Events and Cases that Led to Liquidation
The liquidation is the process which brings company’s functioning to its end. It is analyzed that when company fails to pay off its creditors and deb holders then there are two processes which company follows first is related to voluntary winding up and compulsory winding up process. It is analyzed that if company wants to keep its business sustainable in long run then it will have to comply with the applicable code of conduct and ASX listing rules and regulations. However, there are several circumstances and factors which negatively impact the business and result to liquidation of business. The main reasons of liquidation of business are based on the poor management, failure of payment of liabilities, unfavourable market condition and business failure of business. These three companies have faced the liquidation of the business due to the imbalance of assets, failure to comply with the ethical code of conducts and listing rules. This report reflects the understanding on the ethical code of conduct, ASX listing rules and regulation which company should have complied if it wants to keep its business more sustainable in long run.
There has been done case study analysis of three different companies to identify the reasons and facts which leads to liquidation of these three different companies. The main reason of liquidation and winding of these companies is related to failure of companies to comply with the ethical code of conducts and ASX listing rules. However, the main reason of failure of the business and liquidation is not to pay off their current and future liabilities.
This ABC learning company was an Australian company which was indulged in providing the child care services. This company was incorporated in 1988 and had been offered child care services. This company focused on offering child health care services in Australia and New Zealand. ABC Learning was having objective of expanding its business by investing in buying more care centres and properties in Australian market. However, after expending its business, it got listed in Australia securities exchange and had market capitalization of AUD $ 25 million. After, arrangement of these undertaken business activities and expanded business in other market, company failed to comply with the ethical code of conducts. ABC learning faced issue of legal compliance and transparency in its reporting frameworks to divulge the true and fair view of the assets and liabilities. The failure of ABC Company to comply with the listing rules and events led to liquidation and forced company’s directors to declare the company insolvent. Company had to follow the voluntary winding up procedure to liquidate the company to distribute the required benefits to its stakeholders. Company failed to pay off its debts and creditors which resulted to perform its legal obligation code of ethics and business transparency rules as per the ASX listing rules. This resulted to delisting of the company from the Australian stock exchange in 2009 and company went for the winding up for the proportion distribution of its assets to pay off the debts of the company. However, in the auditor’s report, auditors gave opinion that company failed to comply its listing rules and did not hire proper independent directors.
ABC Learning
This company was operating its business to offer the insurance services to its clients. HIH insurance had more than 17 controlled entities and amounted to AUD $ 8 billion overall turnover. Before, winding up of the company, it had to pay off AUD $ 7.5 billion investment to its creditors and other lenders. In addition to this, company also made high cash outflow of its capital to buy another venture in insurance industry so that it could compete with the rivals. These all events resulted to high cost of capital and it became incapable to cover up its cost of capital and increased business costing. However, company went to liquidation as it failed to comply with the professional integrity code of conduct and consistently find in defaulting in its listing rules and regulations. The main reason of liquidation and winding of HIH was related to failure to comply with the ethical code of conducts and ASX listing rules. This company also failed to establish harmonization in its domestic and international legal compliance program.
The one Tel Company was indulged in operating its telecommunication services in Australia. This company was founded in 1995 with a view to offer its telecommunication services to the clients in Australia. However, due to its failure to maintain liquidity in its business, company went to the liquidation and faced the winding up in its business. It is analyzed after assessing the auditor’s report and opinion that company failed to maintain finance for its business to pay off its current and future obligation. This resulted to failure of business to entertain its obligation. However, company tried to manage this deteriorated position of its business by selling some of its business units and arranging capital but due to the lack of availability of the proper finance, it failed to manage its current and future liabilities. The main reasons of failure of One Tel were based on its inability to cover the interest payment. In order to expand its business, management of company had to undertake the high investment or cash outflow for opening up new ventures (Schiano, Bourgoise, and Rhodes, 2015). The failure of this business resulted to AUD $ 291 million loss of capital in its business. This Loss of the business resulted to increased cost of capital and company with a view to save its business from the external factors, made default in its legal compliance. It failed to reflect the true and fair view of the assets and liabilities recorded in the books of accounts of company (ASX., 2018).
The code of ethics is issued with a view to strengthen legal compliance and accounting professional ethical integrity of company in compliance with the applicable laws and regulations. It is analyzed hat all the companies which have listed their shares on the stock exchange needs to comply with the code of ethics and listing requirements (Bodolica, and Spraggon, 2015).
- Integrity: This code of ethics focuses on how company could work ethically with its integrated business functioning and effective legal compliance In case of HIH Insurance, members and directors of company did not work ethically with integrity which resulted to failure of its business. All the managers of company failed to maintain proper ethical code of conduct while operating its business and failed to maintain proper due diligence in their work which resulted to failure of HIH business ( 2018).
- Objectivity:The code of ethics of objectivity allows company to comply with the applicable rules and operate its business in the best interest of its stakeholders. The conflict related to set up the ethical work condition and aligning the interest of its stakeholders with the organization development and it resulted to arise due to the failure to comply with the accounting principles and objectivity code of conduct. This code of ethics reflects that company should make its judgement free from all the influencing factors which might destruct the proposed business decisions. The One Tel Company and ABC costing were found in guilt of not complying with the applicable laws and regulations (Elbayoumi, Awadallah, and Basuony, 2018).
