Investigation on the Major Failures of Publicly Listed Companies in Australia

FINANCIAL ACCOUNTING 2 FINANCIAL ACCOUNTING Financial Accounting Name of the Student Name of the University Author’s Note Executive Summary The report shows the conduction of investigation on the major failures of the publicly listed companies in Australia namely “HIH Insurance, ABC Learning and One Tel Phone”. Introduction 3 Introduction of the Companies 3 Rationale for Liquidation 3 Ethics and Corporate Governance 5 Role of the Liabilities 6 Conclusion 6 References 7 Introduction Liquidation is a result of winding up of a business which results in permanent

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The report shows the conduction of investigation on the major failures of the publicly listed
companies in Australia namely “HIH Insurance, ABC Learning and One Tel Phone”. The first
part of the report states the short overview of the company’s. The second section has identified
the events which are responsible for collapse of the three companies. In the third part the
collapses in terms of the ethical perspectives has been discussed. The final part of the study has
shown the part of liabilities which led to the collapse of the three companies. The overall
depictions of the report have shown that the major issue of failure is seen with a clear
misstatement and non-compliance of the ethical and accounting standards.

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Table of Contents
Introduction......................................................................................................................................3
Introduction of the Companies........................................................................................................3
Rationale for Liquidation.................................................................................................................3
Ethics and Corporate Governance...................................................................................................5
Role of the Liabilities......................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
Liquidation is a result of winding up of a business which results in permanent shutting
down of a business. The liquidation process is followed by claim settlement made by the
liquidator either completely or partially. It needs to be noted that factors such as aggressive
accounting policies and weak links in corporate governance are some of the contributing factors
towards liquidation of the company. The discourse through the study has analysed the rationale
for liquidation of major publicly listed Australian entity such as “ABC Learning, One Tel Phone
and HIH Insurance” (Baber et al. 2015).
Introduction of the Companies
ABC Learning: ABC Learning established in 1988 had more than 900 centres all over
Australia. In 2006, the company entered the market of the United States and the United Kingdom
with a total amount of acquisition of Busy Bees group for $ 330 million. This company was
considered as one of the most premium service providers in the educational sector of Australia.
The total market capitalization has amounted to almost AUD $ 2.5 billion and the company was
listed in “Australian Stock Exchanges (ASX)”. The main reason for liquidation was understood
with mortgage crisis, due to which the company went in managerial receivership amounting to
enormous amount of debt (Blythe 2017).
One Tel Phone: The former Australian pioneering in telecommunications was established in
1995. The goal of the company included selling of mobile phones and one net services by
establishing young oriented image in Australia. The significant strategies were identified with
filling the needs of the customer thereby providing services. Prior to its liquidation One. Tel was
positioned as the fourth largest telecommunications company in Australia (Brown and Davis
2015).
HIH Insurance: This insurance service was once known as the largest in Australia. In 1997 and
1998 the company was set for global expansion by making several acquisitions. HIH Insurance
was listed in ASX 1992. In the year 1995, the company was going to be selling its stake to
another company headquartered in Switzerland. During the liquidation, the company suffered a
loss of more than $ 5.3 billion. Since this loss, with and the liquidation along with imprisonment
of several members of HIH Insurance. As a result of this, the collapse of the company is
recognized as one of the largest corporate failures in the country (Carnegie and O’Connell 2014).
Rationale for Liquidation
The events which led to the downfall of the aforementioned companies are:
HIH Insurance:
 The company’s acquisition of FAI insurance proved to be a wrong strategic move thereby
leading to a large sum of investment which was detrimental for the insurance business.
Due to this, the company had to face several major financial crises at later stages.

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 The decision to finance films led to another wrong move by the company which led to
million dollars of loss
 Due to the natural disaster in Florida, HIH Insurance had to face massive losses thereby
leading to use some of that crisis and while the main reasons for being defunct
 Another significant reason for the company’s liquidation was identified with unexpected
changes in the accounting policy pertaining to the payment of compensation for the
employees of the State of California
 The liquidator estimation led to the total loss of $ 291 million for the adoption of the
legal accounting policies and standards. It further affected the share price and made it go
beyond $ 1 (Coad 2014)
 The company faced serious shortage of fund to compensate its operating expenses in
2001. The director of One. Tel Rodney Adler was responsible for selling more than 5
million shares of $ 2.5 million. Based on the report of admin, the company became
insolvent thereby sacking more than 1400 employees
 The liquidation process was responsible for compensation of more than $ 92 million as
the company was not able to exercise this power of due diligence (Clarke and Dean 2014)
One Tel Phone
 The strategy adopted by One. Tel Phone depicts that the company inflated the profit and
delayed the major expenses over three years. This policy of One. Tel was considered as
illegal as it was against the accounting standards and policies
 In 2000, the company faced a loss of $ 291 million for illegal accounting policies and
standards
 It is further discerned that in 2001, the shortage in funds was evident with director of the
company selling $ 5 million shares for just $ 2.5 million. Based on the admin report One.
Tel was declared insolvent and it started laying off employees
 The liquidation process of One. Tel was seen as the main reason for compensation of $
92 million as it did not exercise its power of due diligence (Comino 2015)
ABC Learning
 In the second half of 2007, ABC Learning faced a decrease in 42% of profit amount
which led to a loss of $ 37.1 million. During this time, the company incurred a debt of $
1.8 billion which is identified as the major reason for collapse of ABC Learning
 The share price of the company reduced by 43% to just $ 2.15 pertaining to a low trading
of $ 1.15. During the end of the period, the proprietor of ABC learning was forced to sell
off more than $ 20 million in stakes and $ 6 million of sum amounting to $ 2.7 million.
This led to company face trade suspension and led to feeling its earnings for 2007 to 2008
 The company was further into entering into huge debt risk as it fell into receivership
which made the auditors to sign off its accounts
 There had been several reporting is of incorrect method of accounting for intangible
assets. The goodwill value of licenses and intangible assets of the company amounted to
$ 2.4 billion out of which just $ 8.4 million was treated for impairment. Due to this, the
company’s valuation went wrong and your cash flow was seen with a loss of 42%. This is
considered as one of the prime rationale for the downfall of educational services giant
(Crane and Matten 2016)

