Introduction of the Companies
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?
McAlister and Ferrell (2016) addressed that liquidation refers to the method of winding up of the business activities of an organization and this takes place when the management of the company undertake the steps to close the activities of the business permanently. The liquidation process initiates when all the liabilities and the rights related to the company has been realised and thereafter the liquidator pays off all the due claims of the creditors. It is observed that there are certain issues that lead to the liquidation of the business operations of a company and some instances have been the incorporation of the extensive policies of accounting, issues and mistakes that are within the corporate governance, taking up of unethical factors etc. The actual goal of the report therefore has been to evaluate the various factors that have lead to the liquidation of the renowned Australian companies namely One Tel Phone, ABC Learning and HIH Insurance.
Introduction of the Companies
One Tel Phone: Soltani and Maupetit (2015) explained that One Tel Phone has been one of the renowned companies that has been a telecommunication organization established in Australia. The organization was established in the year 1995 and the key business strategy has been to concentrate on the demands and desires of the consumers in order to manufacture much better and effective services and products. The company at a certain point of time was in the fourth position within the Australian telecommunication industry before they liquidated. The goal of the organization was to create an image that would be young and innovative by offering their one net services and mobile phones to the consumers in Australia.
ABC Learning: ABC Learning has been known to be one of the pillars in the educational sector in Australia. The company had a market capitalization of around of “AUD $2.5 billion” and the company has been listed in the Australian Stock Exchange. The company however, faced a downfall because of the mortgage issues that took place due to extensive amount of debt and managerial issues (Filatotchev and Stahl 2015). The company was founded in the year 1988 and the company had more than 800 centres all over the country. The company had their headquarters in Queensland and thereafter in the year 2006, the company spread their wings and established their business even in United Kingdom and United States of America.
Liquidation Reasons
HIH Insurance: This Company has been one of the largest and the most extensive insurance organization in Australia. The company underwent extensive level of acquisitions in the year 1997 and 1998 in Australia and all over the globe. In 1995, the firm sold out their shares to an organization from Switzerland and thereafter changed their name. During the liquidation time of the company, over loss of the company has been $5.3 billion. It is due to this factor several members of the organization were accused and thereafter were imprisoned (Mason and Simmons 2014). For this factor the downfall of HIH Insurance is regarded as a huge downfall in Australia.
The distinct reasons and the factors that have led to the downfall of the concerned organizations have been explained as follows:
HIH Insurance: The main factors are:
- The acquisition of FAI Insurance was not effective decision by HIH Insurance as the move comprised of a huge amount of investment, which became deadly for the insurance company. The firm had to go through extensive level of damages because of this move (Martin et al. 2016).
- The other decision that was not appropriate from the point of view of the company had been the company entering in the sector of business financing and therefore made investments in various films that led to a loss of millions of dollars for the organization.
- The unprecedented and the sudden alteration in the accounting policy with regards to the compensation payment for the Californian employees was discovered to be one of the essential factors that led to the huge loss for the company and thereby leading to liquidation (Crowther and Aras 2016).
- The natural disaster that took place in Florida was another factor that led to the extensive loss for the company as huge amount of debt was created over the company and this amount of debt created a loss for the firm. This has been one of the essential reasons for the liquidation of the company.
- It is seen that around “$800 million” within a time frame of six months because of faster rate of expansion and development and the complicated structure of the reinsurance and the unmonitored distribution of authorities.
One Tel Phone: The factors have been explained as follows:
- The plan and the policy of the business were to make themselves look superior by making extensive amount of profits and postpone the key costs related to the business for more than three years. This kind of accounting policy taken by One Tel was not legal and this was against the accounting policies and standards.
- A report that there had been a loss of $291 million for One Tel was disclosed in the year 2000 and the loss took place because of the incorporation of the accounting policies that were not legal and it had an impact on the share price of the firm and therefore there was a fall in the share price to lower than $1 (Néron 2016).
- In the next year, the firm even had a fund shortage in order to operate their business and Rodney Alder the director of One Tel decided to sell off 5 million of their shares for $2.5 million. According to the report of the management, One Tel became bankrupt and thereby laid off around 1400 employees.
- It is due to the process of liquidation that One Tel was accountable for the compensation of the $92 million as the firm did not undertake their authority of diligence and care (Aguilera et al. 2015).
