Reasons for Liquidation of Stellar Homes, HIH Insurance, and Aluminium Boats Australia
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This report discusses the reasons and circumstances that led to the liquidation of Stellar Homes, HIH Insurance, and Aluminium Boats Australia. It also explores the role of liabilities, types of liquidation, and the Code of Ethics of APES 110.
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Running head: ACCOUNTING FINANCIAL Accounting Financial Name of the Student Name of the University Author’s Note
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1ACCOUNTING FINANCIAL Executive Summary The aim of this report is to conduct a discussion on the reasons as well as circumstances that contributed towards the liquidation of Stellar Homes, HIH Insurance and Aluminium Boats Australia (ABA). This report also discusses about the Code of Ethics of APES 110 in relation to the behaviour of the managements of the companies. It puts focus on the role of liabilities to the collapse of these companies along with the types of liquidation.
2ACCOUNTING FINANCIAL Table of Contents Introduction................................................................................................................................3 Company Background................................................................................................................3 Stellar Homes..........................................................................................................................3 HIH Insurance.........................................................................................................................3 Aluminium Boats Australia (ABA)........................................................................................3 Reasons for Liquidation.............................................................................................................3 Stellar Homes..........................................................................................................................3 HIH Insurance.........................................................................................................................4 Aluminium Boats Australia (ABA)........................................................................................4 Code of Ethics............................................................................................................................4 Corporate Governance Issues.....................................................................................................5 Types of Liquidation..................................................................................................................5 Role of Liabilities.......................................................................................................................5 Conclusion..................................................................................................................................6 References..................................................................................................................................7
3ACCOUNTING FINANCIAL Introduction The presence of many large companies can be seen in Australia that went to liquidation due to certain reasons and circumstances. The process of liquidation is also consideredastheprocesstowindupthebusinesseswheretheliquidatorshavethe responsibility to conduct the whole liquidation process. In the recent years, Australia has witnessed the collapse or liquidation of some of their large business corporations; and three of them are the liquidation of Stellar Homes, HIH Insurance and Aluminium Boats Australia (ABA). The intention of this report is to conduct a discussion on the reasons as well as circumstances that contributed towards the liquidation of these three Australian companies. At the same time, this report also considers to shed light on the other aspects like the corporate governance as well as ethical issues for the liquidation of these companies, types of their liquidation and the role of liabilities in their liquidation. Company Background Stellar Homes Stellar Homes used to be a leading company based on Florida having business operations in the real estate development industry. Stellar Homes took some major initiatives for the reshaping of Miami-Dade, Broward countries and Palm Beach in the presence of the environment friendly and healthy communities. At the same time, the company was majorly involved in investing in the real estate business along with the residential sector. It was the aim of the business operations of Stellar Homes to consider the impact of their business operations on the community as well as environment (stellarhomes.ca, 2019). HIH Insurance HIH Insurance was regarded as the largest insurance company in Australia before their liquidation occurred. The company was established in the year of 1968 and they had their business operations in the regions of Australia in the initial periods of establishment. However, during the years 1997 to 1998, HIH Insurance made their business expansion in the foreign soil. At the same time, the company got enlisted in the Australian Securities Exchange (ASX). It needs to be mentioned that a significant portion of the business of HIH Insurance was acquired by a company from Switzerland (hih.com.au, 2018). Aluminium Boats Australia (ABA) ABA was also regarded as one of the major business organizations in Australia. The company was established in the year of 1999. It was the aim of ABA to deliver high performance and quality products to all of their customers. In Australia, the involvement of the company could be seen to deliver multi-disciplinary shipyard and to provide their customers with the needed technical support for their products. Hence, it can be said that the company had speciality in delivering high performance commercial boats and luxury vessels to their customers with the help of advanced aluminium construction. ABA was also a specialist to provide some of their premium customers with complete solution of their products and services (aba-global.com, 2019). Reasons for Liquidation Stellar Homes In Australia, the liquidation of Stellar Homes is a significant case of business liquidation that attracted many attentions. The commencement of the process of liquidation of Stellar Homes canbe seen from 20thOctober, 2014; and the responsible personnel for conducting the whole liquidation process of the company were PI Macks and IW Burdform from the Macks Advisory (insolvencynotices.asic.gov.au, 2019). According to the report of
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4ACCOUNTING FINANCIAL these two liquidators on Stellar Homes, there was major decrease in the volume of sales of the company and the company had to face major cash flow crisis due to this decline in sales. For this reason, the long-standing reputation of Stellar Homes was affected as the company constructed more than 500 homes in the last 10 years. The analysis of both the liquidators heighted the fact that there was major economic downturn in South Australia and it restricted the ability of Stellar Homes for generating high level of revenueand the cash flows of the company were affected majorly. This unexpected collapse of Stellar Homes contributes to large number of unfinished business contracts by the company. The assessment of the administrators states that 36 housed were unfinished at the time of the company’s liquidation. Stellar Homes is ready to refinance them through the liquidation process (news.com.au, 2019). HIH Insurance Some major wrong decisions could be held responsible for HIH Insurance’s collapse. HIH Insurance made a huge investment for acquiring FAI Insurance and this large investment was not profitable for the company. It could also be seen that HIH Insurance did