Introduction of the enterprises:
Discuss about the Liquidation Of The Business Enterprise.
Liquidation is referred to as a process of inventory selling of an enterprise at a huge discount for the making of cash. The rights and liabilities are actualised in the course of the stage of liquidation and the creditors’ claims are fulfilled either partially or fully. It is important to point out that distinct causes are inherent for contributing in the directions of the liquidation of the business enterprise (Dhamija 2015). The chief reasons involves of the execution of aggressive framework and rules for accounting, crooked practices, corporate governance loopholes and others. The present report lays emphasis on the various key issues that led to the downfall of the three significant companies of Australia, namely, HIH insurance, One Tel and ABC Learning.
ABC Learning:
The enterprise of ABC Learning used to be one among the leading institutes in Australia that used to function in the sector of education in Australia. This enterprise was listed in ASX (Australian Securities Exchange) that had a market capitalisation of about $ 2.5 Billion. On the other hand, the mortgage crisis had a direct influence on the enterprise, as this had procured a huge sum of debt that is coupled with the shift in the direction of managerial receivership (Penman 2016). The enterprise was set up in Queensland, Australia in 1988 and this had more than 900 centres across the country. The enterprise was diversified its operations in the business in US and UK by procuring the Busy Bees Group for an amount of $ 330 Million in 2006.
HIH Insurance:
HIH Insurance is also known popularly as one of the biggest enterprise in the field of insurance. Since the year of 1997, the enterprise had procured different enterprises in Australia as well as in other countries. Because of the progress of the enterprise in rapid manner had made the enterprise to get the listing in 1992 on ASX. Additionally, in 1995, the enterprise had made a clear decision of selling its holdings to a company of Swiss origin. This led to the change of the name of the company too (Clor-Proell et al. 2015). At the time of the liquidation of HIH Insurance, it had incurred a loss that amounted to $5.3 billion. Many of the Board members of the company were found guilty for contravention of the violations of the law and consequently were sent to jail too. For the specific reasons, the collapse of the insurance company is still known as the largest collapse of an enterprise in Australia’s corporate world.
Reasons for Liquidation:
One Tel:
One Tel is one among the most popular telecommunication enterprise that was set up in Australia on 1995. The key focus of the enterprise was to give good quality service and products to its valued customers in a manner to satisfy all the needs and wants by fulfilling the customer’s desires and requirements (Razak and Stainbank 2018). Additionally, before this got liquidated it was ranked as fourth largest firm in telecommunication functioning in Australia. The motive of the enterprise was to enhance a youth centred image by selling the mobile and the various related telecommunication services within the country.
There are certain significant occurrences that may eventually leads to a downfall of the companies above stated enterprises that are discussed briefly as below:
ABC Learning:
In the year of 2007, the third quarter the company had faced a fall in the range of 42% in the profit margins that was totalled to be around $37.1 million. Further, the enterprise had procured a sum that amounted to $1.8 million in same year that ultimately results in the decline and fall in the market of Australia. On the other hand, the other reasons involve a decline in the prices in respect of the shares of the company, the incapacity of the auditor and the fault in the accounting treatment transacted by the company. The fall in the price of the stock of the enterprise might be observed to be around $2.15 that boils down to 43% after the shares were traded at lower price of $ 1.15. Because of the bad performance of then stocks, the proprietors of the enterprise was forced sell the holdings of a sum of $ 6 Million and $ 20 Million for an amount of $ 2.7 Million. As an outcome, this had to face the suspension from trading because of its incapability of declaring its earnings for the years 2008 and 2007.
Receivership condition was faced in the year 2008 due to huge increase in the burden of liability for the company and this auditor was not able of signing off the accounts. At last it was determined that the accounting treatment that was recognised by the company in respect of the intangible assets of the company was wrong. As per the annual reports of the enterprise, the valuation of the goodwill is associated to the licenses as well as other intangible assets for an amount of $ 2.4 Billion. On the other hand, $8.4 million worth of impairment charges were also being recorded. Inefficient valuation of the future cash flows was he result of this type of recognition and led to the reduction of around 42% in the profit margin of the company. All the above factors had lead to an substantial amount of fall of the company.
Ethics and Corporate Governance:
HIH Insurance:
This has been found that the company has procured FAI Insurance that was not taken as a good decision in respect of the enterprise. This is because as the sums of investments are huge, this might be detrimental because of the occurrences. The enterprise had initiated another bad decision by initiating into the funding business that had lead the enterprise to loss of hundreds and millions of dollars. The disaster that occurred in Florida had further increased the loss that the company had to bear. Accruing to the occurrence of this transaction the entity was forced to procure a huge debt that finally culminated into the incurment of the loss by the entity. This is considered to be one of the most important reason for starting the process of liquidation in respect of the company.
The enterprise had made an unanticipated modification that was not expected by the management of the entity for the purpose of transacting the payment of the compensation to the staff in California. This is taken as another important event resulting into a collapse of HIH Insurance. As per the forecast of liquidator, there was a loss that amounted to $800 million that lasted for a period of half year as a reason of fast diversification, unsupervised authority allocation, complicated base and the reinsurance.
One Tel:
The enterprise of One Tel had an objective to reveal a greater sums of profits by deferring the important expenses for the business over a period of three years. The accounting policy that the enterprise One Tel had adopted was illegal, as they breached the standards and policies of accounting. A outflow was reported of amount $ 291 Million by One Tel due to the enforcement of unlawful standards and policies of accounting that had affected the price in respect of the shares of the company had fell down to below $1. In the year of 2001 it was a paucity in the business funds to function as result Rodney Adler who being the director of the company sold $5 million worth of shares of the company for only $2.5 million. The report that had been presented by the administration, One Tel had turned into a company that is not solvent because of this 1400 employees were thrown out of their jobs. Because of this liquidation process, One Tel was also accountable and mandated to compensate a sum that amounted to $92 million due to the lack of due care and diligence shown by the management of the company.
