Events Leading to Liquidation of Australian Companies
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This report studies the events that led to the liquidation of three major Australian companies - HIH Insurance, Stellar House, and Aluminium Boats Australia. It discusses corporate governance issues, nature of liquidation, and role of liabilities.
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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 the report is to study and examine the events that led up to the liquidation of three major Australian companies; they are HIH Insurance, Stellar House and Aluminium Boats Australia. Discussion on the corporate governance related issues is another aim of this report. After that, this report also discusses about the nature of liquidation of these companies and the role of liabilities.
2ACCOUNTING FINANCIAL Table of Contents Introduction................................................................................................................................3 About Companies.......................................................................................................................3 Events Contributed To the Liquidation......................................................................................3 Ethical Codes.............................................................................................................................4 Issues Related to Corporate Governance...................................................................................4 Liquidation Types......................................................................................................................5 Role of Liabilities.......................................................................................................................5 Conclusion..................................................................................................................................5 References..................................................................................................................................6
3ACCOUNTING FINANCIAL Introduction Therearecertainreasonsoreventsbehindtheliquidationofthebusiness organizations and other companies are needed to consider these reasons in order to avoid unexpected closure or liquidation of the businesses (Ucbasaran et al., 2013). It is the objective of this report to study and examine the events that led up to the liquidation of three major Australian companies; they are HIH Insurance, Stellar House and Aluminium Boats Australia (Aluminium Boats). This repot also examines certain other aspect related to the liquidation of these companies like corporate governance issues, nature of liquidation, role of liabilities and others. About Companies Aluminium Boats Australia (Aluminium Boats):Aluminium Boats was an Australian company established in 1999 and the company was involved in the development, repair, maintenance and technical support of luxury, commercial and military vessels and boats. Aluminium Boats was regarded as an organization with high performance and they had the reputation of surpassing expectation and specification in their projects (aba-global.com, 2019). HIH Insurance:HIH Insurance commenced their business operations in the year of 1968 andtheywerethesecondlargestproviderofinsuranceservicesbeforeliquidation (hih.com.au, 2019). The business operation of the companies was spread within different regions of Australia along with many overseas countries. The company was enlisted in Australian Securities Exchange (ASX). The collapse of HIH Insurance is viewed as the largest collapse in the history of Australia. Major global business expansion of the company could be seen between the years 1997 to 1998 (hih.com.au, 2019). Stellar Homes:Stellar Homes was a major company based on Florida and the business operations of the company could be seen in the Australian real estate development sector. Apart from this, Stellar Homes was also involved in the investment business in the real estate development industry. In addition, the company was renowned for considering the effects of their operation on the environment and community (stellar-homes.ca, 2019). Events Contributed To the Liquidation HIH Insurance:Certain specific reasons led to the liquidation of HIH Insurance. It can be seen that the management of the company did introduce incorrect financial standards related to the remuneration of the employees of California and this standard failed after some time. In addition, HIH Insurance suffered from huge loss when a natural disaster did attack Florida and the company had to incur huge debt for the same. It needs to be mentioned that the company acquired the business of FAI Insurance that involved huge investment from the company and this huge amount of investment for an insurance company was hazardous. Hence, the company had to face huge damage due to this. Lastly, another risky event that led to the liquidation of the business of HIH Insurance was the company’s decision to enter into the business to finance film that did not work for the company. Due to this, the company had to face a loss of more than hundred million dollars over a year. These events together led to the liquidation of the company (smh.com.au, 2019). Aluminium Boats Australia:The main event that led to the liquidation of Aluminium Boats was the unexpected fire in the Australian navy vessel. The commencement date of the liquidation of Aluminium Boats started from November 4, 2014 and the two administrators of the liquidation process were John Park and Kelly-Anne Trenfield. It can be found from the assessment report of the administrators that the fire fully destroyed HMAS Bubdaberg that