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Ethics and Corporate Governance
In business concerns, the judgement pertaining to decision about right and wrong is
considered as business ethics. In several locations, the management of the company are inclined
to follow the negative culture of companies which leads to several ethical issues. The business
decisions are needed to be ethical for the managements decide on the right course of action. The
implementation of effective CG policies is discerned with the direct and control ethical actions
for the business. Whereas, being ethical may lead to rejection of route which may lead to short-
term profits. Business corporations can be significantly benefited from the ethical behavior and
effective corporate governance practices. In addition to this, the business concerns will have
opportunity to attract more number of customers towards their products and services which will
be able to increase their sales and overall profitability (French, Vital and Minot 2015). The
various types of ethical consideration are seen with the reduction of employee’s turnover which
leads to increased productivity. This is also seen to increase overall goodwill which helps in
enticing more number of employees.
The following discussion demonstrates ethics and failure of CG in explaining the collapse of the
three companies:
HIH Insurance:
 The acquisition of FAI Insurance was seen to be done without consent of the board. At
the same time, the director of the company resigned by disposing his shares. This
scenario indicated poor corporate governance policy for the company
 In addition to this, HIH Insurance made a poor decision to finance film business, which
proved to be a risky venture. It depicts the poor decision making and failure in CG
practices of the company (Brown and Davis 2015)
 The unethical business practice of HIH Insurance was also evident by not paying heed to
the due diligence factors, which shows considerable lack of ethics
 the management activities that are not carried out properly which was evident with Mr.
Williams decision to issue prospectus with material omission and overstating of the profit
in 1998-1999 (Goedeke, Mueller and Pankratz 2017)
One Tel Phone:
 It has been identified that One. Tel did not comply with the “ethical code of conduct” led
to the violation of several types of “accounting standards and principles”
 The major failure of the administration team is seen with the monitoring of financial
performance. The management of the company ignored the investments pertaining to
areas of high risk. This showed lack of corporate governance within the organization
(Hessian 2014)
 It is for the discerned that one Tel failed in several aspects in maintaining pricing strategy
which further lead to liquidation and major loss of income for the entity. It is also that its
lack of ethics from directors in discharging their respective duties (Brennan 2014)
ABC Learning:
 The inappropriate adoption of accounting policies is discerned as one of the main reasons
for the company to enter into liquidation which further paved the way for several

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activities which were fraudulent in nature. Moreover, the unethical bookkeeping practices
also led to the failure of the company which eventually brought financial instability
 A significant unethical issue which made the company defunct can be discerned with
improper rendering of the services pertaining to the government and the customers
(Callcut et al. 2016)
Role of the Liabilities
The discourse of the study has been able to defeat some of the main rationale which led
to the liquidation of three well-known entities of Australia which were defunct due to failure in
ethical perspectives and CG practices. Despite of the findings, it is worth mentioning that
liabilities had a considerable role with lead to collapse of the three companies. In particular
reference of ABC Learning, the amount of liability was stable in 2007 but there was a
reclassification of AUD $ 1.1 billion of borrowings pertaining to current and non-current
liabilities due to financing activities. In the financial year 2000 7008 there had been a 42%
downfall in the profit of the company due to the increase in the liabilities which amounted to $
1.2 for the breach in the debt covenant (George 2015). A similar situation was evident with HIH
Insurance. As for the internal report of HIH Insurance, the high debt leveraged and liability of
insurance lead towards the insolvency of the company. It needs to be further mentioned that the
company acquired FAI for an amount of $ 300 million which was worth $ 100 million. This
created a high amount of debt for the company. With particular reference to One. Tel the
company’s management was majorly responsible for concealing the liabilities associated to the
business. The previous discussions have depicted that One. Tel was responsible for payment of $
92 million as compensation which further increased the liability and majorly contributed to its
failure. Henceforth, the aforementioned discussion stage the role of liabilities for the failure of
the companies. The discussion further states that poor strategy decisions resulted in increased
debt which were the main rationale for collapse of the three companies (Gallagher 2017).
Conclusion
The main discussions of the study show the reason for the failure of HIH insurance was
evident with company’s acquisition of FAI insurance proved to be a wrong strategic move
thereby leading to a large sum of investment which was detrimental for the insurance business.
Due to this, the company had to face several major financial crises at later stages. The decision to
finance films led to another wrong move by the company which led to million dollars of loss. In
addition to this, Due to the natural disaster in Florida, HIH Insurance had to face massive losses
thereby leading to use some of that crisis and while the main reasons for being defunct. One’s
Tel’s liquidation was evident in 2001, with shortage in funds as director of the company sold $ 5
million shares for just $ 2.5 million. Based on the admin report One. Tel was declared insolvent
and it started laying off employees. The inappropriate adoption of accounting policies by ABC
Learning is discerned as one of the main reasons for the company to enter into liquidation which
further paved the way for several activities which were fraudulent in nature. Moreover, the
unethical bookkeeping practices also led to the failure of the company which eventually brought
financial instability. A significant unethical issue which made the company defunct can be
discerned with improper rendering of the services pertaining to the government and the
customers.

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