson – Founder
3) Steve O’Neil – General Manager
4) Alex Pho – 30% Indonesian shareholder and key customer
Willbed’s growth has not been without controversy with several animal rights groups being very vocal in their criticism about their treatment of animals, both whilst transporting them and how they are ultimately slaughtered in the exported countries by their customers. On occasion, this has led to much unwanted media and Government regulatory attention.
Now in their 60’s, Sam and Mack would like to retire in the next few years but currently have most of their wealth tied up in their Wellbed shares which are difficult to sell. In addition, they would like to build another purpose built boat and require approximately $5m of funding for this. On advice from their external accountant Paul, they determine that listing Wellbed will allow them to both provide a market for them to sell their shares as well as raise the funds for the new boat. They are aware that listing on the ASX will require them to comply with the ASX’s Corporate Governance
Principles, in particular
- Principle 2: Structure the Board to Add Value and
- Principle 2.2: Develop a Board Skills Matrix.
Once they list on the ASX, only Steve O’Neil, who will be promoted to become the new CEO, wishes to remain as a director. Sam and Mack will become General Managers of the Live Cattle and Grain divisions of the business respectively. The current board has asked you for assistance in structuring the new Board for when the company is listed.
Compile a Board Skills Matrix for the ideal recommended board structure for Willbed once it is listed. The board should consist of eight (8) members.
As part of getting Willbed ready for listing, a number of transactions with associated stakeholders are being put in place. Paul, their external accountant, has warned them that AASB 124 may require these transactions to have additional disclosures in the financial statements. Steve O’Neil has provided Paul with a list of the following transactions that he is unsure of whether or not require specific disclosure under AASB 124.
1) Rent paid to S&M Superannuation fund which has Sam and Mack as the only members. The rent is for the business premises in Fremantle and is set at a commercial rate of $150,000 per annum.
2) One of the farms currently owned by Willbed is to be sold to Jessica Peterson (Sam’s wife) for $4m prior to the listing. This amount came from an independent valuation of the property that was undertaken. Jessica does not have the funds to purchase this currently but the
board has provided her with a period of 12 months to find the finance to pay for it. Interest will be charged at 10% which is above what Willbed could obtain from the bank.
3) Jasmine, the graduate accountant employed by Willbed has been having a few financial issues following a divorce so Willbed has lent her $50,000 as a temporary loan which attracts interest of 15%. Jasmine does not have any shares in Willbed.
4) Alex Pho currently has an ongoing contract in place with Willbed for the supply of cattle at discount of 5% to the market price of cattle. It is expected that after the listing, his shareholding will be diluted from 30% to 5% and he will no longer be a director.