Events leading to the winding up of ABC Learning
In recent years a number of companies have gone into liquidation (been ‘wound up’) because they have not been able to meet their liabilities when they fell due. In Australia, there are some well-publicised examples such as ABC Learning, HIH Insurance and One.Tel phone company
Use the companies above and find (via electronic journals) the events that led up to the liquidation. Discuss the ethics and governance in explaining the company’s financial stress. Were liabilities a major factor contributing to the liquidation of the company?
Liquidation is the other name for winding up. It is the process which is taken into consideration when company fails to perform its liabilities throughout the time. It is the procedure to end the company for the ultimate benefits of the stakeholder and society at large. This procedure is followed when company is incurring loss from its busienss. Winding up could be defined as procedure or steps “to finish up”. In other words, winding up states the closing of corporation. If the same is used inn the context of a business, liquidation or winding up means the closing of its business by a concern. When a business is closed it must settle all the claims pending against it, be it of creditors or bankers or government or labourers. So, when a business decides to pay off all the obligations by using the funds it already have and by selling off the assets and using the money procured out of the sale, that scenario is termed as liquidation. Liquidation is not a one-day process. It’s a complete series of multiple events (Puranam, & Vanneste, 2016).
There are many factors which may lead towards the liquidation of an entity. It’s not necessary that a company is liquidated only when its capacity to pay out the litigations and liabilities gets extinct. There are other reasons too. Sometimes a company is liquidated because of the fact that the business for which it was incorporated is done; or the time for which it was incorporated is completed; or the business which it was carrying on is considered illegal now; or the company is unable to commence business for certain tenure after incorporation, etc.
To get a clear understanding of different events and factors leading to wind up, it’s important to understand a few prominent cases. The cases that will be mentioned are of the well celebrated corporates, which had years of boom before the faced this process of winding up. The main factor of the winding up and liquidation of the company is based on the financial leverage and cost of the capital of their busienss (Parker, 2015).
Events leading to the winding up of HIH Insurance
Hitting the Australian Securities Exchange list with its market capitalisation of a$2.5 billion, ABC Learning had been the world’s largest service provider when it comes to early childhood education. The company was well known for its quality of services and soon attracted the monopoly position in its area of service. But the years of limelight faded when the company’s financial situation turned a black spot on its image. The deep analysis for the reasons shows that, the company had adopted and was following profit centric business methodology which costed the quality and employee satisfaction. There was low waged scheme for the staff and cheap cost cutting techniques that compromised quality. Being a monopolist, the company started ignoring child safety’s importance and used its position to falsely challenge the litigations filed against it (Temesgen, & Ababa, 2017). There were cases when children escaped out of the premises, which were wrongly criticized by ABC Learning, but soon it was held guilty when the allegations got proved. All the above events marked badly for the share prices and the trading of shares when a level below than ever. Soon the company shares’ trading was suspended and later the company even got delisted. When the company sold its assets to payoff the debts, it even was unable to do so and went into receivership. The company was brought into voluntary liquidation by creditors’ voting and was ultimately bought by Good start Limited in 2009. This company had performed well in the past but due to the sluggish market condition it failed to manage the busienss. In addition to this, the main negative factors which was seen or resulted into the liquidation of the ABC learning was related to negative business output. The liquidation of the ABC learning has resulted to the drastic loss to the organization which has resulted to the negative business output (Saravanan, & Thakkar, 2018).
HIH Insurance having with over $8 billion of investment in assets sometime in past was the second largest insurance company of Australia. Although it was a prestigious insurance company, it suffered a bad series of downfall. The company’s management was directly to be blamed for the same. Although the company was good in terms of financial position but still it was just left with $133 million on payment of the liabilities, even when it sold its assets off. The sale of assets even couldn’t help the company to survive and this lead in dragging the company into provisional liquidation. The management of the company including some prestigious names likes, Rodney Adler, former director; former chief executive Ray Williams; Brad Cooper, a Sydney businessman; and former chairman Geoffrey Cohen were allocated with criminal charges and provided with imprisonment. Rodney Adler was on a trial with four charges and was imprisoned for four-and-half years. It is well observed that, HIH was wound up much because of the unethical counts on the management’s part rather than the financial stress. This company had to go in the liquidation due to the high financial leverage and gearing ratio. Company failed to discharge its liabilities which have resulted to the negative busienss output to the organization.
Events leading to the winding up of One.Tel phone company
Commencing its operation in 1995, One.Tel was Australia’s most renowned and fourth largest telecommunication and transmission company. It had got the most amazing lot of supporters including Australia’s prominent families, OPTUS (28.5% share), News Corporation and Publishing & Broadcasting Ltd. (combined share- 41%). The company was very clear in its market strategy and was focused much on the youth. The main product range included portable devices, cellular phones and wireless transmission. Besides being unable to pay off the debts even on sale of assets, the company was a severe case of management fraud. For private gains, company’s co-chief executive, Jodee Rich was claimed to have made manipulations in the books. Apart from this, the company witnessed a huge IT failure, weakness in billing system, wrong pricing policy and poor transparency. When OPTUS ended the business with One.Tel, the company started facing more problems. Hence, transparency was lacking in the concern, which ended its business relationships and even led to company’s ultimate winding up process. One. Tel Company is running its busienss effectively. However, due to the negative busienss functioning and high financial leverage company had to pay interest and other legal payment even if company was not having profit in its business (Nagayya, & Rao, 2017).
