Reasons for Liquidation of Companies: Accounting Analysis

This report analyzes the reasons behind the liquidation of companies, including Aluminium Boats Australia, HIH Insurance, and Stella Homes. It examines the ethical and corporate governance issues that contributed to their downfall.

Accounting
1/11/2019

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Executive summary
Liquidation is the procedure through which the company takes the decision to finish their
business operations and they dispense the assets of the business to people who are claimants.
This has been found that most of the companies are winding up their business operations because
they are not able to meet the obligations. This report is prepared on the companies who go into
liquidations with the same reason and the event are supported with the help of the APSE 110
code of ethics for Professional Accountants.

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Contents
Introduction......................................................................................................................................3
Reason for the liquidation of companies.........................................................................................4
Aluminium Boats Australia.........................................................................................................4
HIH Insurance..............................................................................................................................5
Stella Homes Australia................................................................................................................6
Liabilities a major factor contributing to the liquidation of companies..........................................7
Conclusion and recommendations...................................................................................................8
References........................................................................................................................................9

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Introduction
The aim of the paper is to talks about the company who wounded up their business operations
which majorly include Aluminium Boats Australia, HIH Insurance and Stella Homes. These
companies have gone into liquidation because they were not able to fulfil the liabilities and
obligations. The paper includes the actions that managed to the insolvency of the business with
the support of APES 110 Code of Ethics for Professional Accountants. Moreover, it includes the
corporate governance issues that contribute to the collapse of every company. Further, this also
shows that liabilities are a contributing factor that led to their downfall.

Accounting 4
Reason for the liquidation of companies
In the current scenario, this has been found that ethics play a vital role in the professional
accountants. Considering the CPA Australia, ethics is considered as the principal elements of the
knowledge and skills of business cost accounts. The reason behind the liquidation of the
Aluminium Boats Australia, HIH Insurance and Stella Homes are discussed below which also
include any failure of the APES 110 Code of Ethics for Professional Accountants.
Aluminium Boats Australia
Aluminium Boats Australia is the company are located in Brisbane Australia and specialize in
manufacturing, commercial, and luxury and defences vessels. The company was founded in 1999
with the passion and drive to form the premium world-class aluminium and compound of high-
performance light craft. This has been found that Brisbane based shipping building company has
collapsed into the voluntary administration because it faced the loss in one of its navy vessels in
the massive fire that conducted earlier in the year. The direction of the company, Roy
Whitewood, said that the voluntary administration process would help the company in
determining the financial challenges faced by the company. Though, the massive fire has brought
the changes in the financial position of the company (Aluminium Boats Australia, 2018). The
loss is one of the reason due to which the company was not able to meet the obligations towards
the creditors which was due to loss. The company employed 160 staff members before the fire
but let 90 staff go after the Navy ship went up in flames. According to Fairfax, it also axed the
other 70 jobs (Robb, 2014). This clearly shows that the professional behaviour is not followed by
the company and accountant which are supported with the Section 150 professional behaviour. It

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is not an ethical practice to take the relevant rules and regulations and prevent the actions that
discredit profession.
The winding up of the company took place because the company was not able to meet the
obligations. This shows that the company is not able to offer its services to the customers present
in the market. Thus, the violations of Section 130: Professional competence and due care are
reflected because this section includes the way company maintain the professional and skills at
the level that are required to ensure that the client or employee gets the competent professional
activities based on the practice.
HIH Insurance
HIH insurance was known as the 2nd largest insurance company that was situated in Australia.
The organisation came into existence in the year 1968 by Ray Williams and Michael Payne. The
company got liquidated in the year 2001 by March 15th and it is considered as the largest
corporate collapse (Australian Government, 2018). The major reasons due to which insolvency
took place were that they were not able to pay off their duties. According to one of the reports,
the firm’s debt leverage and insurance obligations were high which leads to the risk of
liquidations that shows the violation of the corporate governance. The debt of the company was
high because of their expansion strategy which requires huge capital. In addition, the
organisation was not able to make the proper selection of the market.
The business was not able to manage the satisfactory reserves contrary to the upcoming rights of
the company. Some of reports claim that the failure of the business was not because of the debt
of the company but it was unethical practices in accounting. It was found that the company gave
the bribe from sharing the incorrect data related to the business and finance which is against

