Introduction of the Companies
Discuss about the External Corporate Governance And Misreporting.
Liquidation is a result of winding up of a business which results in permanent shutting down of a business. The liquidation process is followed by claim settlement made by the liquidator either completely or partially. It needs to be noted that factors such as aggressive accounting policies and weak links in corporate governance are some of the contributing factors towards liquidation of the company. The discourse through the study has analysed the rationale for liquidation of major publicly listed Australian entity such as “ABC Learning, One Tel Phone and HIH Insurance” (Baber et al. 2015).
ABC Learning: ABC Learning established in 1988 had more than 900 centres all over Australia. In 2006, the company entered the market of the United States and the United Kingdom with a total amount of acquisition of Busy Bees group for $ 330 million. This company was considered as one of the most premium service providers in the educational sector of Australia. The total market capitalization has amounted to almost AUD $ 2.5 billion and the company was listed in “Australian Stock Exchanges (ASX)”. The main reason for liquidation was understood with mortgage crisis, due to which the company went in managerial receivership amounting to enormous amount of debt (Blythe 2017).
One Tel Phone: The former Australian pioneering in telecommunications was established in 1995. The goal of the company included selling of mobile phones and one net services by establishing young oriented image in Australia. The significant strategies were identified with filling the needs of the customer thereby providing services. Prior to its liquidation One. Tel was positioned as the fourth largest telecommunications company in Australia (Brown and Davis 2015).
HIH Insurance: This insurance service was once known as the largest in Australia. In 1997 and 1998 the company was set for global expansion by making several acquisitions. HIH Insurance was listed in ASX 1992. In the year 1995, the company was going to be selling its stake to another company headquartered in Switzerland. During the liquidation, the company suffered a loss of more than $ 5.3 billion. Since this loss, with and the liquidation along with imprisonment of several members of HIH Insurance. As a result of this, the collapse of the company is recognized as one of the largest corporate failures in the country (Carnegie and O’Connell 2014).
The events which led to the downfall of the aforementioned companies are:
- The company’s acquisition of FAI insurance proved to be a wrong strategic move thereby leading to a large sum of investment which was detrimental for the insurance business. Due to this, the company had to face several major financial crises at later stages.
- The decision to finance films led to another wrong move by the company which led to million dollars of loss
- Due to the natural disaster in Florida, HIH Insurance had to face massive losses thereby leading to use some of that crisis and while the main reasons for being defunct
- Another significant reason for the company’s liquidation was identified with unexpected changes in the accounting policy pertaining to the payment of compensation for the employees of the State of California
- The liquidator estimation led to the total loss of $ 291 million for the adoption of the legal accounting policies and standards. It further affected the share price and made it go beyond $ 1 (Coad 2014)
- The company faced serious shortage of fund to compensate its operating expenses in 2001. The director of One. Tel Rodney Adler was responsible for selling more than 5 million shares of $ 2.5 million. Based on the report of admin, the company became insolvent thereby sacking more than 1400 employees
- The liquidation process was responsible for compensation of more than $ 92 million as the company was not able to exercise this power of due diligence (Clarke and Dean 2014)
- The strategy adopted by Tel Phone depicts that the company inflated the profit and delayed the major expenses over three years. This policy of One. Tel was considered as illegal as it was against the accounting standards and policies
- In 2000, the company faced a loss of $ 291 million for illegal accounting policies and standards
- It is further discerned that in 2001, the shortage in funds was evident with director of the company selling $ 5 million shares for just $ 2.5 million. Based on the admin report One. Tel was declared insolvent and it started laying off employees
- The liquidation process of One. Tel was seen as the main reason for compensation of $ 92 million as it did not exercise its power of due diligence (Comino 2015)
- In the second half of 2007, ABC Learning faced a decrease in 42% of profit amount which led to a loss of $ 37.1 million. During this time, the company incurred a debt of $ 1.8 billion which is identified as the major reason for collapse of ABC Learning
- The share price of the company reduced by 43% to just $ 2.15 pertaining to a low trading of $ 1.15. During the end of the period, the proprietor of ABC learning was forced to sell off more than $ 20 million in stakes and $ 6 million of sum amounting to $ 2.7 million. This led to company face trade suspension and led to feeling its earnings for 2007 to 2008
- The company was further into entering into huge debt risk as it fell into receivership which made the auditors to sign off its accounts
- There had been several reporting is of incorrect method of accounting for intangible assets. The goodwill value of licenses and intangible assets of the company amounted to $ 2.4 billion out of which just $ 8.4 million was treated for impairment. Due to this, the company’s valuation went wrong and your cash flow was seen with a loss of 42%. This is considered as one of the prime rationale for the downfall of educational services giant (Crane and Matten 2016)
Rationale for Liquidation
In business concerns, the judgement pertaining to decision about right and wrong is considered as business ethics. In several locations, the management of the company are inclined to follow the negative culture of companies which leads to several ethical issues. The business decisions are needed to be ethical for the managements decide on the right course of action. The implementation of effective CG policies is discerned with the direct and control ethical actions for the business. Whereas, being ethical may lead to rejection of route which may lead to short-term profits. Business corporations can be significantly benefited from the ethical behavior and effective corporate governance practices. In addition to this, the business concerns will have opportunity to attract more number of customers towards their products and services which will be able to increase their sales and overall profitability (French, Vital and Minot 2015). The various types of ethical consideration are seen with the reduction of employee’s turnover which leads to increased productivity. This is also seen to increase overall goodwill which helps in enticing more number of employees.
