Reasons For Insolvency And Liquidation Of Major Companies In Australia

Analysis of case studies

The winding up of a business entity is known as process of insolvency. In this aspect the businesses experiences affairs of shut down of the business on a permanent basis. The liquidation of the rights and liabilities need to be identified as per the claims settled by the liquidator either completely or partially pertaining to the creditors. The main contributions towards the business getting liquidated is depicted with the aggressive adoption of the accounting policies, problems associated to the CG and unethical reasons. The study aims to evaluate and analyze the various reasons for winding up of major companies in Australia namely ABC Learning, HIH Insurance and One Tel (French, A., Vital, M. and Minot, 2015).

ABC Learning: ABC Learning is seen to be concerned with the issues associated to the lading entities as per the Australian education context. The market capitalization of ABC Learning has capitalized almost AUD$2.5 billion which was shown in ASX. Despite of this, the effects of the mortgage crisis for the company is considered with the receivership resulting in a huge amount of debt. The corporation was seen to be established in 1988 with more than 900 centers located in Australia. In 2006, the company faced several challenges associated to the expansion in the US and UK resulting with the acquisition with Busy Bees Group with an amount of US$330 million (Ellis and Littrell, 2017).

One Tel Phone: Founded in 1995, the important activities of this company are seen to be associated to the focus on the customers with better products and services. The company has achieved the position of being fourth major company in Australia before the bankruptcy. The corporation is aimed to sell a youth focused on product by selling of the mobile phones and One Net services in Australia (Damiani, Bourne and Foo, 2015).

HIH Insurance: HIH insurance was known to be one of the largest insurance service providers in Australia. In 1998 and 1997, the company made the relevant acquisitions across the globe and Australia. It also got listed in ASX in 1992. In 1995 the company sold its stakes to the companies of Switzerland and later changed its name. During the liquidation there are several members of HIH who were convicted and imprisoned. Due to this, event the closure of HIH Insurance is regarded as of the largest corporate failure in Australia (Vucetich, Perry and Dean, 2014).

The main events which led to collapse of the companies are listed as follows:

ABC Learning

HIH Insurance: The rationale for failure includes:

• The acquisition made by the company pertaining to Fai insurance consisted of large total of investment which was harmful for the insurance business. The company faced significant challenges which caused major damage to this event.
• The diction taken by HIH insurance was seen with entering into business for the contributions towards hundred million dollars loss for the company(Damiani, Bourne and Foo, 2015).
• HIH Insurance had to face several repercussions from the natural disaster in Florida. These incidents have cause huge amount of debt and loss for the company which is rationale for the liquidation of the company. The unexpected and sudden change in the accounting policy has been considered with the payments made to the employees of California which may be regarded as a major event leading to liquidation of HIH Insurance.
• The estimation made by the HIH insurance has been considered with approximate $ 800m for the reason of quicker expansion, complex structure and making the reinsurance pertaining to the delegation of the authorities(Ullah et al., 2017).

• The main strategy implemented by the company relates to the superior amount of profit which has deferred with the major expenses associated to the business in three years of time. The accounting policy adopted by One Tel has led to several breaches of accounting policies.
• In 2000, the company conveyed a loss of $ 291 million pertaining to the adoption of the illegal accounting ethics. This affected the share price of the company, which is evident with share prices going as low as $ 1(Dwivedi et al., 2015).
• In 2001, the challenges faced by the company was due to lack of funds needed for the operational requirement of the business. The director of the company Rodney Adler was recognized to sell 5 million shares worth $ 2.5 million. The report has further considered that the administrator of One Tel Phone was seen to become insolvent and also started to lay off more than 1400 employees in the same year.
• The process of the liquidation led to One Tel phone’ compensation of $ 92 million. This was a result of OneTel’s negligence of diligence factor (Brown, 2016).

In the second half of 2007, the learning center faced several challenges associated to fall in 42% profit. This amounted to a whooping $ 37.1m. In addition to this, the business entity also faced many challenges by getting into a debt of $ 1.8b. These can be considered as the chief explanations behind the fall of ABC Learning Center.

The price of shares went down from 43% to $ 2.15 as a result of low trade activities of $ 1.15. In the end of the period, the owners of ABC Learning were compelled to involve in the selling activity of the stakes amounting to $ 6 million and $ 2.7 million. This led the company to face many challenges associated to the failure and suspensions of the key personnel’s and resulted in releasing of the earnings in 2007 to 2008.

 In 2008, the company was seen to be felling into the receivership of increased amount of debt resulting from auditors to signing off the accounts (Ye et al., 2017).

