Corporate Failures in Australia: Analysis of ABC Learning, HIH Insurance and One Tel

FINANCIAL ACCOUNTING
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Executive Summary
There has been a growing concern amongst investors with regards to the increasing incidence
of corporate failures that have been witnessed in Australia in the last two decades. Three
major corporate failures pertain to ABC Learning, HIH Insurance and One Tel Limited. The
report has analysed the situations and decisions made by the management of these companies
and the tole played by these in the eventual bankruptcies. It has been found that while
liabilities are blamed for the corporate failure, it represents the immediate trigger whose
cause lies in years of unethical conduct, deceptive accounting practices and faulty
management decisions so as to maximise their own interests. With the introduction of ASX
corporate governance principles, APES 110 code of ethics and other statutory provisions, the
corporate governance framework has strengthened considerably in the aftermath of these
bankruptcies providing much needed comfort for investors.
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Table of Contents
Introduction...........................................................................................................................................3
Ethical Guidelines Available.................................................................................................................3
Analysis.................................................................................................................................................4
Common Enemy (Shoddy Corporate Governance Practices)................................................................7
Recommendation...................................................................................................................................8
References.............................................................................................................................................9
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Introduction
In recent times, there has been an increased incidence of corporate bankruptcies which has
had an adverse impact on the shareholder confidence and has led to growing importance of
sound corporate governance practices. The essential aspect of most of these corporate failures
is that from the outside it seems as though the underlying liabilities became untenable leading
to the inevitable collapse of these organisations. However, on closer examination, the key
issues which relate to deficiencies in business model, management approach and weak
corporate governance practices. The given report tends to present an analysis of the three
corporate bankruptcies namely HIH Insurance, ABC Learning and One Tel in the wake of
APES 110 Code of Ethics along with principles of corporate governance.
Ethical Guidelines Available
In recent times, one of the most relevant corporate governance practices framework has been
provided by the ASX (Australian Stock Exchange). These essentially rely on the following
eight corporate governance practices (ASX, nd).
 “Solid foundation for management and oversight” – The underlying roles and
responsibilities of the board of directors need to be shared so as to enhance
transparency and accountability.
 “Addition of value through board structuring” – The board members should have the
requisite knowledge and skills besides having significant representation of non-
executive directors for maintaining independence and segregation from management.
 “Promotion of decision making driven by ethics and responsibility”- The directors
should promote ethical behaviour by disclosing any conflict of interest that they have
and must exercise their powers with responsibility and due diligence.
 “Safeguard financial reporting integrity”- It is imperative that the independence of the
internal audit committee along with the external auditor must be maintained and no
such action is to be taken by directors to adversely impact the same.
 “Making disclosures in a timely way”- Any material disclosure should be made public
in a prompt manner irrespective of the impact of the same on the share price and also
the future of the management.
 “Respect the shareholders’ rights”- The directors must provide opportunity to the
shareholders to participate in general meeting and to exhibit their right to vote besides
allowing them to communicate with the company for detailed information or queries.
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