SHORT REPORT

On
Management and administration of
Company

Submitted to :
Albab Al Mehboob
LCCI (UK), HNC (UK), HND (UK), ACCA (Part-2)
Assistant Lecturer
BiMS University College

Submitted by :
MD. Galib Hossain
ID: 5059
Edexcel Registration No. : B530242

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 Letter of Transmittal

Dated, Dhaka
7th July, 2010

To
The Assistant Lecturer
Albab Al Mehboob
BIMS University college,
Dhanmondi, Dhaka.

Subject : To submit a short report on management and administration

of company.

Dear Sir,
With due respect I have to inform you that, I am pleased to submit the
enclosed short report on management and administration of company.
In this short report I have analysed the role of Ramalinga Raju as a
chairman of Satyan Computers, the role of auditors, liquidation/
insolvency of Satyan and administration process to winding-up of the
company.

It is my hope that this report will provide the information needed to

know about the findings of the cases.

Sincerely,
MD. Galib Hossain
ID : 5059

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 Executive Summery:

In this short report we will try to describe about Management and

administration of Satyan Computers.

In Task 1, we have analysed the Role of Ramalinga Raju as a

chairman of the Board of Directors of Satyan Computers.

In Task 2, we have analysed the role of company auditors of Satyam

Computers in identifying frauds.

In Task 3, we have Described the procedure of Voluntary liquidation

for Satyan Computers. Satyam computers should not go for voluntary
liquidation because they are not insolvent company still now and they
should go for administration to rescue the company.

In Task 4, we have explained the administration process as an

alternative to winding-up of Satyan Computers. Satyam computer
should go for Administration. They shouldn’t go for voluntary
liquidation only for the fraud of the director Ramalinga Raju.

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 Table of Content:
Par Title Page
t No.
Acknowledgment: i.
………………………………………………………………….
ii.
Letter of Transmittal:
……………………………………………………………… iii.

Executive Summary: 5-7

1 ………………………………………………………….......
5,6
2 Introduction:
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3 TASK 1: Role of Director
6,7
………………………………………………
4
7-12
TASK 2: Role of Company Auditors
5
……………………………… 8-15

TASK 3: Procedure of voluntary 16

liquidation…………………..

TASK 4: Administration Process

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……………………………………

Findings and analysis :

……………………………………………………………..

Conclusion :
…………………………………………………………………
………….

References
…………………………………………………………………

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 ……………

Introduction:
This short report is being written to :

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 • Analyse the Role of Ramlinga Raju as a chairman of the Board of
Directors of Satyan Computers Define the authority and role of
agent Carl.
• Role of the company auditors of Satyan Computers.
• Anlyse issues involved in liquidation or insolvency describing the
procedure of voluntary liquidation of Satyan Computers.
• Explain administration process as an alternative to wining-up of
Satyan Computers.

TASK - 1 :

“A board of directors is a body of elected or appointed members who jointly

oversee the activities of a company or organization.”

Chairman of board :

• The person holding the office is typically elected or appointed by the

members of the group.

• The chairman presides over meetings of the assembled group and

conducts its business in an orderly fashion.

• Acts as spokesman for the company

Mr. Ramalinga Raju is the chairman of the board of directors of
Satyam Computers.

In Case 1, We analysed that ,

• Ramalinga Raju is the chairman of the board of directors.
 Ramalinga Raju resigned after notifying board members and the
Securities and Exchange Board of India (SEBI) that Satyam's accounts
had been falsified.
 Raju confessed that Satyam's balance sheet of 30 September 2008
contained:
Inflated figures for cash and bank balances of Rs 5,040 crore (US$ 1.04
billion) (as against Rs 5,361 crore (US$ 1.1 billion) crore reflected in
the books).
• An accrued interest of Rs. 376 crore (US$ 77.46 million) which was
non-existent.
• An understated liability of Rs. 1,230 crore (US$ 253.38 million) on
account of funds was arranged by himself.
• An overstated debtors' position of Rs. 490 crore (US$ 100.94 million)
(as against Rs. 2,651 crore (US$ 546.11 million) in the books).
• Raju claimed in the same letter that neither he nor the managing
director had benefited financially from the inflated revenues.

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 • He claimed that none of the board members had any knowledge of the
situation in which the company was placed
We have analysed the role of Ramalinga Raju in “Findings & Analysis”.

TASK - 2 :
The role of PriceWaterHouseCoopers- the statutory auditors of Satyam
Computers comes under the spotlight amid allegations that large Indian
companies regularly use misleading accounting techniques and bully
analysts, accountants and auditors into staying quiet.

