Reasons behind Liquidation of Australian Entities: A Case Study

This presentation discusses the reasons behind the liquidation of well-known Australian entities like HIH Insurance, Stella Homes, and Aluminium Boats Australia. It explores the APES 110 Code of Ethics for Professional Accountants and highlights 5 codes of ethics. The presentation also examines the corporate governance issues that led to the collapse of these entities and the types of liquidation involved.

Advance financial accounting
Name of the student
Name of the university
Student ID

Introduction
The aims of the report is to find out the reasons behind
liquidation of some well known Australian entities like HIH
Insurance, Stella Homes and Aluminium Boats Australia.
The report will discuss about the APES 110 Code of Ethics
for Professional Accountants and will highlight 5 codes of
ethics. Further, it will focus on the issues related to
corporate governance that led to the collapse of above
mentioned entities and the liquidation type that was
called for each of the entities (Chan and Martek, 2017).

Company backgrounds
Aluminium Boats Australia –
It was established in the year 1999 and the main business of the
company was repairing and building boats. The company was
specialised in leisure craft and ferries and only used highest quality
of materials and the latest techniques for construction.
HIH Insurance –
HIH Insurance Limited that was an Australian public listed
company was the 2nd largest general insurance company in
Australia before its collapse during the year 2001. It used to cover
different segments for insurance such as private and public
liability, commercial and industrial insurance, property and
worker’s compensation insurance.
Stellar Homes –
It is the leading real estate development entity based in South
Florida that reshaped Miami-Dade, Palm Beach countries with the
stellar quality, environmentally friendly, modern designed and
healthy communities.

Reasons behind liquidation
Aluminium Boats Australia –
Aluminium Boats Australia Pty Ltd was placed in voluntary
administrator after it lost one of the navy vessels. The reason
behind the company’s collapse was the fire that destroyed the
HMAS Bundaberg in the month of August 2014.
HIH Insurance –
Deficit for assets over liabilities was estimated to be AUD 5
billion out of total balance sheet amount of AUD 7 billion.
Royal commission followed the entity for the period of more
than 18 months for recovering cost of more than AUD 50 million.
Stellar Homes –
Stiff competition is there for working under the sector for
residential construction. Basically the tough economic climate in
the location of South Australia for the builders was the main
reason for the competition.

Corporate governance and ethics
APES110 Code of Ethics for Professional Accountants was issued
by APESB (Accounting Professional & Ethical Standards Board
Limited). All the professional members from Australia must
comply with the APES 110 while providing the professional
services.
APES 110 Code includes 3 those must be applied by the
members to –
Recognising the threats for complying with fundamental
principles
Analysing the consequence of identified threats and
Applying safeguards, wherever required, for eliminating
threats or reducing them to to the acceptable level (Tricker and
Tricker, 2015).

5 codes of ethics
Integrity – integrity principle imposes the obligation on all of the
members to be honest and straightforward in all business and
professional relationships.
Objectivity – objectivity principle oblizes all of the members for
not compromising business or professional judgements due to
conflict of interest, bias or any undue influence of others
Due care and professional competence – It imposes the below
mentioned obligation on all of the members –
1. Maintaining the professional skill and knowledge at the
required level for assuring that employees or clients receive
the competent professional services (Du Plessis, Hargovan and
Harris, 2018)
2. Acting diligently in compliance with the applicable professional
and technical standards while providing the professional
services

Confidentiality - confidentiality principle imposes the obligation
on all of the members to abstain from (i) disclosing the
confidential information generated from business and
professional relationships to outside of the firm without specific
and proper authority unless professional or legal duty or right is
there to disclose (ii) using the confidential information generated
from business and professional relationships for their professional
advantage or for the advantage of third parties (Ali, 2016).
Professional behaviour - Professional behaviour imposes the
obligation on all of the members to comply with the relevant
regulations and laws and avoiding any omission or action those
members shall know or know that it may disrepute the
profession.