The following discussion demonstrates ethics and failure of CG in explaining the collapse of the three companies:
- The acquisition of FAI Insurance was seen to be done without consent of the board. At the same time, the director of the company resigned by disposing his shares. This scenario indicated poor corporate governance policy for the company
- In addition to this, HIH Insurance made a poor decision to finance film business, which proved to be a risky venture. It depicts the poor decision making and failure in CG practices of the company (Brown and Davis 2015)
- The unethical business practice of HIH Insurance was also evident by not paying heed to the due diligence factors, which shows considerable lack of ethics
- the management activities that are not carried out properly which was evident with Mr. Williams decision to issue prospectus with material omission and overstating of the profit in 1998-1999 (Goedeke, Mueller and Pankratz 2017)
- It has been identified that One. Tel did not comply with the “ethical code of conduct” led to the violation of several types of “accounting standards and principles”
- The major failure of the administration team is seen with the monitoring of financial performance. The management of the company ignored the investments pertaining to areas of high risk. This showed lack of corporate governance within the organization (Hessian 2014)
- It is for the discerned that one Tel failed in several aspects in maintaining pricing strategy which further lead to liquidation and major loss of income for the entity. It is also that its lack of ethics from directors in discharging their respective duties (Brennan 2014)
- The inappropriate adoption of accounting policies is discerned as one of the main reasons for the company to enter into liquidation which further paved the way for several activities which were fraudulent in nature. Moreover, the unethical bookkeeping practices also led to the failure of the company which eventually brought financial instability
- A significant unethical issue which made the company defunct can be discerned with improper rendering of the services pertaining to the government and the customers (Callcut et al. 2016)
The discourse of the study has been able to defeat some of the main rationale which led to the liquidation of three well-known entities of Australia which were defunct due to failure in ethical perspectives and CG practices. Despite of the findings, it is worth mentioning that liabilities had a considerable role with lead to collapse of the three companies. In particular reference of ABC Learning, the amount of liability was stable in 2007 but there was a reclassification of AUD $ 1.1 billion of borrowings pertaining to current and non-current liabilities due to financing activities. In the financial year 2000 7008 there had been a 42% downfall in the profit of the company due to the increase in the liabilities which amounted to $ 1.2 for the breach in the debt covenant (George 2015). A similar situation was evident with HIH Insurance. As for the internal report of HIH Insurance, the high debt leveraged and liability of insurance lead towards the insolvency of the company. It needs to be further mentioned that the company acquired FAI for an amount of $ 300 million which was worth $ 100 million. This created a high amount of debt for the company. With particular reference to One. Tel the company’s management was majorly responsible for concealing the liabilities associated to the business. The previous discussions have depicted that One. Tel was responsible for payment of $ 92 million as compensation which further increased the liability and majorly contributed to its failure. Henceforth, the aforementioned discussion stage the role of liabilities for the failure of the companies. The discussion further states that poor strategy decisions resulted in increased debt which were the main rationale for collapse of the three companies (Gallagher 2017).
Ethics and Corporate Governance
Conclusion
The main discussions of the study show the reason for the failure of HIH insurance was evident with company’s acquisition of FAI insurance proved to be a wrong strategic move thereby leading to a large sum of investment which was detrimental for the insurance business. Due to this, the company had to face several major financial crises at later stages. The decision to finance films led to another wrong move by the company which led to million dollars of loss. In addition to this, Due to the natural disaster in Florida, HIH Insurance had to face massive losses thereby leading to use some of that crisis and while the main reasons for being defunct. One’s Tel’s liquidation was evident in 2001, with shortage in funds as director of the company sold $ 5 million shares for just $ 2.5 million. Based on the admin report One. Tel was declared insolvent and it started laying off employees. The inappropriate adoption of accounting policies by ABC Learning is discerned as one of the main reasons for the company to enter into liquidation which further paved the way for several activities which were fraudulent in nature. Moreover, the unethical bookkeeping practices also led to the failure of the company which eventually brought financial instability. A significant unethical issue which made the company defunct can be discerned with improper rendering of the services pertaining to the government and the customers.
References
Baber, W.R., Kang, S.H., Liang, L. and Zhu, Z., 2015. External corporate governance and misreporting. Contemporary Accounting Research, 32(4), pp.1413-1442.
Blythe, S.G., 2017. Attention, balance and coordination: The ABC of learning success. John Wiley & Sons.
Brown, C.A. and Davis, K.T., 2015. The sub-prime crisis down under.
Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting, 25(6), pp.446-468.
Clarke, F. and Dean, G., 2014. Corporate Collapse: Regulatory, Accounting and Ethical Failure. In Accounting and Regulation (pp. 9-29). Springer, New York, NY.
Coad, A., 2014. Death is not a success: Reflections on business exit. International Small Business Journal, 32(7), pp.721-732.
Comino, V., 2015. Australia’s’ Company Law Watchdog’: ASIC and Corporate Regulation.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
French, A., Vital, M. and Minot, D., 2015. Insurance and financial stability.
Goedeke, J., Mueller, M. and Pankratz, O., 2017. Uncovering the Causes of Information System Project Failure.
Brennan, D., 2014. The business of care: Australia’s experiment with the marketisation of childcare. Australian Public Policy: Progressive Ideas the Neoliberal Ascendency, 151-167.
Brown, C. A., and Davis, K. T., 2015. The sub-prime crisis down under.
Callcut, R. A., Cripps, M. W., Nelson, M. F., Conroy, A. S., Robinson, B. B., and Cohen, M. J., 2016. The massive transfusion score as a decision aid for resuscitation: learning when to turn the massive transfusion protocol on and off. Journal of trauma and acute care surgery, 80(3), 450-456.
Gallagher, A., 2017. Growing pains? Change in the New Zealand childcare market 2006–2016. New Zealand Geographer.
George, T. P., 2015. Making an impact with service learning. Nursing2016, 45(12), 21-24.
Hessian, K., 2014. Rise of the new corporates. Rattler (Sydney), (110), 10.
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