Corporate Governance and Liquidation Causes

This assignment explores the factors leading to corporate liquidation by examining case studies. It focuses on how inadequate corporate governance practices, misjudged risks during expansion, and flawed accounting practices contributed to these failures. The analysis highlights the importance of ethical conduct and transparency for the long-term success of businesses.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Authors Note
Course ID

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Executive Summary:
Winding up is largely known as the process of liquidation of companies that is linked with
the process through which the business affairs of the company are wounded up. The current
report is based on the assessment of the reasons behind the decline of companies such as
ABC Learning, HIH Insurance and One Tel Phone Company. The study will provide the
overview of the company with decisions that have contributed to the demise of the respective
company. The study will also highlight the poor ethics adopted by the company with
improper due diligence in regarded to the corporate performance of the company.

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Table of Contents
Introduction:...............................................................................................................................2
Overview of the companies:.......................................................................................................2
Events that contributed to the winding up and the failure of corporate governance:................4
Ethical Strain:.............................................................................................................................6
Recommendations:.....................................................................................................................8
Conclusion:................................................................................................................................8
Reference List:...........................................................................................................................9

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Introduction:
Winding up is more popularly known as the process of liquidation of the company
that is associated with the proceedings through which all the affairs of the business are wound
up. Its rights and liabilities are discerned and the claims of the creditors are settled either
completely or to the extent as it may be warranted by the assets of the company. Large
number of the companies functions at the discretion of the board of directors (Carlonet al.
2015). The board of directors forms the central part of the management of the company. They
possess of powers of undertaking the decision for the company. The decisions are usually
undertaken in context with the interest of the shareholders and stakeholders of the
organization. Decision-making forms the effective tool in determining the longevity of the
organization as it forms the essence of survival for the organization.
The effective operations of any organizations is generally regarded the corporate
governance. The effectiveness of the performance of an organization is based on the
principles, guidelines and the provisions of numerous statutes that is prevalent in a nation
(Macve 2015). Failure to abide by the principles of governance will reflect an organizations
incapability of complying with the guiding principles of effective governance. The study is
based on the determining the winding up of the companies such as ABC Learning, HIH
Insurance and One Tel phone company (Atrill and McLaney 2016). The report also focuses
on the reason behind the liquidation of the above stated companies together with the
principles of ethics and corporate governance.
Overview of the companies:
ABC Learning:

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ABC learning in the earlier years was viewed as one of the largest company in
Australia serving in the areas of educations. The company was listed on the Australian
Securities Exchange having a market capitalisation of the approximately A $2.5 billion
(Barkeret al. 2014). The company however went into the managerial receivership following
the fallout from the subprime mortgage crisis because of the debt repayments to overwhelm
the organizations. The auditors failed to sign off on the monetary reports by citing the
requirement of recasting the profits of the preceding years.
The company was formed in the year 1988 in Queensland. Ever since the inception of
the company it was successful in establishing more than nine hundred centres throughout
Australia and New Zealand by the year 2006. During the month of 2006 ABC learning
announced that it would acquire second largest child care provider located in United States
for a sum of 330 million US dollars together with the acquisition of Busy Bees Group which
is viewed as the 5th largest provider in UK (Tricker and Tricker 2015). With this acquisition
the company expanded into the UK and US market with a market share of 1 per cent.
One Tel Phone:
One Tel is regarded as the group of Australian based telecommunications companies
that was established in the year 1995 soon after the deregulations of the Australian
telecommunications industry with most of them are currently under the external management
by the court appointed liquidators. The basic business purpose of the company was that the
company will be giving more focus on the delivery of better service to meet the wants and
needs of the customers (Dimopoulos and Wagner 2016). One Tel attempted to establish a
youth oriented image to sell the mobile phone and One.Net internet service. Prior to the
collapse One Tel became the fourth largest telecommunications company. The original
through process of the company commenced from a very simple initiative of starting a new

