Reasons for Liquidation
Discuss about the ACC 701 Accounting of HIH Insurance and OneTel.
In today’s changing economic scenario and the breaking economic business, components exert business organization is trying to find the means to bet this market. The use of advanced technology has increased by the companies as the means to overcome the market conditions. The difficulties have increased in the market due to the depression in the business. Many companies have liquidated and wrapped up. The reason found behind the liquidation of these companies is miss use of the funds and uncontrolled and less efficient management. On liquidation, the assets and the liabilities are distributed among the owners in the same ration of their value in the company this is done because it is closing of a running operation. Thus it can be said that there are many companies which have closed due to the in proper management and misuse of funds like ABC Learning, HIH Insurance and OneTel.
Kratz and Schoenborn explain it as “Different business run in different scenarios and hence face different factors that result in their liquidation”. In simple words, it could be said that when the company is not able to make its payments and liabilities on time and to pay such dues the assets are sold to pay the creditors and the other claimants. No payment of the debts is considered the factor of liquidation.
ABC learning a childhood Learning was an educational institute. The organization hit the Australian Securities Exchange listing once. It was the world largest education provider. Soon s downfall was observed. The payments of debts remained pending in high numbers. The main reason considered for the downfall by the economic experts was that there were mismanagement and incorrect method of running a business. It was found that the factors for the big hit and maximum profits were cheap cost-cutting techniques, low wages employees which were not suitable for any business in the long run (Anon, 2016). The ABC Learning was found guilty in the misuse of its funds and opposed the imposed the fines on it, this leads them to enter the legality I the later period. The shares went low and they were suspended later this damaged the situation more. On the non-payment of the overdue debts even after the selling of the assets the company went into receivership. Finally, the shares got unlisted and the creditor called for the winding of the company in the year 2010 (Ramachandra & Olabode 2012).
Abc Learning Liquidation
HIH insurance unlikely ABC Learning did not collapse just cause to financial crunches. It was the second largest insurance company in Australia, but due to the unethical and illegal business practices brought the downfall of the company. The company had to sell its assets which were $8 billion some time, to pay the debts the renaming balance was just $133 million. This was a provisional liquidation. The company cannot return back to the expectations of the management after all this and the criminal burden (Ferguson, 2013). The former HIH director Rodney Adler was impassioned for 4 1/2 year. HIH Insurance has done many false commitments in the market and therefore has been facing issues from stakeholders. They have given incorrect information even after knowing that it was incorrect. This was a big offence. This company faced liquidation due to its high financial leverage and less effective return on capital employed (Horton, 2011).
Hofer says that “OneTel is one of the biggest transmission and telecommunications organizations of Australia commenced operation in the year 1995. Got the support of distinguished families and headed way towards a golden future.
The management had a very good policy to achieve the market their targets were the youths with cellular phones, wireless transmissions, and portable devices the company did very hard word to bring the company to the position of fourth biggest media transmission organization. The step towards the downfall started with the OPTUS terminated its terms with One Tel. It holds one-fourth share in the company. Thereafter one by one event took place for the downfall of the organization (Berry?Stölzle, 2008). The finance of the company was misused for personal benefits and the cooks were tempered by the co-chief executive he was one of the main supporters in the progress of the company. This situation has led to short in finance or lack of cash and cash equivalents in the company to repay their current debts. Later the major shareholders News Limited and Publishing & Broadcasting also exited the company as there were upset about the manipulation in the books of the company (Lindberg, 2012). This was the biggest reason for the downfall of One Tel.
Customs and kingship practice pertaining to financial stress
In a market, every company have to associate with ethical and corporate governance that helps the companies to get the fines. The council or committee who is taking care or this is the backbone of any successful idea. It is very clear that inelegancy of this practice leads to injurious effects to the concerned entity. It is a work of management to develop and maintain the proper balance and remove the gaps which hinder performance (Battiston & Martinez, 2018). There is straight binding of a veteran management and a concern working. As seen above it is crystal clear that if there is any lacuna takes place in any concerned entity it leads to deep financial stress taking to liquidation.
Liquidation of HIH Insurance
In the case of ABC learning, a profit was made on the cost of virtual taxpayers of Australia, which was totally unethical (Porter & Navarro, 2015). As ABC become a single player in child care services, they tried to imply its finance for falsely challenging allegations lay on it. And it was found Guilty for “Failing to Enclose “
In case of HIH Insurance, it was worse. In this case, the reason for correction was the conspiracy and crimes of its top management that includes its former director i.e. Rodney Adler. He had been punished for four criminal offences and many other civil offences. This includes deployment of false information even though knowing its incorrect second was to mislead their investors. The other was to behave intentionally wrong and dishonesty which is not in the interest of the company (Evanoff, Holthausen & Kaufman, 2013). Apart from him the former chief executive Ray Williams, Brad Cooper, a Sydney businessman, and a former HIH chairman Geoffrey Cohen were also alleged for being punished. This leads to unethical activities i.e. transactions and business arrangements are not in best interest of stakeholders of the business HIH Insurance. Misleading investors and associated stakeholders of HIH Insurance is another unethical behaviour. According to corporate governance practices, directors or other key personnel should should not be invove in unethical practices. But in case of HIH Insurance, management and directors has involved in unethical practices.