- Professional Competence and Due Care: All the key managerial persons and board of directors should have professional competency and due care while discharging its business activities. It is analyzed that company should focus on hiring proper proportion of independent and executive directors in its key managerial persons who could take imperative decisions in long run (CPA Australia. 2018). All the directors and board members needs to establish the harmonization in its undertaken work which could align the interest of the stakeholders with the organization development.
- Confidentiality:The confidentially of the business process is also one of the aspect which every company needs to adopt. It is analyzed that if proper confidentiality in not maintained in the process then it will not only destruct the business issues but also result to increased insider trading. It is analyzed that if company fails to manage the confidentiality in its business then it will destruct the business in long run (Elliott, 2010).
- Professional behavior: All the employees and directors needs to maintain the professional behaviour and code of conduct in its business if they want to keep its business sustainable in long run. The main professional behaviour of key managerial person is to strengthen the transparency of the business process and increasing the overall outcomes of the organization (Garegnani, Merlotti, and Russo, 2015).
It is analyzed that all the listed companies are required to comply with the applicable rules and listing rules if it wants to maintain its business in long run. It is analyzed that these three companies fails to manage its business due to the legal compliance and listing rules issues. Company has failed to improve and maintain its legal compliance with the Australian government. The listing rules 4.10.3 and 4.10.02 focused on keeping the business transparent to its stakeholders by filling the annual report with the reporting authority. Corporate governance program needs to be followed by companies if it wants to survive its business in long run. These below 8 listing rules show that if company comply with it then it could operate its business in long run (IFAC. 2018).
- Strengthen the transparency of the business.
- Appointment of independent and dependent directors.
- Ethical business functioning and following code of conducts.
- Employee safeguard rules and strengthen reporting compliance program
- Time balanced disclosure mechanism.
- Protecting shareholders and integrated business
- Risk management compliance program
- Fair remuneration program ( 2018).
HIH Insurance
These all listing rules and program helps listing companies to mitigate compliance issues and managing its business in long run. It is analyzed that if company comply with these applicable laws and regulations then it will strengthen is overall business and disclosure process (Insurance Journal. 2013). These three above given companies have failed to comply with listing rules which have resulted to major factor contributing the winding up or liquidation of these companies.
The major contributing factor to failure or insolvency of these companies was based on their inability to pay off its liabilities. It is analyzed that HIH Insurance failed due to its inabilities to pay off its debt of AUD $ 202 billion (Monem, 2016). This resulted to voluntary liquidation of company. In addition to this, One Tel Company and ABC costing were also highly dependent upon the external sources of funding. These companies were facing issues related to payment for its liabilities which it failed to do. The declining business position and their incapability to manage business result to failure to manage the business. The inability to pay their debts was the major reasons for the liquidation of these companies.
Declining position will also make shareholders to withdraw their money from the business. Overall, unpaid liabilities contribute to a great extent in the process of liquidation. They are major reasons for which companies generally wound up their operations (Rodriguez-Fernandez, 2016).
Conclusion:
After analysing all the details and information given in this report, it is analyzed that these companies have failed to manage its business due to the failure to comply with the applicable code of ethics and listing rules and regulations. It is analyzed that the main reason of HIH, One Tel and ABC company failure was based on their inability to pay off its short term and long term debts. These companies failed to pay off its applicable obligation and liabilities which resulted to failure to manage its business in long run. It is further analysed that these companies also failed to keep the proper transparency in its business which resulted to failure to comply with the transparency code of ethics.
References:
ASX. (2018). Corporate Governance Council. [Online]. Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 10 September 2018].
Bodolica, V., and Spraggon, M. (2015). An examination into the disclosure, structure, and contents of ethical codes in publicly listed acquiring firms. Journal of Business Ethics, 126(3), 459-472.
CPA Australia. (2018). APES 110 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS. [Online]. Available at: https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-standards/apes-110-code-of-ethics-for-professional-accountants [Accessed 10 September 2018].
Elbayoumi, A. F., Awadallah, E. A., and Basuony, M. A. (2019). Development of Accounting and Auditing in Egypt: Origin, Growth, Practice and Influential Factors. DEVELOPMENT, 53(2). 45-47.
Elliott, T. (2010). One.Tel one big debacle. [Online]. Available at: https://www.abc.net.au/news/2009-11-20/28324 [Accessed 10 September 2018].
Garegnani, G. M., Merlotti, E. P., and Russo, A. (2015). Scoring firms’ codes of ethics: An explorative study of quality drivers. Journal of Business Ethics, 126(4), 541-557.
IFAC. (2018). Revised Code of Ethics – Completed. [Online]. Available at: https://www.ethicsboard.org/projects/revised-code-ethics-completed [Accessed 10 September 2018].
Insurance Journal. (2013). HIH Report Cites Mismanagement as Cause of Collapse. [Online]. Available at: https://www.insurancejournal.com/news/international/2003/04/21/28160.htm [Accessed 10 September 2018].
Monem, R. (2016). The One-Tel Collapse: Lessons for Corporate Governance. [Online]. Available at: https://www98.griffith.edu.au/dspace/bitstream/handle/10072/42673/74746_1.pdf?sequence=1 [Accessed 10 September 2018].
Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role of good corporate governance. BRQ Business Research Quarterly, 19(2), 137-151.
Schiano, T. D., Bourgoise, T., and Rhodes, R. (2015). High?risk liver transplant candidates: an ethical proposal on where to draw the line. Liver Transplantation, 21(5), 607-611.
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