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mobile phone company where an average individual would understand. The company
majorly focused on the people and the residential market as opposite to the commercial
business. The company wanted the consumer or the regularly person to gain the access of the
entire suite of the telephone products which ultimately resulted in high marketing of the
company.
HIH Insurance:
The HIH Insurance Company came in to the business of insurance and was regarded
as the major insurance company in Australia. Through the years of 1997 and 1998 HIH
Winterthur acquired a large number of companies both in Australia and globally. In the year
1992, HIH was listed on the Australian Stock Exchange and in the year 1995, the company
sells the stake to the insurer based in Switzerland and ultimately changed the name of the
company to HIH Winterthur.This comprises of the Colonial Ltd General Insurance operations
in Australia and New Zealand.
The liquidators have estimated that the HIH is total amount of losses stood up to $5.3
billion. Investigations into the cause of the collapse of the company have resulted in the
conviction and imprisonment of large number of members of HIH management on numerous
charges related to fraud (Pearson 2016). The fall of HIH is regarded as the largest corporate
collapse in the history of Australia.
Events that contributed to the winding up and the failure of corporate governance:
HIH Insurance: The below stated events have resulted the company in to liquidations;
a. HIH acquired the business of the FAI Insurance that comprises of more investment
that is hazardous in the business of insurance. Because of this, the company had
incurred a considerable amount of damage.

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b. Another risky event leading to the downfall of the HIH was the entering in the
financing of films that ultimately resulted in huge amount of loss of over one hundred
million dollar over the year (Morgan 2014).
c. HIH suffered a huge financial loss when the natural disaster struck at Florida; this
ultimately resulted in occurrence of huge amount of debt, which contributed to the
loss of HIH business.
d. Another noteworthy cause of demise of the HIH was the abrupt change in the policy
of compensation payment that was paid to the workers working in the Californian
industry (Macve 2015). This ultimately contributed to huge monetary loss and fall of
HIH.
e. The provisional liquidators have estimated that HIH has lost over $800 million over
the span of six months and this was attributed to the quicker expansion, unsupervised
delegation of the authorities and complex structure reinsurance.
One Tel: The below stated are the following reasons for liquidations of the company;
a. One Tel has been constantly reporting superior amount of profit and deferred its
expenses over the period of three years. The practices adopted in financial reporting
was against the standards of accounting and policies of bookkeeping that is generally
considered by companies across the world.
b. The emergence of problems originated from the year 2000 when One Tel reported a
loss of $291 million. This resulted the price of share to fall below $1.
c. The company started to run out of the fund by the end of April in the year 2001 with
director Rodney Adler selling 5 million shares for $2.5 million (Geisler and
Wickramasinghe 2015). The reported of the administrators report defined that the
company became insolvent and had commenced laying off the workforce of 1400.

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d. The liquidation followed a report that sought for the compensation of $92 million
from the director of One Tel because the company did not exercise its power with
regard to appropriate due care and diligence (Dimopoulos and Wagner 2016).
e. Another reason that resulted in the decline of One Tel is that the company charged a
price of One seventh from the customers in considerations that the company will in
future recover the cost of purchase however this did not happened. Soon the company
began running into the problems of low cash, which eventually contributed, to the
liquidation of the company.
ABC learning:The below stated are the following reasons for liquidations of the company;
a. ABC learning unexpectedly suffered a fall of 42 per cent in the profit during the
second half of 2007 for a sum of $37.1 million and its liability to service incurred a
debt of $1.8 billion that ultimately triggered in the fall of company’s share price.
b. The combined effect of falling share price caused it to fall by 43 per cent to $2.15
after trading with a low of $1.15 (Slade and Prinsloo 2013). By the end of the period
of selling the founder of ABC learning had to virtually sell all their stakes of $20
million and $6 million respectively for a sum of 2.7 million. This ultimately led to
suspension of trade for ABC learning after the company’s failure to release its
earnings for the financial year of 2007-08.
c. In spite off selling all the assets the company fell into the receivership during the year
2008 following a massive increase in the debt servicing obligations and its auditors
failed to sign off the accounts.
d. The company followed the incorrect method of accounting of its intangible assets
such as Goodwill. ABC learning valued its goodwill to $2.4 billion of the licenses and
other intangible assets but only charged an impairment of $8.4 million (Krieret al.
2014). As a result of this the future amount of cash flow that was taken for valuation