Lachlan Murdoch (News Corporation) and James Packer (Publishing & Broadcasting Ltd.) represents the major investors of One.Tel. They claimed that they have been misled by the co-chief executive of the company i.e. Jodie Rich. Even though One Tel always keeps transparency related to its operational and reveals all its working regarding errors, failures, problems in call centres, in Billings, IT problems or even in cash flows deviations (Phungula, 2017). Whatever would be the reason but the resultant of this was frighten of the same. It would be the main defect with the management for which effect and lose the good governance (Elena, 2012).
Examples cited above are the best explanations that whenever such types of practices go unethical and there is no check of management on such type of action, which leads to huge financial loss and this situation tend to drag the company into liquidation hole. That allows the company to go through high loss due to such negative business functioning. There would be one safe method by which company would revive its business is to sell their assets to public imposes a charge on that assets. Through this process, all the fix assets would be liquidated and it helps the organization to get cash flows.
Liquidation of One.Tel
The above study has analysed that the liabilities are the reason for the liquidation of any company. In any type of market conditions, the company can survive. Whereas if he has to pay the liabilities that the issue a raised. The companies have to sell their assets for the payments of the debtors. This results in the end of the business (Schmidlin, 2014). The process of liquidation is conducted with the managerial person along with the liquidation officer appointed by the high court. This officer will evaluate the balance assets and liabilities. These balance assets will be allocated to the creditors first and then to the owners. The aim of liquidation is to give the clients and the shareholders benefit which they were deprived cause of the working of the company (Dahalan, Abdullah & Umar, 2016). All the loans and bills payment is done first, then if any assets are remaining than the owners are paid as per their share in the business. All the owners of such liquidated company have many problems with all the benefits of the company are finished. Nonetheless, these owners have a role to revive the company any cost for the benefits of the stakes holders on a sustainable basis-by Mete Soner, Reppen & Rocket.
Financial stress in the business management and operation of HIH Insurance and ACB Learning and One.Tel Limited has motivated management and directors of these companies to indulge in unethical activities.
Conclusion
The sluggish market conditions the changes in the economy; every company is finding ways to remain in the market. Everyone was trying the best possible means to sustain. The management is having many loose polls in their business. Carelessness is observed in working. The management should have proper inspections of the books and the actual position of the company. Finding of the gaps and filling them should be the priority of the management. The efficiency of the management and the position of the company are directly linked with each other. The three big companies discussed above it of which two companies ABC Learning, One Tel have seen the downfall cause of the drastic loss due to the malfunctioning of the management and negative outcomes of the business with negative business facts this resulted in them to wrap up the business. These reasons and the poor conditions of the market have incurred great losses to the companies.
References
Anon, 2016. The liquidation of foreign companies in Australia. Australian Restructuring Insolvency & Turnaround Association Journal, 28(2), pp.38–39.
Battiston & Martinez-Jaramillo, 2018. Financial networks and stress testing: Challenges and new research avenues for systemic risk analysis and financial stability implications. Journal of Financial Stability, 35, pp.6–16.
Berry?Stölzle, T.R., 2008. Evaluating Liquidation Strategies for Insurance Companies. Journal of Risk and Insurance, 75(1), pp.207–230.
Dahalan, J., Abdullah, H. & Umar, M., 2016. Measuring Financial Stress Index for Malaysian Economy. International Journal of Economics and Financial Issues, 6(3), p.n/a.
Elena Cristina Baciu, 2012. General Considerations on The Dissolution and Liquidation of Romanian Companies. CES Working Papers, 4(1), pp.5–11.
Evanoff, D.D., Holthausen, C. & Kaufman, G.G., 2013. The Role of Central Banks in Financial Stability How Has it Changed, Singapore: World Scientific Publishing Company.
Ferguson, Roger W., Jr., 2013. Financial services and the trust deficit: why the industry should make better governance a top priority. Business Economics, 48(4), p.208.
Horton, B., 2011. How Dodd-Frank’s Orderly Liquidation Authority for Financial Companies Violates Article III of the United States Constitution. Journal of Corporation Law, 36(4), pp.869–892.
Lindberg, Erik, 2012. The Power of Role Design: Balancing the Principals Financial Responsibility with the Implications of Stress. Educational Assessment, Evaluation and Accountability, 24(2), pp.151–171.
Phungula, S. P. (2017). Proceedings over proceedings: how and when are liquidation proceedings suspended by an application for business rescue proceedings?. Stellenbosch Law Review, 28(3), 584-596.
Porter, D., & Navarro, F. (2015). Insolvent corporate trustees. Australian Insolvency Journal, 27(2), 26.
Ramachandra, T. & Olabode Bamidele Rotimi, J., 2012. Liquidation and its effects on construction trade creditors in New Zealand. Journal of Financial Management of Property and Construction, 17(2), pp.166–175.
Schmidlin, N., 2014. The Art of Company Valuation and Financial Statement Analysis A value investor’s guide with real-life case studies, Hoboken: Wiley.
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