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4ACCOUNTING FINANCIAL was an Armidale class patrol boat of the Royal Australian Navy and this particular incident had certain major negative impact on the company that led to the decision to liquidation. Due to the fire, the company lost the above mentioned boat worth $45 million and they lost the contract to provide maintenance services to the Australian Navy that was the major source of revenue of the company. As a result of the huge loss due to the fire, large number of employees of the company loss their job. All these events together contributed towards the windinguportheliquidationofthebusinessoperationsofAluminiumBoats (couriermail.com.au, 2019). Stellar Homes:The main event or reason that led to the liquidation of Stellar Homes was the massive decrease in the sales revenue of the company that ultimately affected the cash flow position of the firm. The initialization of the liquidation process of Stellar Homes could be seen from October 20, 2014 and names of the two administrators of the liquidation process of the company were IW Burford Macks and PI Macks. Stellar Homes had a long standing reputation of developing more than 500 homes within ten years. It can be found from the assessmentreportofthesetwoadministratorsthatSouthAustraliawasfacingmajor economic issues that affected the ability of Stellar Homes to earn high amount of sales revenue.Thecompanyleftmanyhousesunfinishedduetotheirsuddendecisionof liquidation. It could be obtained from the assessment report that more than 36 houses were unfinished due to the collapse of Stellar Homes (news.com.au, 2019). Ethical Codes The presence of five ethical code can be seen in the document ofAPES 110: APES 110 Code of Ethics for Professional Accountantsand they are discussed below: Integrity:It is needed for the professionals to stay honest and straightforward at the time to provide the professional services (apesb.org.au, 2019). Objectivity:It is not expected to have any kind of bias and conflict of interest from the professional’s side that can hamper the professional services (apesb.org.au, 2019). Professional Competence and Due Care:The requirement for the professionals is to acquire the needed skills, knowledge and competence for providing professional services. Confidentiality:It is the restriction on the professionals not to share the private business informationwhentheydonothavetheneededapprovalfromtheclients (cpaaustralia.com.au, 2019). ProfessionalBehaviour:Itistheutmostrequirementfortheprofessionalstomake compliance with the required standards and principles while providing the professional services (apesb.org.au, 2019). Issues Related to Corporate Governance Issues in corporate governance can be viewed as a major reason for the liquidation of HIH Insurance. The absence of lack of corporate governance can be seen when HIH Insurance made the acquisition of FAI Insurance without gaining the proper approval from the Board of Directors. Poor corporate governance can also be seen from the ineffective decision of the company to enter into such a business venture that led to major business losses. There was lack of attention from the company’s side to the due diligence and constant changes in managerial position of the company show weak corporate governance mechanism in HIH Insurance. Lastly, the management of HIH Insurance was accountable for profit overstatement and material mission. All these aspect shows the lack of effective corporate governance framework with the company (Kang et al., 2013).
5ACCOUNTING FINANCIAL However, there was not any issue related to poor corporate governance in the liquidations of Stellar Homes and Aluminium Boats. Liquidation Types It can be seen from the liquidation of HIH Insurance that the order of liquidation came from the court on August 27, 2001 after the review of the financial statements of the company by KPMG. As the court passed the order of liquidation, the liquidation of HIH Insurance can be considered as court liquidation. However, the situation is different for Stellar Homes and Aluminium Boats as these companies were liquidated on voluntary basis. In the case of these companies, the liquidation order passed as per the regulation of paragraph 446A(1)(a) special resolution under s491 (insolvencynotices.asic.gov.au, 2019). Voluntary liquidation puts the obligation on the directors of the companies to keep sufficient reserve for fulfilling the obligations of the creditors and others. In the presence of all these reason, it can be said that the nature of liquidation of these two companies is voluntary liquidation. Role of Liabilities Presence of huge liability affected the business operations of HIH Insurance and Stellar Homes. It can be seen in the case of HIH Insurance that the company had to incur huge amount of debts due to wrong business decision and other reasons like acquisition of FAI Insurance, entering the film investment business and others (aph.gov.au, 2019). In case of Stellar Homes, the company had $3.4 million and $1.5 million as secured and unsecured loans respectively; and this huge amount of liability was created due to the unfinished houses by the company. These liabilities contributed towards the collapse of these companies. However, Aluminium Boats was not liquidated due to the presence of liabilities. Conclusion The above discussion discusses about the main events that led up to the liquidation of these three companies. It can also be seen that the presence of liabilities was one major reason for the liquidation of HIH Insurance and Stellar Homes. According to the above discussion, HIH Insurance liquidated as per the order of the court where voluntary liquidation can be seen in the cases of Stellar Homes and Aluminium Boats. In addition, issues in corporate governance were also reasons for the liquidation of these companies.
6ACCOUNTING FINANCIAL References AluminiumBoatsAustralia| ShipbuildersBrisbane, Australia.2019.AluminiumBoats Australia|ShipbuildersBrisbane,Australia.[online]Availableat:https://www.aba- global.com/ [Accessed 5 Jan. 2019]. Apesb.org.au. 2019.APES 110 Code of Ethicsfor Professional Accountants.[online] Availableat:https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 5 Jan. 2019]. 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 5 Jan. 2019]. 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 5 Jan. 2019]. Cpaaustralia.com.au.(2019).APES110.[online]Availableat: https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical- standards/apes-110-code-of-ethics-for-professional-accountants [Accessed 5 Jan. 2019]. Hih.com.au. 2019.HIH Insurance. [online] Available at: http://www.hih.com.au/ [Accessed 5 Jan. 2019]. Insolvencynotices.asic.gov.au. 2019.STELLAR HOMES PTY LTD 107 791 453 | 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 5 Jan. 2019]. Kang, H., Leung, S., Morris, R.D. and Gray, S.J., 2013. Corporate governance and earnings management: An Australian perspective.Corporate Ownership and Control,10(3), pp.95- 113. 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 [Accessed 5 Jan. 2019]. Stellar-homes.ca. 2019.Stellar Homes | About Us. [online] Available at: http://www.stellar- homes.ca/about-us [Accessed 5 Jan. 2019]. 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 5 Jan. 2019]. Ucbasaran, D., Shepherd, D.A., Lockett, A. and Lyon, S.J., 2013. Life after business failure: Theprocessandconsequencesofbusinessfailureforentrepreneurs.Journalof Management,39(1), pp.163-202.