Reference no: EM132810235

Genesis Health & Fitness started as an Australian gym club when the first one opened in Ringwood, Victoria in April 2015. It quickly developed into one of Australia's premier fitness organisations, bringing to life real fitness communities. Genesis Health & Fitness experienced significant expansion since it had listed on the ASX with only 20 centres. By January 2018 they were running more than 300 fitness clubs across Australia.

• The culture of Genesis Health & Fitness encouraged high risk taking. The senior management, dependent on compensation plans, had undertaken aggressive expansion strategy that relied heavily on borrowings. Company's Board was comprised of four directors, two being independent non-executive, including the Chairman, and two executive directors. The independent directors of the Board, Andrew Fastow and Matthew Bell lacked financial acumen and relied on the information and assurance presented to them by the management. They failed to apply their own judgement to and carry out a careful review of, the proposed financial statements and the proposed directors' report, to determine that the information they contain is consistent with their knowledge of the company's affairs, and that they do not omit material matters known to them; and provided approval on the 2019 financial statements that failed to properly disclose, some $1.5 billion of short-term liabilities by classifying them as non-current liabilities. In January 2020, it was concluded that Genesis Health & Fitness had insufficient cash flows to repay nearly $2.5 billion of debts to creditors and appointed administrators to take control over the company. Few months later Genesis Health & Fitness collapsed.

Problem A) Discuss the main issues that led Genesis Health & Fitness to fail?

Problem B) Discuss the corporate governance and board mechanisms that could have been employed by Genesis Health & Fitness in order to limit the chances of company failure.