Corporate governance issues contribution to collapse
Aluminium Boats Australia –
Due care and professional competence that imposes an
obligation on all of the members that they shall maintain the
professional skill and knowledge at the required level for
assuring that employees or clients receive the competent
professional services.
HIH Insurance –
Objectivity for lack of independence from management for the
non-executive director
Professional behaviour for inadequate risk management
Stellar Homes –
Analyses of the financial reports were not done properly that
led to decline in sales sales which in turn raised the cash flow
issues.

Types of liquidation and contribution of liabilities for
liquidation
The fire that devastated Australian Navy patrol boat amounting to
$ 54 million was blamed for the demise of the Aluminium Boats
Australia. Eventually it left the company with large amount of debt
and credits. The company placed into voluntary administrator. In
case of HIH the deficit for assets over liabilities was estimated to
be AUD 5 billion out of total balance sheet amount of AUD 7 billion.
Hence liability was a major reason for its liquidation (French, Vital
and Minot, 2015). The company applied for provisional liquidation
(Anderson 2018). Further, in case of Stellar Homes at the time of
its liquidation, it was estimated that $ 1.5 million owed to the
unsecured creditors and $ 3.4 million was owed to the secured
creditors and the entitlements to the staffs were yet to be
finalised. Hence liability was a major reason for its liquidation. The
company was placed into administration that is forced liquidation.

Conclusion
Biggest companies from Australia went into liquidation
owing to various insolvent issues and poor management.
Issues associated with insolvency were raised in front of the
entity while the members from board did not work well for
entity and corporate governance of the entity went poor.
Further, chances of liquidation go up with the higher amount
of debt. As all the above mentioned entities were at higher
amount of debt and were not following the requirements of
accounting standards they got liquidated for the issues.
Hence, the entities from Australia shall maintain their
accounts and business operation with high quality so that
shareholders will not propose to take their consent back.

Ali, S., 2016. Corporate governance and stock liquidity in Australia: A pitch.
Aluminium Boats Australia | Shipbuilders Brisbane, Australia. 2019. Aluminium Boats Australia |
Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-global.com/ [Accessed 3 Jan.
2019].
Anderson, H., 2018. Insolvency—It's all about the Money. Federal Law Review, 46(2), pp.287-312.
Apesb.org.au. 2019. [online] Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 3 Jan. 2019].
Ballantyne, S., 2015. Receivers, liquidators and undertakers. Ausmarine, 37(3), p.10.
Biddle, T. and Macpherson, H., 2017. Marketing class actions: A new frontier. Governance
Directions, 69(8), p.480.
Chan, T.K. and Martek, I., 2017, January. Profitability of Large Commercial Construction Companies in
Australia. In AUBEA 2017: Transforming built environment education and practice: leveraging industry
partnerships: Proceedings of the 41st Australasian Universities Building Education Association
Conference (pp. 139-146). EasyChair.
Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic Round-up, (1),
p.37.
Doyle, M., 2017. Market-based indirect causation after HIH. Australian Resources and Energy Law
Journal, 35(3), p.205.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance.
Cambridge University Press.
French, A., Vital, M. and Minot, D., 2015. Insurance and financial stability.
Hih.com.au. 2019. HIH Insurance. [online] Available at: http://www.hih.com.au/ [Accessed 3 Jan. 2019].
Kashyap, A.K., Jaswani, U., Bhandari, A. and Dixit, Y.S., 2019. An Introduction to Corporate Insolvency Law
and Reforms in Australia. In Corporate Insolvency Law and Bankruptcy Reforms in the Global
Economy (pp. 107-131). IGI Global.
Sivathaasan, N., 2016. Corporate governance and leverage in Australia: A pitch. Accounting and
Management Information Systems, 15(4), p.819.
Steller. 2019. Home | Steller | We Make Places. [online] Available at: http://www.steller.com.au/ [Accessed
3 Jan. 2019].
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford
University Press, USA.
Weekes, J., 2017. Boomer Constructions Collapses After Voting Against Liquidation.
Reference