Accounting 6
corporate governance. This shows that they didn’t follow the principle of integrity which is one
of the essential APSE 110 codes of ethics in Australia. According to section 110 Integrity,
accountant or company needs to be honest and straight forward in professional and business
relationship. The accountant of the company presented the false information which means that
they have not followed the criteria of honesty (Kathy Rao, Tilt and Lester, 2012). In addition,
Section 120: Objectivity is also applied over here undue impact of others to dominate specialized
was given by the HIH with support of the bribery to the accountant.
Further, this was found in the report that the company have the bribe for reflecting the false
information of finance and business because they were facing issues which include lack of
independence of the non-executive director, data resources with insufficient management of risk
and dominance of CEO. This shows that Section 320 Preparation and Reporting of Information
were not followed by the company. The business is required to present the information that is
used by the internal and external member of the company and the information which is presented
needs to be fair, honest and in accordance with the related professional standards (CPA
Australia, 2018).
Stella Homes Australia
Stella Homes is Home Builder Company in Australia who was leaving numerous South
Australian homeowners and left half-built homes. The company was established by Darryn Peter
in the year 2004 to build more than 500 homes within Adelaide in the past 10 years. It was found
that more than 60 employees, homeowner and creditors were not able to build Stellar Homes.
The company conducted the meeting of creditors with the administrator Peter Macks found that
uncertainties remain in the company with approx. 180 unsecured creditors who are owed close to
$1.9 million (Tauriello, 2014). The director of the company Darryn Peter provided the statement

Accounting 7
of setting out the assets and liabilities of the company which makes it difficult to identify the
capacity of the company to pay the dividend to the creditors said by Mr Macks.
The major reasons that are highlighted behind the liquidation of the company include the high
competition which affected the business operations. The demand for a luxury builder like Uniq
Homes acquires the market. The business owes creditors with approx. $7.2 million and was not
able to meet the obligations which show the issues of corporate governance (Waters, 2014). It
was found that pricing was one of the issues which lead to the liquidation. This clearly shows
that the company doesn’t follow the principle of the APES 110 code of ethics for the
professional accountant's Section 150 professional behaviour (CPA Australia, 2018). These
sections show that the company need to comply with all the related laws and regulations which
contribute in avoiding the action that discredits the profession. In the case, the accountants were
responsible enough to reveal the fact in the front company but they were not able to do so.
Liabilities a major factor contributing to the liquidation of companies
Liabilities work as the major contributor to the winding up of the companies because it is ethical
responsibility of the company to meet the obligations. In the present world, the companies are
performing their business operations with this they have some liabilities because for the effective
management of the operations the company need support of the external market in terms of the
funds and others. In case the companies are not able to meet their liabilities then they have to
settle off with their assets which lead to the liquidation of the companies operating their business
in the market.

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Conclusion and recommendations
In the end, this can be concluded that modes of the companies are not able to abide by the ethical
code of conduct and they are not able to maintain corporate governance. The companies like
Aluminium Boats Australia, HIH Insurance and Stella Homes are not able to meet their liabilities
and obligations related to the ethical code of conduct due to which they decided to wind up their
business operations. This has been found in the report that these companies have conducted some
or other ethical issues due to which they wind up their business operations. It is suggested to
company to manage activities in ethical and corporate governance in finance. This will help the
company to improve the business strategies in the Australian market.

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References
Aluminium Boats Australia, 2018, News & Media [Online]. Available from: https://www.aba-
global.com/news [Accessed on 11th December 2018]
Australian Government, 2018, 2. The rise and fall of HIH Insurance Group [Online]. Available
from: https://treasury.gov.au/publication/economic-roundup-issue-1-2015/economic-roundup-
issue-1/the-hih-claims-support-scheme/2-the-rise-and-fall-of-hih-insurance-group/ [Accessed on
11th December 2018]
CPA Australia, 2018, An Overview Of Apes 110 Code Of Ethics For Professional Accountants
[Online]. Available from:
https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/
ethics/an-overview-of-apes-110-code-of-ethics.pdf?la=en [Accessed on 11th December 2018]
CPA Australia, 2018, Apes 110 Code Of Ethics For Professional Accountants [Online].
Available from: https://www.cpaaustralia.com.au/professional-resources/accounting-
professional-and-ethical-standards/apes-110-code-of-ethics-for-professional-accountants
[Accessed on 11th December 2018]
Kathy Rao, K., Tilt, C.A. and Lester, L.H., 2012, Corporate governance and environmental
reporting: an Australian study. Corporate Governance: The international journal of business in
society, 12(2), pp.143-163.
Robb, K., 2014, Shipbuilder collapses into administration after fire [Online]. Available from:
https://www.smartcompany.com.au/finance/shipbuilder-collapses-into-administration-after-fire/
[Accessed on 11th December 2018]

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Tauriello, G., 2014, Custom home builder Stellar Homes has gone into administration [Online].
Available from: https://www.adelaidenow.com.au/business/sa-business-journal/custom-home-
builder-stellar-homes-has-gone-into-administration/news-story/
a8903cbc8762cae1a67d6f43e4d27fa8 [Accessed on 11th December 2018]
Tricker, R.B., and Tricker, R.I., 2015, Corporate Governance: Principles, policies, and
practices. Oxford University Press, USA.
Waters, C., 2014, Construction company collapses owing $5 million [Online]. Available from:
https://www.smartcompany.com.au/finance/construction-company-collapses-owing-5-million/
[Accessed on 11th December 2018]