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of intangibles were found to be wrong that ultimately resulted in loss of profits by 42
per cent. This could be attributed as one of the prime reasons for the fall of ABC
learning.
Ethical Strain:
HIH Insurance:
a. HIH insurance had acquired the FAI Insurance without gaining the approval from the
Board of Directors and instantly Winterthur disposed his shares and simultaneously
resigned from the company. It can be concluded that the company suffered from a
poor corporate governance (Damiani, Bourne and Foo 2015).
b. Prior to the liquidation, it can be stated that the company suffered from poor decision
making as it entered into the venture that were involved more risk such as financing
of film, marine and natural disaster.
c. The ethical issue that contributed to the demise is that prior to the acquisition the
company did not paid adequate attention in carrying out the work with due diligence
and it was noticed that there was a constant change in the managerial position (Betta
2016).
d. Mr William was charged with the charges of improper management of the company,
issuing of prospectus with material omission and overstating the profits in the books
of accounts for the fiscal year of 1998-99.
One Tel:
a. By violating the rules and accounting practices, it can be stated that One Tel had
effected the compliance ethics

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b. Concerning the operations of the companies, the administrators of HIH failed to
monitor the financial performance of the organization and even ignored the areas of
investment that contained high risk (Union 2014).
c. The failure in the adoption of strong pricing strategy by the directors could be
considered as one of the prime reason for the liquidation of HIH, which ultimately
resulted in loss of income and problems of liquidity (Northouse 2015). It can
concluded that the directors failed to act ethically in discharge of business obligations.
ABC Learning:
a. For ABC Learning one of the prime reason for the liquidation is the incorrect
adoption of accounting policies that ultimately led to fraudulent accounting practices.
It can be stated that the ABC Learnings ethically displayed a weak bookkeeping
practices, which can be altered and modified to suit the business needs (Cornelissen
and Cornelissen 2017).
b. Another ethical issue that contributed to the liquidation of ABC Learning was the
rendering of service to the customers. The customers and government concerning the
improper rendering of service sued up against the company.
Recommendations:
As evident from the above stated discussion, it is understood that poor corporate
forms have forced these companies to suffer losses. Not only monetary factor contributed to
the liquidation of the company but ethical issues such as improper management have
contributed to their demise. It is recommended that there must be an adequate management
practices by giving due recognition to the interest of the stakeholders and shareholders.

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Conclusion:
To conclude with, from the analysis it can be depicted that the main cause of
liquidation for the above stated organizations was poor corporate governance and incorrect
identification of risk in expanding the business. These firms even failed to adopt true and fair
accounting practices to locate the areas of risk and financial position. Henceforth, these
companies must strive in the interest of both stakeholders and shareholders.
Reference List:
Atrill, P. and McLaney, E., 2016. Financial Accounting for Decision Makers 8th edn.
Pearson Higher Ed.
Barker, R., Lennard, A., Nobes, C., Trombetta, M. and Walton, P., 2014. Response of the
EAA financial reporting standards committee to the IASB discussion paper A review of the
conceptual framework for financial reporting. Accounting in Europe, 11(2), pp.149-184.
Betta, M., 2016. Three Case Studies: Australian HIH, American Enron, and Global Lehman
Brothers. In Ethicmentality-Ethics in Capitalist Economy, Business, and Society (pp. 79-97).
Springer Netherlands.
Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N. and Wong, L.,
2015. Financial Accounting: Reporting, Analysis and Decision Making. John Wiley and Sons
Australia.

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Cornelissen, J. and Cornelissen, J.P., 2017. Corporate communication: A guide to theory and
practice. Sage.
Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic
Round-up, (1), p.37.
Dimopoulos, T. and Wagner, H.F., 2016. Corporate Governance and CEO Turnover
Decisions.
Geisler, E. and Wickramasinghe, N., 2015. Principles of knowledge management: Theory,
practice, and cases. Routledge.
Krier, P., Parman, A., Piercy, D., Erlandson, J., Keele, R., Hill, S.L. and Erlandson, J., 2014.
CODE OF ETHICS.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?.Routledge.
Morgan, J., 2014. Too big to insure? Tabulating the costs of failure. Law and Financial
Markets Review, 8(2), pp.103-106.
Northouse, P.G., 2015. Leadership: Theory and practice. Sage publications.
Pearson, G., 2016. Failure in corporate governance: financial planning and greed. Handbook
on Corporate Governance in Financial Institutions, p.185.
Slade, S. and Prinsloo, P., 2013. Learning analytics: Ethical issues and dilemmas. American
Behavioral Scientist, 57(10), pp.1510-1529.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.

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Union, N.S.T., 2014. Code of ethics. private copy supplied by Bruce Kelloway, assistant
executive director, NSTU.