The company further adopted unscrupulous method for the asset recognition. Based on the report published by the company it had to face significant amount of the challenges which are seen to be depicted with the noteworthy nature of the consideration of the activities for the goodwill value of licenses and other intangible assets. Intangible assets worth $ 2.4 billion was only charged with $ 2.4 million during impairment. This resulted in decrease in the profit of the company 42% during the future cash flow valuation. This is considered as one of the main for the failure of ABC learning (Heres, Stijl and Reinders, 2016).

The ethical consideration in any business is seen to be concerned with the correct judgement pertaining to the activities which are related to the management influxes with the corporate culture. The business decisions for any organization are required to go through the process of the proper course of action. The act of being ethical may reject the route which may lead to profits which are short termed in nature. In addition to this, the implementation of the effective corporate governance has been able to act according to the policies which are directed towards the ethical actions of the business. These businesses may be attracted to more number of customers who will be able to increase their sales and profitability. Moreover, these aspects are conducive in reducing employee turnover thereby leading to increase in the overall productivity. This is also seen to increase the goodwill which is able to draw the attraction of more employees (Aerila, Keskitalo and Urmson, 2016).

HIH Insurance

The relevant discussions pertaining to the ethical considerations and CG thereby explaining the collapse of the three companies are shown below as follows:

The ethical issues pertaining to HIH are listed as follows:

The company performed the acquisition of the FAI Insurance without the consent of the Board members. At this stage the directors of the company resigned abruptly and disposed the shares which he had in possession. This shows the poor contribution of CG in the company.

In addition to this, HIH insurance also made a detrimental decision to enter in the film business which was risky. This depicts the poor decision and poor CG of the HIH insurance.

The insurance company was also seen to be involved in unethical business practice for not paying heed to the continued due diligence which depicts the lack of ethics pertain to the business operation of HIH.

The company is seen to be involved in unethical business practice by issues related to improper management of the prospectus from Mr. Williams. This also led to overstating of the profit in 1998-1999 (Burman, Aphane and Delobelle, 2015).

One Tel Phone: The following unethical issues can be determined in company.

There was noncompliance of the ethical code of conduct along with violation of accounting principles for OneTel Phone.

The main failures of the company can be understood with the administration activities which are related to the monitoring of the financial presentation. The management of the business concern also ignored the areas of investment bearing high risk. This represents lack of CG by the company.

The company also failed in terms of complying with stable strategy for pricing which contributed towards the liquidation along with major loss of income. This represents lack of ethics from the directors in carrying their duties (Kuzilek et al., 2015).

ABC Learning: The various types of the considerations of the ethical issues in the company are listed as follows:

• The company incorrectly adopted the accounting policies which is regarded as the main reason for the liquidation of the company led by the fraudulent financial activities in the accounting representation. Moreover, the management of ABC Learning was also led by unethical booking methods which led to downfall of the company in the long run.
• The inappropriate rendering off the services of the government and the customers may be regarded as another major hurdle which led to closure of ABC Learning (Burleson, 2014).

The aforementioned discussion of the studies is relevant with the rationale for the liquidation of the companies and consideration of the various types of the ethical and issues associated to the corporate governance needs. It needs to be also understood that the various type of the roles of the liabilities of the company was stable until 2007, but the reclassification of borrowings worth AUD $ 1.1Billion from the current and non-current liabilities are the main consideration for refinancing. In 2007-2008 there was downfall of the company by 42%. This was a result of the increase in the laities and the company had to pay AUD $ 1.2 Billion as a result of the breach of debt covenant. The similar types of the scenario were evident in case of the HIH Insurance. As per the internal report, HIH Insurance was covered in high debt leverage as a result of the increasing insurance liability (Yahanpath and Islam, 2016). This has led to the insolvency for the company. The debt acquisitions made by the company further relates to FAI $ 300 million which was valued at $ 100 million. This has led to high debt for the company. The previous discussions of the discourse of the study have stated on the role of liabilities which has ultimately led to the failure of the company. The identified three companies have been seen to be based on the reporting of the wrong business which has led to the excess amount of the liabilities and the presence of the inabilities which are regarded as the main reasons for the collapse (Carnegie and O’Connell, 2014).

One Tel

Conclusion

The different contexts of the discussion of the study relates to the facts which are gathered for the HIH Insurance, ABC Leaning and One Tel Phone. In the given case the fall of the three major business major entities are as result of the wrong investment plan and the adoption of the policies which are associated to the manipulation of the financial accounts among several types of others. Moreover, it may be also observed that there may be lack of ethics pertaining to the inefficiency in the corporate governance practice which is hugely responsible for the liquidations in the company. In addition to this, the increase in the considerations for the liability of the three companies is seen to be major reason for the liquidation of the companies. These are regarded as one of the main reasons for the fall in the OneTelPhone.

References

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