Does Bad Ethics And Governance Lead To Financial Stress?
The ethics and governance of the company put emphasis upon the negative busienss functioning and negative outlook to the society at large which arises due to the business functioning of the companies. Each and every organization should endeavor towards meeting the social and corporate responsibilities for the betterment of the organization and sustainable future at large. Business does not function in isolation, but in immediate connection with the society and people (Lal, 2015). It cannot think for its own profit on the cost of society. As per the recent social developments and as a part of good corporate governance policy, the company’s management is required to perform ethically and in the best interest of society. Any personal gain, of which the company is unaware, is unethical. A company is sought to be a going-concern, i.e. functioning indefinitely without any immediate plan to close, and to resist its closure, it must think for the long run. Anything done to make immediate profits at the stake of ethics is unaccepted and may result in the ruining of the whole empire (Tuschhoff, Sudau, & Jepsen, 2018).
Ethics and governance
In the cases discussed above, the major players that led to the companies’ liquidation were certainly the manipulations, manifestations, greed, ignorance and carelessness on part of the top management. If ABC Learning is to be seen, the company’s ignorance and misuse of financial stability led to criminal charges and eventually the winding up. The poor working policy that used cheap cost cutting techniques and low waged labor was severe. Even the subsidies provided were being ill utilized (Rana, 2016).
HIH Insurance’s top management’s ethics were even more submerged. The former director, Rodney Adler disseminated false information knowing it to be false, performed for personal benefit and misled the investors. Along with him other management parties also were a party to fraud (Stoll, 2016).
One.Tel’s liquidation was a surprise even for the whole management and owners. They all were seen surprised and dismayed by the same. The major shareholders (holding 41% shares) were even found being “profoundly misled” by the company’s management. Though the company claimed to have maintained transparency in all its functions, still none in the whole system was aware of the real situations. Everyone was found blaming each other (Vedmedenko, & Altwein, D. (2014).
Libilities Contributing To Liquidation
Every concern that’s working for an economic purpose needs finance to work out its day to day activities and reach the superior goal of wealth maximization. Funds are needed to pay the obligations that a concern accepts for the smooth running of business. Labilities refer to those obligations only, be it long term or short term. They are needed to be settled in a certain time frame. When the business lacks money to pay the liabilities, it even has to sell its assets. There are chances that the liabilities remain unpaid still after the assets are sold leading to a question mark on company’s financial strength (Pinder, 2017).
When the financial burst of the company comes in doubt, every contributor, lender or owner tries to get their money back out of the falling business. This results in the winding up of business which is termed as liquidation in a company’s case. As seen in all above cases, liabilities turned out to be a major factor contributing in liquidation. Either the liabilities were the starting event or the immediate effect of a series of events. In this it is inferred that Companies those gets liquidated, liabilities play an unmatched role (Hendriks, et al. 2015).
Conclusion
After evaluating all the details and liquidation process of different companies, it could be inferred that if company wants to lower down the financial leverage which will eventually increase financial risk of the business. In addition to this, One Tel and ABC learning have faced the winding up procedure which have resulted to the high loss to organization
References
Alcock, J., Brotchie, J., & Gray, S. (2015). Strategic Liquidation of a Limited Liability Firm.
Hendriks, W., Davids, H., De Vries, R. H. J., & Tuente, B. F. K. (2015). U.S. Patent No. 8,960,258. Washington, DC: U.S. Patent and Trademark Office.
Lal, B. V. (2015). Winding Up the British Empire in the Pacific Islands.
McIntyre, W. D. (2014). Winding Up the British Empire in the Pacific Islands. OUP Oxford.
Nagayya, D., & Rao, B. A. (2017). Entrepreneurship Development: A New Strategy. IUP Journal of Entrepreneurship Development, 14(1), 7.
Parker, M. (2015). Division 7A and winding up structures. Taxation in Australia, 50(6), 312.
Pinder, J. (2017). Causes and kinds of industrial policy. In National Industrial Strategies and the World Economy (pp. 41-52). Routledge.
Puranam, P., & Vanneste, B. (2016). Corporate strategy: Tools for analysis and decision-making. Cambridge University Press.
Rana, S. (2016). Compulsory winding up of companies a study of legislature and judicial aspects.
Saravanan, J., & Thakkar, J. J. (2018). An integrated approach for lead time reduction of military aircraft major overhaul: A case of ABC Company. International Journal of Quality & Reliability Management, 35(1), 2-33.
Stoll, V. M. (2016). The Kanak Awakening: The Rise of Nationalism in New Caledonia by David A. Chappell, and: Winding Up the British Empire in the Pacific Islands by W. David McIntyre. Journal of World History, 26(2), 387-394.
Stoll, V. M. (2016). The Kanak Awakening: The Rise of Nationalism in New Caledonia by David A. Chappell, and: Winding Up the British Empire in the Pacific Islands by W. David McIntyre. Journal of World History, 26(2), 387-394.
Temesgen, H., & Ababa, A. (2017). DISSOLUTION AND WINDING UP OF PLCs UNDER THE ETHIOPIAN LAW.
Tuschhoff, M., Sudau, P., & Jepsen, O. N. (2018). U.S. Patent No. 9,938,114. Washington, DC: U.S. Patent and Trademark Office.
Vedmedenko, E. Y., & Altwein, D. (2014). Topologically protected magnetic helix for all-spin-based applications. Physical review letters, 112(1), 017206.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