ABC Learning: The key factors related to this business have been explained as follows:
- In the year 2007, ABC Learning went through a fall of about 42% in the profit that is around $37.1 million. Simultaneously, the company went through a debt of $1.8 billion. This has been the essential factors that went through the downfall for the company (Soltani 2014).
- ABC Learning share price had a fall by 43% and value came to $2.15 due to the low trading of $1.15. During the end of the accounting year, the management of ABC Learning was compelled to sell of the stakes of $20million and $6million at a lower cost of $2.7 million. Because of this factor, the firm went through suspension of trade as the organization was incompetent to release their income for the year 2007 and 2008.
- In 2008, ABC Learning underwent receivership because of a rise in debt and the incompetency of the auditors in order to close the accounts ( and Werres 2016).
- ABC Learning incorporated ineffective process of the intangible assets of accounting. According to the company, $2.4 million and $8.4 million was the value of goodwill licence and intangible assets this was the amount levied for impairment. This element led to the ineffective valuation of the future cash flow and the organization had a loss of 42% out of their profit (Filatotchev and Nakajima 2014). It is regarded as the essential reason for the downfall for ABC Learning.
The business companies consider ethics to be one of the issues of the judgment of the business about the factors that are correct and one that is wrong. The decisions that are undertaken by the management are in accordance to the business culture. The decisions that are taken by the firms needs to be ethical and thereby the firms can undertake the precise action course. Short term profits can be hampered if ethics are maintained but development long term profits can be attained (Too and Weaver 2014). The incorporation of corporate governance creates directed and managed actions of ethics in the business. The business organizations with the help of the ethical concerns and the efficient corporate governance can lead to benefits of the business. The businesses are able to attract more and more customers for their services and products that may raise the profitability and sales and at the same time rise in the level of goodwill assists in attracting more and more employees.
The explanations that are made in accordance to the failure ethics and corporate governance have been explained in order to understand the downfall of the concerned organizations.
HIH Insurance: The acquisition of FAI Insurance by HIH Insurance was undertaken without gaining the permission from the Directors of the Board. Simultaneously, the director resigned without notice after the share disposal. This entire situation explains the ineffective corporate governance of the organization. HIH even made an ineffective decision by coming in the business of film that was way too risky (Salami, Johl and Ibrahim 2014). It even addresses the ineffective decision making and ineffective corporate governance for HIH Insurance. HIH business was associated with unethical practices of the business by paying no attention to the sustainable work with respective diligence and this explains the insufficient ethics in the activities of HIH Insurance. Ineffective activities of the management can be observed from Mr. Williams who published the brochure of the exclusion of the material and thereby over explain the profit that was made in the year 1998-1999.
Corporate Governance and Ethics
One Tel: The firm did not comply with the codes of ethics with the violation of the standards and policies of accounting. The other failure has been the management team being unable to monitor the financial performance and thereby explains the lack of corporate governance of the firm (Young and Thyil 2014). The company was even unsuccessful in implementing the strategy of pricing that led to the company liquidation as there was a loss of the company and this has been the availability of insufficient ethics within the company.
ABC Learning: The Company has not been able to incorporate the accounting policies that are regarded to be the actual factor for the liquidation of the firm and thereby led to the operations that were fraudulent in nature with respect to the accounting practices of the firm (Voegtlin and Pless 2014). The company was even unable to provide effective services to the government and the customers and this can be looked upon as an unethical factor that led to the downfall for the company.
The role of the liabilities has been the major concern that led to the downfall for the three companies because of the fact that all the companies that have been taken into consideration had huge amount of debts. The ineffective nature of the refinancing activities has led to the breach of the debt covenant. The management of the companies have even been accountable for the rise in the level of liabilities (Schneider and Scherer 2015). Therefore, it can be said that liabilities has been one of the essential factors that has led to the downfall for the companies.
Conclusion
The explanations that have been made earlier has indicated the fact that there have been several factors that have led to the downfall for HIH Insurance, ABC Learning and One Tel. The ineffective decision making from the management and wrong use of the accounting policies have led to the manipulation of the financial accounts. The ineffective corporate governance and ethical issues have been essential factors that have led to the liquidation of the three companies and therefore the other companies need to undertake steps and actions with the help of which such issues does not arise in the future.
Reference List
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