take the decision for investing in the film industry and the failure of this particular project did cost HIH Insurance more than hundred of dollars as major business loss (smh.com.au, 2019). In addition, the occurrence of the natural disaster in Florida hugely contributed towards the collapse of the company as this natural calamity led to huge amount of business debt for the company. Inability of the company to repay this debt pushed the company one step closer to liquidation. Fraud and manipulation in the company’s accounting policies was a major contributor for their collapse as the company introduced wrong accounting policies for the pay structure of the employees of California. In this context, it needs to be mentioned that all these above-mentioned incidents created a loss of more than $800 million for HIH Insurance and it was never possible for HIH Insurance to recover this huge amount of business loss (aph.gov.au, 2019). Aluminium Boats Australia (ABA) The liquidation of ABA is another surprise in the business society of Australia and it is believed that the major reason for the liquidation of this firm was the file that cost the company in losing major navy vessel. The liquidation process of ABA started on 4th November, 2014 and personnel responsible for conducting the liquidation process were John Park and Anne Trenfield from FTI Consulting. According to the assessment report of these two administrators, the fire in the HMAS Bundaberg was the main reason for the liquidation of the company as it contributed towards major loss for the company (couriermail.com.au, 2019). Due to this, the management of ABA removed their employees from the respective positions. In addition, due to the fire in the navy vessel, the company lost the patron boat of Australian Navy worth $45 million. This fire put some major negative impact on ABA like the company lost the contract for providing services and maintenance to the Australian Navy. It is believed that it was an unexpected incident for the management of ABA as they were expecting good financial performance of the company in coming years and they were planning for the further expansion of ABA in different regions. Code of Ethics Totheaccountingprofessionals,APES110:APES110CodeofEthicsfor ProfessionalAccountantscanbeconsideredasacrucialarticleastheaccounting professionals can access the required standards and principles from this that they need to comply with. There are five ethical codes in this article that is crucial for the professionals (apesb.org.au, 2019).
5ACCOUNTING FINANCIAL Integrityis considered as the first ethical code and it puts the commitmenton the accounting professionals to be honest and straightforward in the business and profession. Objectivityis the net code of ethics and this code states that there must not be any unfairness in the accounting professionals that may lead to undue influence and conflict of interest in professional judgement.Professional Competence and Due Careis regarded as the next code of ethics in APES 110 and this particular code states that the accounting professionals are required to maintain the required professional skills and competence for the delivery of effectiveprofessionalservices(HanFan,WoodbineandCheng,2013).Afterthat, Confidentialityis regarded as the next code of ethics under APES 110 and this code puts the ban on the accounting professionals of not disclosing any confidential and important business information of the clients obtained at the time of providing professional services to any outsider in the absence of proper approval. The last code of ethics in APES 110 is Professional Behaviourand it indicates towards the major requirement of the accounting professionals to adhere to all the regulations and standards at the time of providing the professional services (Martinov-Bennie and Mladenovic, 2015). Corporate Governance Issues Most of the times, issues related to corporate governance can lead a company towards unwanted liquidation. It can be seen in the case of HIH Insurance that the company did not obtain the required sanction from their Board for the acquisition of FAI Insurance. It shows lack of integrity, objectivity and professional behaviour. In addition, inefficient corporate governance made the company able to make the improper business decision to invest into the firm business (Tricker and Tricker, 2015). Unethical behaviour can be seen from the management of HIH Insurance as they did not feel it necessary to pt attention in the maintenance of required due diligence of business. Due to the absence of effective corporate governance system, the management of HIH Insurance went on issuing wrong business prospectus that were missing the material business aspects of the company. In addition, the management and auditors of the company were involved in the overstatement of profit. It needs to be mentioned that ineffective corporate governance practice was one major reason for the collapse of HIH Insurance. However, in case of the collapses of both Stellar Homes and ABA, the reasons that led to the liquidation did not have anything to do with ineffective corporate governance (Todorovic, 2013). Types of Liquidation It can be seen that the court provided the order for initiating the process of liquidation of HIH Insurance on 27thAugust, 2001 and the responsibility was on KPMG for the review of the financial statements of the company. It indicates towards the fact that the nature of liquidation of HIH Insurance was Court Liquidation where the company is liquidated after the court’s verdict (Byrne and Shepherd, 2015). Different scenario can be seen for Stellar Homes and ABA as the occurrence of voluntary liquidation could be seen for these two companies. It could be noticed in case of both these companies that the order for liquidation was given according to the regulation of paragraph446A(1)(a)underthespecialresolutionofs491.Voluntaryliquidationis considered as the liquidation when the management of the company closes the business on intended basis and accurate reserves are there to pay off the obligations of the creditors and other lenders (Carpinelli et al., 2017). Role of Liabilities Increased amount of liabilities has been a major reason behind the liquidation of the companies and the same can be seen for HIH Insurance. HIH Insurance was highly leveraged
6ACCOUNTING FINANCIAL as there was the presence of high amount of debts in the company’s balance sheet due to the fact that the majority portion of financing used to come from term debts. HIH Insurance acquired FAI Insurance for $300 million where the actual cost of the deal was $100 million and it affected the debt position of the company (treasury.gov.au, 2019). In case of Stellar Homes, it could be seen that the company had a debt of $1.5 million to the owners of the unfinished homes. At the same time, the amount of secured and unsecured loans of the company was $1.5 million and $3.5 million respectively. However, it needs to be mentioned that liabilities did not play any role in the liquidation of ABA. Conclusion Theabovediscussionindicatestowardsthefactthatcertainreasonsand circumstances have contributed towards the collapse of these three companies. In addition, it also shows that the companies are needed to comply with the ethical code of conducts of APES 110 at the time of business operations. HIH Insurance collapsed due to wrong business decisions, ineffective corporate governance and increased debts. Decrease in sales due to bad economic condition was the reason for the liquidation of Stellar Homes and fire in the navy boat was the reason for the liquidation of ABA. It can also be seen from the above discussion that the business executives of the companies are needed to comply with the required ethical code of conduct and need to incorporate the required corporate governance mechanism.
