Crisis at the mill, weaving an Indian turnaround Case Solution
Introduction
Saphire capital was a large U.S. based distressed private equity fund with portfolios in many countries. One of its portfolios in India (Woolen Textile) was facing some serious issues regarding its top management. The Woolen textile had an annual turnover of INR 8 billion with poor profitability. The products of the company were sold across India as well as in the U.S., Japan, and Europe. The distribution channel of the company depends upon the multi-brand retailers, multi-brand distributors, and few showrooms.
One of the former employees of Woolen Textile contacted Sapphire capital in order to inform them regarding the problems associated with the company. According to the employee, the senior management of the company was involved in suspicious activities and they also fired some employees who were under performing. Due to this, Sapphire’s management has to investigate this problem calmly and diligently, otherwise, in case of any disturbance, all evidence would be wasted. As a result, Sapphire contacted Alvarez & Marsal’s to investigate this problem with their help. If this information would leak, then the reputation of Sapphire would deteriorate. Moreover, the credibility and investment management would be questioned by the whole industry. The detectives interviewed the company’s former employees, suppliers, and clients and presented their report in front of Sapphire’s management. Afterwards,this matter was carried forward by A&M.
Sankar, along with his team (Associated with A&M), proceeded with the facts and reports presented by detectives. They came up with a plan to take over the company’s management in order to gain full access to the company’s information resources. The whole plan was also discussed with Sapphire in detail. Two teams were formed for taking over the company; one would take over the management and other (the forensic team members of New York and Chicago office) to carry forward the investigation process. All the executives of the company were called to Sapphire’s main office located at Mumbai for meeting and they were given their suspension letter there. Their personal gadgets were taken into custody for further investigation, and A&M moved further towards the company’s headquarter for assuming their new positions in the company (Sankar as CEO, Nikhil as CFO, and Neil Agarwal as head of sales).
The new management teams conductinga meeting of the company’s top employees to gain their co-operation and trust for smoothening the operations of the company as soon as possible. After the analysis of the company’s data, the team came to know that the problem lied in working capital management, manufacturing efficiency, and quality enhancement department.
Problem Statement
After diligently analyzing the data structure of the company, the team of A&M came to know that the senior management of the company was involved in suspicious activities. The problem lies in working capital management, manufacturing efficiency and quality enhancement department of the company. Now the new management of the company has to come up with a viable plan to improve the operational efficiency of the company by improving the bottom-line.
Case Analysis
Fraud and its types (analysis):
These types of frauds take place frequently in different corporations whose audit and check and balance system is not efficient. As in this case, the management faced issues with the suppliers. This can also be stated as “Related party transaction,” where the management is dealing with the suppliers who give personal benefits to the shareholders in return. Along with this, there were also something suspicious in the accounts of the company. The credit notes and discounts were not mentioned in the company’s accounts, and costing records were managed manually by the accounts department. Therefore, it is easy to commit fraud where there is manual accounting system......................
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