B. Ramalinga Raju, Founder and Chairman, Satyam Computer Services,

on this day
confessed to its Board of Directors the accounting scam, which eroded nearly
$2 billion
of wealth that belonged to 3 lakh shareholders and the their net worth
dropped from a
positive Rs 8,529 crore to a negative Rs 278 crore. This fraud was not
committed
overnight; it was building up continuously from over years.

They ignored some of the obvious indications of embezzlement an thus failed

to catch on the massive scam, which could have been caught much before it
acquired the ‘massive’ status.

The shareholders interests are dependent on the degree of care and

skill applied by the auditor to draw up an accurate and honest report of a
company’s state of affairs.
Therefore, the auditors should employ utmost good faith, care and
vigilance in the carrying out of their duties. If there is the slightest bit of
suspicion of the legality and integrity of a record or transaction, the auditor is
under a duty to investigate and report it, before he certifies it to be true.
We have analysed that the auditors failed to identify the fraud
of inflated cash and bank balances in the books.

TASK - 3 :
What is Voluntary liquidation:
A liquidation that is supported by a company's shareholders, as opposed to
an involuntary liquidation forced by bankruptcy. A voluntary liquidation can
occur in two situations.:
 One is a members' voluntary liquidation when the directors of a solvent
company decide to liquidate the company (with shareholder approval),
and declare that they will be able to fulfill all creditor obligations in 12
months.
 The other situation is a creditors' voluntary liquidation, when the
directors approach an insolvency professional for assistance in
liquidation since they will not be able to fulfill creditors' obligations.

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Other reasons for voluntary liquidation can include:

• A failing or not very successful business, though not at the stage of

involuntary liquidation yet.
• Owners and/or partners want to dissolve the business and go their
separate ways.
• Proprietor wants to retire and has no family or heirs to bequeath the
business to, and not interested in selling to a third party.
• Urgent requirements for liquid cash and the business is the only asset.

The voluntary liquidation or dissolution of business is meant to be carried out

as per the laws in place, at a country, state or county level.

In the case Satyam Computers is an IT company, the victim of accounting

fraud by the chairman of the board of directors of the company Ramlinga
Raju. We have analysed the issues involved in liquidation of Satyam
computers.

TASK - 4 :
Administration :

Administration is one of the alternatives to liquidation of a company. It is only

available for insolvent companies. It is intended as a rescue mechanism.

The advantage of Administration is that there is a moratorium (‘freeze’) on

creditor actions. This is a major factor as it gives the Administrator the time
to try to rescue the company, if that is in fact possible.

In the case, Satyam computers faced an accounting fraud by the

chairman of the board of directors Ramalinga Raju.

The company lost $5361- $5040 = $321 crore because of the fraud.

So, the company can go for administration process because the company
can’t be wound up only for the resignation of Ramalinga Raju.

We have analysed the administration process as an alternative to winding-up

of Satyam Computers.

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 Findings and Analysis :
TASK - 1:
The primary role of the Chairman of the Board is

 To ensure that the responsibilities of the Board are well understood by

both the Board and management,
 Ensuring boundaries between the Board and management are clearly
understood and respected,
 To ensure the Board carries out its responsibilities effectively in
accordance with the Corporate Governance Guidelines of the Board of
Directors.

Without limiting the foregoing, the Chairman is responsible for the following:

• Ensure that the Board is properly organized, functions effectively, and

meets its
obligations and responsibilities, including those relating to corporate
governance matters.
• Work with the Chief Executive Officer (“CEO”) to ensure effective
relations with the
members of the Board, shareholders, other stakeholders and the public.
• Work closely with the CEO to ensure management strategies, plans and
performance are
appropriately represented to the Board.
• Chair meetings of the Board and shareholders.
• Establish the frequency of Board meetings and review such frequency
from time to time,
as considered appropriate or as requested by the Board.
• Coordinate with the CEO the setting of the agenda and the preparation
and distribution of
information packages and related matters for Board meetings.
• Lead the Board in monitoring and evaluating the performance of the
CEO, and reviewing
the management succession and development plans by the CEO.

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 • Establish a system that provides for maintaining a liaison and
communication with all
directors and committee chairs to co-ordinate input from directors, and
optimize the
effectiveness of the Board and its committees.
• At the request of the CEO, or where appropriate, represent the Board at
official functions
and meetings with major shareholder groups and other stakeholder
groups.

In the case, Ramalinga Raju is the chairman of the board of directors

of Satyam Computers who has the role and responsibilities which are
described above.