From the standpoint of the firms operations, ethics is associated to the judgement of business relating to the practices and policies. The enterprise culture has a direct influence on the decisions of the businesses that are undertaken as a component in the process of management. This is essential to maintain an ethical integrity while undertaing the decisions of the business and thus, this is anticipated from the administration of the enterprise to choose the right manner of taking actions (Huang 2017). On the other hand, maintenance of ethical integrity imposes the avoidance of the way of making a bigger short time profits. Along with this, the effective policies might be effectively being enforced associating to corporate governance results into controlling and directing the ethical course of the business. The enterprises might be hugely benefitted, if they are assured a good ethical behaviour and corporate governance (Haw et al. 2015). This is due to increasing customers base might attract in the direction of buying its services and products that might raise its overall levels of profit and the base of revenue. Further, the attrition rate of employees might be reduced with the aid of ethical behaviour and therefore, improvement in productivity in the enterprise might be assured. Additionally, the positive image of the brand is enhanced that makes the enterprise to draw more employees for the purpose of corporate governance.
The below discussion might reveal the complete failure in the corporate governance and ethics of the enterprise that eventually led to a fall of three enterprises in the corporate world of Australia.
ABC Learning:
The enterprise of ABC Learning, had initiated a wrong policy in the treatment of accounting. This was determined as the sole reason for the winding up of the enterprise. In addition to this, it had made a direct contribution in direction of conducting practices that are fraudulent in nature and are related to accounting in the enterprise. Additionally, illicit manner of practice of bookkeeping were detected in ABC Learning as well. The services that were being given to the government and the general public and the unethical nature of the same were detected as another illicit matter that eventually led to the winding up of the business of the concerned enterprise (Radhakrishnan et al. 2017).
HIH Insurance:
No permission was being received from the directors and the board of the company HIH Insurance in association to the matter of the procurement of FAI Insurance. Astonishingly, resignation was being received by the director from the position after the shares were being disposed. The scenario objectively indicates the lack of good corporate governance within the enterprise. Additionally, the HIH Insurance’s administration undertook a bad decision by making an investment in the film business, as this involves an immense amount of risks due to the different factors that are present in the environment (Mao 2016). The decision that were ineffective and detrimental to corporate oversight might be assessed from this step. Along with this, the due care and diligence was not executed in proper manner in the enterprise. Mr Williams had performed an improper administration activities by prospectus issuance had an omissions in the material and overstatement of the earnings that were being recorded in the year 2008.
One Tel:
In the matter of One Tel, there was a clear signal that was being directed towards the non- compliance with the various ethical code of conduct for the breach that had been conducted by the standards and principles of accounting. Major failure might be witnessed from the administrator team in respect of supervising the activities of the company in the field of finance. Additionally, sufficient attention was not given to those sectors of the investments composed of high risk and therefore, decent corporate governance.(Zhong and Li 2017).
The discussion is focussed on highlighting the key reasons that constituted the fall of three enterprises along with ethical and corporate governance. On the other hand, this needs to be taken into consideration that liabilities had an substantial role in the collapse involving the three enterprises.
ABC Learning:
Even if the amount of liabilities was steady in 2007, $1.1 billion worth of borrowings was reclassified from the non-current and due to the current liabilities as a result of the current liabilities. In 2007, profit declined by 42%, as there were increments in the amount of the liability of the company and also it had to cough out a sum of $1.2 billion in respect of breach in the debt covenant(Mao 2016).
HIH Insurance
The scenario of HIH Insurance is to some extent identical to the ABC Learining. With the referring to the internal reports, the enterprise had faced an insurance liability that is huge and leverage of the debt finally resulted into the insolvency of the enterprise.
One Tel:
In the enterprise of One Tel, the administration of the enterprise for all the enterprises was mainly forced to pay a compensation amount of $9.2 million due to the negligence shown by them in adhering to the principles of corporate governance and ethical considerations that led to the collapse. From the discussions, this is observed that the role of liabilities was substantial that lead to the collapse of these three important organisations in Australia.
Therefore, this might be easily be observed that for all the enterprises that are discussed had made various bad decisions in the business that resulted into improved amount of liabilities and existence of these liabilities had been important causes behind its fall (Radhakrishnan et al. 2017).
Conclusion:
As the discussion on the matter is carefully analysed and observed. This might be detected that there are different transactions and events that resulted in downfall of the three enterprises namely One Tel, ABC Learning and HIH Insurance. One usual reason detected behind the fall of the enterprises was incapability of the administration to undertake proper decision. These improper decisions that consisted of faulty policies that resulted in the manipulation of the financial statements. Additionally the absence of the proper infrastructure or the culture of corporate governance and ethical principles can be the reason for the liquidation of the company. Besides, the increase in the amount that is being incurred by the company in respect of the liabilities can be adjudged as one of the reasons for liquidation. The discussion that has been done in respect of the liquidations have been utilised for the purpose of drawing the conclusion
References
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Radhakrishnan, S., Wang, K. and Wang, Z., 2017. Stakeholder Orientation and Accounting Conservatism: Evidence from a Natural Experiment.
Razak, M.H.Y. and Stainbank, L.J., 2018. Fair value accounting by listed South African companies in the non-financial sector. South African Journal of Accounting Research, 32(1), pp.1-24.
Zhong, Y. and Li, W., 2017. Accounting Conservatism: A Literature Review. Australian Accounting Review, 27(2), pp.195-213.
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