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7ACCOUNTING FINANCIAL References AluminiumBoatsAustralia|ShipbuildersBrisbane,Australia.2018.AluminiumBoats Australia|ShipbuildersBrisbane,Australia.[online]Availableat:https://www.aba- global.com/ [Accessed 22 Dec. 2018]. Apesb.org.au. (2018).APES 110 Code of Ethics for Professional Accountants.[online] Availableat:https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 22 Dec. 2018]. Aph.gov.au. (2019).HIH Insurance Group collapse – Parliament of Australia. [online] Availableat:https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/ Parliamentary_Library/Publications_Archive/archive/hihinsurance [Accessed 4 Jan. 2019]. Byrne, O. and Shepherd, D.A., 2015. Different strokes for different folks: Entrepreneurial narratives of emotion, cognition, and making sense of business failure.Entrepreneurship Theory and Practice,39(2), pp.375-405. Carpinelli, L., Cascarino, G., Giacomelli, S. and Vacca, V., 2017. The management of non- performing loans: a survey among the main Italian banks.Politica economica,33(2), pp.157- 188. Couriermail.com.au. 2014.Fire helps sink Brisbane boat builder. [online] Available at: https://www.couriermail.com.au/business/hmas-bundaberg-fire-blamed-for-brisbanebased- aluminium-boats-australia-going-into-voluntary-administration/news-story/ ebe81d71762d198f65b28d674c4c463b [Accessed 22 Dec. 2018]. Group, 2. (2019).2. The rise and fall of HIH Insurance Group. [online] Treasury.gov.au. Available at: 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 4 Jan. 2019]. Han Fan, Y., Woodbine, G. and Cheng, W., 2013. A study of Australian and Chinese accountants’attitudestowardsindependenceissuesandtheimpactonethical judgements.Asian Review of Accounting,21(3), pp.205-222. Hih.com.au.(2019).HIHInsurance.[online]Availableat: http://www.hih.com.au/background [Accessed 4 Jan. 2019]. Insolvencynotices.asic.gov.au.(2018).STELLARHOMESPTYLTD107791453| Creditors' Voluntary Liquidation | Appointment | | Published : 12/03/2015 | ASIC Notice Details.[online]Availableat: https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/STELLAR- HOMES-PTY-LTD-107791453/00b614e4-780a-4df8-b958-f3f48e4ee9f1 [Accessed 22 Dec. 2018]. Martinov-Bennie, N. and Mladenovic, R., 2015. Investigation of the impact of an ethical framework and an integrated ethics education on accounting students’ ethical sensitivity and judgment.Journal of Business Ethics,127(1), pp.189-203. NewsComAu.2014.StellarHomescrashesdowntoearth.[online]Availableat: https://www.news.com.au/national/south-australia/custom-home-builder-stellar-homes-has- gone-into-administration/news-story/a8903cbc8762cae1a67d6f43e4d27fa8[Accessed22 Dec. 2018].
8ACCOUNTING FINANCIAL Stellarhomes.ca. 2018.Stellar Homes - General Contractors, Residential Home Builder, Edmonton,SpruceGrove,StonyPlain,Acreage,High-EndLuxuryHomes.[online] Available at: https://www.stellarhomes.ca/ [Accessed 22 Dec. 2018]. The Sydney Morning Herald. (2001).HIH Insurance in liquidation. [online] Available at: https://www.smh.com.au/business/hih-insurance-in-liquidation-20010316-gdfdte.html [Accessed 22 Dec. 2018]. Todorovic,I.,2013.Impactofcorporategovernanceonperformanceof companies.Montenegrin Journal of Economics,9(2), p.47. Tricker, R.B. and Tricker, R.I., 2015.Corporate governance: Principles, policies, and practices. Oxford University Press, USA.