Duties of the Director:

• Duty to act within powers.

• Duty to promote the success of the company.

• Duty to exercise independent judgment.

• Duty to exercise reasonable care, skill and diligence.

 Use /apply general knowledge, skill and experience.

 Use /apply actual knowledge, skill and experience.

• Duty to avoid conflicts of interest.

• Duty not to accept benefits from the third parties.

• Duty to declare interest in proposed transaction or arrangement.

In the case, Ramalinga Raju,

 Breaches the duties as a director

 Can’t promote the success of the company.
 Came under a fraud scam if balance sheet manipulation.
 Can’t avoid the conflict of interest.
 Admitted to misquoting revenue, cash balances and profit numbers
on Satyam books forthe past few years.

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  For Sept quarter, Satyam overstated the revenues by around
$120M and overstated operating margin by $120M. Inflated cash
and bank balances by over $1B.
 Accrued interest of approximately $100M which is non-existent.
 Understated liability of around $240M & Overstated debtors
position.

CASE 2, TASK – 2:

Role of an auditor :
The statutory duties of the auditor basically entail the following:
1. Duty to make certain inquiries.
2. Duty to make a report to the company on the accounts examined by
him.
3. Duty to make a statement in terms of the provisions prescribed.
• The auditor has a duty to inquire into certain matters and seek any
information required for the audit, from the company.

• This could be in relation to security on loans and advances made by

the company, any transactions entered into by the company and
whether they are prejudicial to the interests of the company, whether
personal expenses are recorded and charged to proper accounts, any
transaction with respect to sale of shares and whether the position
depicted in the books and balance sheet is correct, honest and proper.

Auditors Report should state :

1. That the auditor has obtained all information and explanations, which are
to the best of his knowledge and belief necessary for his purpose.
2. Whether in his opinion, all the books of accounts and requisite documents
necessary for the audit have been furnished by the company.
3. Whether the balance sheet and profit and loss account comply with the
books of accounts.
4. Any observation and comments on the functioning of the company,
especially, which may have an adverse effect on the company.

Duty to report fraud :

During the course of the audit, the auditor could come across situations
where he discovers that a senior employee is defrauding the company or
using unfair practices, then an obligation arises of the auditor to report what
he has discovered to the management immediately so that appropriate
action can be taken.

Fraud basically falls into the following three categories:

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• Management fraud - when the senior management is involved and they
are manipulating the financial statements and misrepresenting the real
picture, or theft or improper use of company resources.
• Employee fraud, which involves non-senior employee theft or improper
use of company resources and carrying out of practices and transactions
under the table.
• External fraud, which involves theft or improper use of resources by
people who are neither management, nor employees of the firm.

In the case we have seen that, Ramalinga Raju is the chairman of the board
of directors. He is involved in MANAGEMENT FRAUD.

In the Case,
We have seen that.
B. Ramalinga Raju, Founder and Chairman, Satyam Computer Services, on
this day confessed to its Board of Directors the accounting scam, which
eroded nearly $2 billion of wealth that belonged to 3 lakh shareholders and
the their net worth dropped from apositive Rs 8,529 crore to a negative Rs
278 crore. This fraud was not committed overnight; it was building up
continuously from over years. The role of Satyam’s auditors is under scanner.
They ignored some of the obvious indications of embezzlement and thus
failed to catch on the massive scam, which could have been caught much
before it acquired the ‘massive’ status.

To fulfill the statutory duties, the auditors of Satyam must carry out such
investigations as are necessary to form an opinion as to whether:
• Proper accounting records have been kept and proper returns
adequate for the audit have been received from branches.

• The accounts are in accordance with the accounting records

• The information in the directors’ remuneration report is consistent with

the accounts.

The auditors of Satyam Computers failed to identify the fraud of Ramalinga

Raju because they breach some of their duties.

 Satyam’s books were audited by PricewaterhouseCoopers.

According to the Economic Times, an Indian newspaper, the auditor
says it verified Satyam’s fixed deposits with the banks that held them.
So perhaps the money did exist, but has since been spirited out of the
company.

TASK - 3:

Liquidation:

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It is the process of winding up a company's financial affairs in order to
provide for an orderly dismantling of the company's structure, the
undertaking of appropriate investigations and a fair distribution of the
company's assets to its creditors. This occurs either because the company
can't pay all of its debts (i.e. it is insolvent), or its members want to end the
company's existence.

There are two types of Liquidation:

a) Voluntary.

b) Compulsory.

