Ethics and Governance in Explaining Financial Stress

Running head: ETHICS AND GOVERNANCE AND FINANCIAL STRESS
Ethics and Governance in Explaining Financial Stress of Companies
Name of the University:
Name of the Student:
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ETHICS AND GOVERNANCE AND FINANCIAL STRESS1
Table of Contentss
1. Introduction................................................................................................................2
2. Events that Result in Liquidation of Companies.............................................................2
2.1. ABC Learning...........................................................................................................3
2.2. HIH Insurance...........................................................................................................4
2.3. OneTel Phone Company...........................................................................................5
3. Ethics and Governance in Explaining Financial Stress...................................................6
3.1 ABC Learning............................................................................................................9
3.2 HIH Insurance............................................................................................................9
3.3 OneTel.....................................................................................................................10
4. Conclusion.....................................................................................................................10
References..........................................................................................................................12

ETHICS AND GOVERNANCE AND FINANCIAL STRESS2
1. Introduction
The fundamental objective of an organization is profit-making or maximization of
shareholder’s wealth. An organization, being a going on concern has perpetual existence but with
a grave threat which is liquidation. This is considered most imperative as it may wipe the
company from existence irrespective of its size or nature of business. This situation has been
witnessed in various countries and numbers of firms got liquidated.1 However, as studies have
been conducted to learn the reason behind the same, mismanagement of resources and lack of
corporate governance contributed the most towards the failure of an organization. Hence, this
paper will shed light on a few Australian companies which got liquidated as a result of poor
governance and low ethical values.
2. Events that Result in Liquidation of Companies
ABC Learnings, HIH Insurance, and One.Tel Phone Company, which has enjoyed the
privilege of being one of the most valued companies in Australia had to face
liquidation on poor ethical grounds, wherein the management of the companies chose
wrong path of value maximization and suffered the consequences.2
1 Adegbie and Fofah Evelyn Temitope. "Ethics, Corporate Governance and Financial Reporting
in the Nigerian Banking Industry: Global Role of International Financial Reporting
Standards." Accounting and Finance Research 5.1 (2015): 50.
2 Adegbie, Folajimi Festus, and Fofah Evelyn Temitope. "Ethics, Corporate Governance and
Financial Reporting in the Nigerian Banking Industry: Global Role of International Financial
Reporting Standards." Accounting and Finance Research 5.1 (2015): 50.

ETHICS AND GOVERNANCE AND FINANCIAL STRESS3
2.1. ABC Learning
ABC Learning Ltd was into a business of providing early childhood education services.
Eddy Groves was the mind behind the business which has a few centers but started aggressively
acquiring rivals and started opening new centers in view of growing faster. In the process of
same, the organization spend a huge amount of money which were generally funded by investors
as well as by banks. However, declining profit in second half of 2017 has reflected that the
company was not in a position to meet its obligations and eventually the company went into
receivership.3
The management of the concerned corporation has been alleged to maintain a poor
governance as the financial position of the organization was misinterpreted and led the
shareholders believe in the false positive image created. Mr. Groves, the founder and CEO of
ABC Learning misguided the shareholders by keeping them from the actual financial position of
the company and even neglecting the warnings from the team who were employed to measure
the position of the company. He is said to be very much keen to expand his business by acquiring
new branches, increasing his debt. It is also claimed that he was dependent on the government
subsidy and reflected them as future profit in his financials.4 This could be considered as the
deceiving factor for the investors. He is alleged to follow his own ethics while taking business
3 Baldarelli, Maria-Gabriella, Mara Del Baldo, and Caterina Ferrone. "The relationships between
CSR, good governance and accountability in the Economy of Communion (EoC)
enterprises." Corporate Social Responsibility and Governance. Springer, Cham, 2015. 3-38.
4 Cerqueiro, Geraldo, Steven Ongena, and Kasper Roszbach. "Collateral Damaged? On
Liquidation Value, Credit Supply, and Firm Performance." (2018).