Causes of Corporate Failure: Emphasizing the Erroneous Accounting and Board Failure

Abstract

The United Kingdom has become a land for corporate failure and the position of failure is alarming as one in 213 companies is facing liquidation as reported by Lucy Burton in Telegraphy on January 26, 2018. In 2019, Insolvency Service officially released that 17196 companies fell into insolvency. That rate was 7% more than in 2018. In the last decade, high-profile corporate failure cases have been reported and recently it has been a “common element of the corporate world as the Carillion collapse that occurred in January 2018 is the biggest example of it.” The repercussions of failure, of course, have affected the corporate world because the company was much more operative all around the world. Carillion’s failure was on the heel of BHS's failure while in 2019 the failure of British Steel, a British travel firm, and Thomas Cook was hot on Carillion's heel. Further, Covid-19 added fuel to the fire of corporate failure. The Achilles’ heel of these corporate failures is worrisome as these are heralded by good accounting records publication that superficially gave a clean and clear bill of health to the companies. This is a question to the position and effectiveness of corporate governance albeit, after the first review of the issue regarding corporate governance, the United Kingdom looked forward to corporate governance restructuring. The publication of the Cadbury Report in 1992 was an example of the UK concerns and the report was lesson enshrining corporate governance reform for the entire world. After that, corporate governance codes of many countries were adjusted on the basis of the Corporate Governance Code of the UK. The 1992 Report reformed the “corporate governance of the UK in the form of the Combined Code on Corporate Governance of 1998 which was reformed again in 2009.” The statutory rules of the Companies Act 2006 are supplemented by these Codes. However, the matter of concern is after these constant reforms how the corporate failure cases came into existence although the United Kingdom is considered a leading jurisdiction since the existence of the Cadbury Report played a significant role in encouraging the listed companies to follow the doctrines of the Code and obliged them to explain why the principles are not being complied by them under a provision Comply or Explain. Following the release of the report, the companies began to adhere to the principles outlined in the Code. The highlighted issue that needs a discussion is why corporate failure is increasing over time despite the existence of corporate governance codes and corporate governance reforms. Whether the corporate governance reform is less effective or failed to impact the corporate failure or whether it is the fate of companies to fail despite the corporate governance
reform. This study with the spectacles of qualitative research techniques endeavors to scrutinize the main causes of corporate failure in the context of regulatory changes and shed light on erroneous accounting and board failure with an aim to conclude the effectiveness and efficacy of corporate governance reform in the jurisdiction of the United Kingdom to culminate into a reasonable conclusion.