Voluntary Liquidation:
It is the process by which the directors of a company, with the assistance of a
licensed insolvency practitioner, put the company into liquidation.

Two ways of Voluntary liquidation:

1. Member’s voluntary liquidation,
2. Creditor’s voluntary liquidation.

Member’s voluntary liquidation:

This is only available to a solvent company. If it is not solvent, then the
creditors’ voluntary liquidation will be used.

A Members Voluntary Liquidation would be used under the following

circumstances:

 The retirement of the Directors/shareholder as there is no one for

succession purposes or the company cannot be sold to any third party.
In The case Ramlinga Raju The chairman of the Board of
Director Retired because of the fraud of Satyam Computers
 The directors/shareholders have fallen out and wish to separate,
thereby, wishing to take advantage of transferring assets without
having to find the cash to buy them .
 The company is solvent but the Liquidity/Cash flow is not there and the
creditors are threatening Compulsory Winding Up .
 Tax Advantages i.e. Capital Gains Taper relief pre 05.04.08 or 18% after 06.04.08
as opposed to higher rates of tax on Dividends.

The basic procedure for this type of liquidation is as follows:

1. The directors swear Statutory Declaration of Solvency and convene a

meeting of members
2. At the meeting of members, which must be held, within five weeks of
statutory declaration a Special Resolution is passed by members

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 agreeing to the company being placed into liquidation and for the
appointment of a liquidator.
3. Both the Resolution and the Statutory Declaration of Solvency are filed
with the Registrar at Companies House.

4. Additionally the Resolution and Notice of the liquidator’s appointment

must be advertised in London Gazette and two local newspapers and
filed with the Registrar at Companies House
5. Assets are realised and once creditor’s claims have been approved,
and after the liquidators fees and expenses have been deducted, the
creditors are paid in order of priority together with statutory interest.
Any surplus is then paid to the shareholders.
6. At times assets can be distributed to shareholders in Specie. Especially
when there is a split between the shareholders and they wish to go
their own way
7. Accounts of the company need to be prepared up to the date of the
Liquidation and submitted to the Revenue to establish any tax
liabilities that may arise to that date.
8. Additionally tax liabilities have to be paid by the Liquidator that may
arise on any sale of assets or of trading profits if the company is being
traded during his period of appointment
9. Final meeting of members held to approve the closure
10.Final return filed with registrar
11. Company dissolved three months later.

Creditor’s voluntary liquidation :

A company is Insolvent if it is unable to pay its debts as and when they are
due and payable.

Directors are usually unwilling to put the company into liquidation as they
always think that better times are around the corner. However, the threat of
potential actions against them for fraudulent and wrongful trading usually
concentrates their minds.

Directors can be held personally liable for all liabilities incurred if they
continue trading the company after they know or should have known that the
company was Insolvent.

The basic procedure for a creditors’ voluntary liquidation is as follows:

1. A meeting of members and creditors are convened by giving minimum

14 days notice. Additionally the Notice must be advertised in London
Gazette and two local newspaper.

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 2. The directors prepare a Report and Statement of Affairs giving a brief
history and reasons for the company’s demise and of its financial
position. This is given to the creditors at the creditors meeting and
circularised to all creditors after the meeting.
3. A director has to Swear an Affidavit confirming that the Estimated
Statement of Affairs is to the best of his knowledge and belief true.
4. At the meeting of members they pass a Resolution to wind up the
company and also nominate a liquidation.
5. Both the Resolutions and the Sworn Statement of Affairs are filed with
Registrar at Companies House.
6. Additionally the above Resolutions are advertised in the London
Gazette and two local newspapers within 14 day.
7. The creditors’ meeting must be held within 14 days of the members
meeting, although in practice the members meeting is held one hour
before the creditors meeting:
o there are minimum 7 days notice requirements for this meeting
o creditors’ choice of liquidator takes priority over that of the
members unless they ratify the appointment
8. The appointment of liquidator is published in London Gazette and two
local newspapers and filed with the Registrar at Companies House.
9. The company assets are realised. Once creditor’s claims are agreed
the balance, after Liquidators fees and expenses, is distributed to
creditors in required order.
10.A final meetings of creditors and members is held to approve the
administration and the closure of the.
11.Final return filed with Registrar at Companies House.
12.Company is dissolved approximately three months later.

