Liquidation Case of HIH Insurance

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Added on 2020-04-07

Liquidation Case of HIH Insurance

Added on 2020-04-07

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FINANCIAL ACCOUNTING1

Table of ContentsINTRODUCTION...........................................................................................................................3CONCEPT OF LIQUIDATION......................................................................................................3EVENTS THAT LED UPTO THE LIQUIDATION......................................................................4EXPLANATION OF FINANCIAL STRESS THROUGH CORPORATE GOVERNANCE ANDETHICS...........................................................................................................................................5LIABILITY AS A MAJOR FACTOR............................................................................................7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................82

INTRODUCTIONLiquidation is considered as the process of closing down the company’s activities whereall the assets are sold to repay the amount of the debt. Generally, this situation is considered to beunfavorable for the business and can be regarded as adverse also. The ultimate reason due towhich any company reaches to liquidation stage is that when it becomes impossible to recover allthe major expeneses[ CITATION You14 \l 1033 ]. Many reasons of liquidation are present suchas high amount of debt burden, ineffective corporate governance, ineffective ethical activities,etc. Sometimes boards of directors of the business are not able to focus on the key activities dueto which company has to shut down its operations. The present study carried out is based on theliquidation case of HIH insurance, OneTel company and ABC learning which all thesecompanies have to shut down their operations due to a large number of reasons and they havebeen discussed in the report. Apart from this corporate governance, ethics and other form ofactivities of the companies have been undertaken. CONCEPT OF LIQUIDATIONThe concept of liquidation arises when an organization is not able to conduct itsoperations and due to this reason situation of shutting down the operations arises. Overall debtburden is considered to be one of the main reasons where company obtains a large amount offunds from the bank and in turn they are able to repay the amount back[ CITATION Wei13 \l1033 ]. The concept of liquidation and bankruptcy differs from each other where it has beenidentified that any organization which is liquidated is not necessarily bankrupt. The possiblereasons behind liquidation can be the high level of debt, high competition in the market, anabsence of profit planning control, unethical activities carried out within the business etc. So,these events are totally unfavorable for the business. In case of Australia, many companies have gone into liquidation. Companies such asABC learning, HIH insurance and OneTel company have gone through this stage. Further,company like HIH insurance was liquidated with the loss that lies in the range of AU$3.6 billionto AU$5.3 billion. In case of OneTel organization which was one of the fastesttelecommunication enterprise where the business has suffered loss of AU$291 million in the year2000. Such losses directly lead to the event of liquidation and other form of issues were alsofaced by the businesses that involves poor auditing, ineffective financial planning, weakcorporate governance etc[ CITATION Pur16 \l 1033 ]. 3

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