Satyam Computer

Advantage of administration compared with liquidation:

1. Company may continue after the process is completed.
2. Company is sheltered from creditors allowing time to design
acceptable proposals.
3. Creditors are therefore prevented from applying for liquidation.
4. Administration can challenge previous transactions.
5. Creditors are more likely to get some money back.
6. Members will hold shares in a viable company. (Possibly)
7. Any creditor can apply to the court.
8. Floating charge debentures holder can appoint without reference to
the court.
9. Creditors will have continuing customers.
10.Directors could avoid acquiring the reputation of having been
involved in an insolvent company.

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TASK - 4:

Administration :

• Administration happens when an administrator is put into a company

that is in difficulty to run it and to try to save it. If this is not possible,
the administrator will try to achieve the best results for all the
company's creditors.
 Involves the appointment of an insolvency practitioner known as an
administrator, to manage the affairs, businesses and property of a
company.

The purpose of an Administration Order must achieve one of the

following:

1. Rescuing the company as a going concern; or

2. Achieving a better result for the company’s creditors as a whole than
would be likely if the company were wound up (without first being in
administration); or
3. Realizing property in order to make a distribution to one or more
secured or preferential creditors.

Administration Process:

a) Normally the first step in the having administration brought about is for
the company's directors ( and sometimes one its primary creditors), to
formally file a plea with the courts for the company to enter into
administration.
b) The Company Administration process can only begin after the high
court has deemed that the company is still financially viable.
c) If the high courts deem the company is not viable, the CA process will
formally be denied. If the high court approves of the CA process, a
licensed insolvency professional will be appointed as the company's
administrator.
d) The court appointed administrator will go over the business's financial
records and see what can reasonably be done to make the company
solvent again.
e) This does not guarantee that the company can be made solvent, as it
is not beyond the company administrator’s power to sell parts or even
the entire company to other businesses.

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 f) It is the job of the company administrator to find the most viable option
for the business, in regards to what will make the company more
profitable over the long term.
g) The company administrator is in complete control of the running of the
company, not the directors. So having the business go through the CA
process is a trade-off. Only after considering all the positive and
negative side of the administration process should a company even
consider going through it.
h) If a company survives the administration process intact, it is of the
utmost importance that the company comes up with a rescue plan.
i) Without such a plan it is only a matter of time before the company is
back in debt, and will have to go through administration process once
again.
j) It is with this in mind that you seek the most competent legal device
you can afford before entering into the Company Administration
process in the first place.

Satyam Computers should go for administration :

• To get the reputation of the company back,

• Administration creates a legal stay against creditor action,
• Also providing a breathing space for developing further proposals
that can be put to creditors.
• This process has been considerably streamlined and no longer
requires petitions, independent reports and a court order - it may
now merely require initial filing in Court.

So, Satyam Computer should go for administration process.

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 Conclusion
In Task 1, we saw that there are many duties, responsibilities and role of a
chairman of the board of Director. Ramalinga Raju breaches his duties. So
that he resigned from the company.

In Task 2, We described about the role of auditors of Satyam Computers. So,

steps should be taken to ensure that the auditors are fulfilling their general
duties of getting third party evidence, identifying and assessing the risk of
material misstatement in financial statement due to fraud, contacting major
customers/suppliers etc.

In Task 3, we analysed that Satyam Computers should go for administration

process because this is better than liquidation. They can rescue the company
without going to voluntary liquidation.

In task 4, we have seen that Satyam can rescue the company by going to
administton process because this is the alternative way.

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 REFERENCES:
Task 1 :
Website name : www.uranium1.com
Date of access : 04/07/2010
Title : Role Statement - Chairman of the Board of Directors
Link: http://www.google.com/url?
sa=t&source=web&cd=3&ved=0CCEQFjAC&url=http%3A
%2F%2Fwww.uranium1.com%2Fuploads
%2FcorpGovernance%2FU1%2520Role%2520Statement
%2520-
%2520Chairman.pdf&ei=V8AwTMT5HIL0OZz23O8B&usg=
AFQjCNGk2DlsN0UfuUa0hzUEjgHVZvVDHA

Task 2 :
Website name : www.caclubindia.com
Date of access : 06/07/2010
Title : Role of Auditor, in light of Satyam Scam
Link : www.caclubindia.com/forum/files/45_satyam.pdf

Task 3 :
Website name : www.bondpartners.co.uk
Date of access : 07/07/2010
Title : Stakeholders and business ethics
Link : http://www.bondpartners.co.uk/Services/Creditors-Voluntary-
Liquidation-132.htm

Task 4 :

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Website name : www.opentutions.com
Date of access : 07/07/2010
Title : course note for ACCA F4
Link : http://opentuition.com/wp-content/plugins/download
monitor/download.php?id=4

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