Factors Leading to Liquidation of Three Companies in Australia

This assessment analyzes the factors which led to the liquidation of three companies in Australia and discusses the major causes behind such dissolutions.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
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FINANCIAL ACCOUNTING
Table of Contents
Introduction......................................................................................................................................2
Discussion regarding the Companies...............................................................................................2
Causes for Liquidation.....................................................................................................................3
Ethics and Code of Conduct............................................................................................................4
Issues in Corporate Governance......................................................................................................4
Types of Liquidation........................................................................................................................5
Roles of Liabilities...........................................................................................................................5
Conclusion.......................................................................................................................................5
Reference.........................................................................................................................................6

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Introduction
The main purpose of this assessment is to analyze the factors which led to the liquidation
of three companies and whether the major factor which contributed to the liquidation was the
excess liability of the business. The companies which are to be analyzed are Aluminum Boats
Australia, HIH Insurance and Stella Homes and all the companies have their main operations in
Australia. The assessment goes into details on the situations and condition which led to the
liquidation of such businesses and also discusses the major causes which was behind such
dissolutions (Jackson 2015). In addition to this, the assessment goes into brief on APES 110
Code of Ethics for Professional Accountants and highlight some codes of ethics. The assessment
would also be discussing the gap in corporate governance of the three companies.
Discussion regarding the Companies
The companies which are considered in the assessment are engaged in different
businesses and the same is engaged in operations in Australia. There are three companies which
are considered for this assessment which are Aluminum Boats Australia, HIH Insurance and
Stella Homes.
Aluminum Boats Australia
Aluminum Boats Australia was set up in 1999 and the company was established with the
intention of producing the best quality of light crafts which would be of finest world class
aluminum and would be a high-performance craft. The company effectively met the needs of
commercial and private owners with the crafts which was developed by the business. The
company mainly provide boats and light crafts for the Queensland Police Service, Royal
Australian Navy, Cruise Whitsunday and Mooloolaba Coast Guard (Aba-global.com 2018). The
company specializes in luxury, commercial and defense vessels and this formed the main part of
the operations of the business. The main reasons which led to the downfall of the company can
be attributed to the massive fire which completely destroyed one of the navy vessels HMAS
Bundaberg and the same was the major catalyst which led to the downfall of the company. The
fire was the biggest which has been seen in the history of Aluminum Boats Australia and the
same led the company into voluntary administration (Markowicz 2013). The situation of the
company had worsened to such an extent that the management of company had to lay off around
90 employees after the fire and soon afterwards the rest as well. Therefore, the main cause can be
attributed to the fire incident which affected the business adversely.
HIH Insurance
HIH Insurance is regarded as one of the largest general insurance companies which is
operating in Australia. The company has the largest number of policy holders in the Australia
and was considered to be one of the reputed company in Australia. The company provided
government-based insurance policies and included HIH Casualty and General Insurance Limited,
FAI General Insurance Company Limited (FAI), CIC Insurance Limited (CIC) and World
Marine and General Insurances Limited (WMG). These are some of the insurance policies which
was provided by HIH Insurance. The company went into liquidation in 2001 by the order of the
NSW Supreme Court and the same was provisional liquidation (Aph.gov.au. 2018). The reason
which can be identified for the liquidation of the business is mismanagement practices of the

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business. At the time of liquidation of the business, the overall loss which was estimated to be
suffered by the company was about $ 800 million. The overall due to the creditors of the
business is estimated to be significantly high and it is estimated by the provisional liquidator that
it would take around 10 years to fully settle the dues of creditors of HIH Insurance. The overall
loss was around $ 5.3 billion in the process of liquidation.
Stellar Homes
The company was regarded as one of the major real estate development company in the
Australia. The company is responsible for developing environment friendly and healthy
communities in countries like Miami-Dade, Broward and Palm Beach. The company in order to
expand the scale of operations of the business, started investing in both residential and real estate
sector. The company was effectively engaged in developing many communities which are
situated in Australia. The downfall of the company was mainly due to the stiff competition which
the business faced in the region and administrators say over $3.4 million was owed to secured
creditors and $1.5 million to unsecured creditors.
Causes for Liquidation
Aluminum Boats Australia
The causes which led to the liquidation of the business of Aluminum Boats Australia was
the loss of the vessel of the navy. Kelly-Anne Trenfield and John Park from FTI Consulting were
appointed the administrators for the purpose of liquidation process. The main reasons which led
to the downfall of the company can be attributed to the massive fire which occurred in demolish
of HMAS Bundaberg. This fire destroyed Australian navy boat which valued around $ 45
million and is regarded as one of the major losses for the business. The case also led to lay off of
around 90 employees. Due to the fire, the administration of the business went out of the hands
and also affect the core business activities of the business.
HIH Insurance
There are various reasons which led to the collapse of HIH Insurance and some of the
main reasons are discussed. The management of HIH Insurance invested significantly to acquire
the business of FAI insurance which was highly risky. This can be cited as one of the reasons
which was responsible for the collapse of HIH Insurance. In addition to this, the company further
decided to invest in films which further led to losses of hundred million dollars. Moreover, the
region of Florida suffered from a natural calamity and naturally most of the properties and life
were damaged. The company had to pay up insurance amounts which contributed to the
accumulating debts of the business (The Sydney Morning Herald. 2001). The company further
tried to change the accounting policies for the employees engaged in California which did not
work out as per the expectation f the company which further is responsible for the downfall of
the company. At the time of liquidation, the total accumulated losses of the business amounted to
$ 800 million and it is estimated that it would take around 10 years effectively to fully settle what
is due to the creditors of the business.
Stellar Homes

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The liquidation of Stellar homes can be regarded as one of the major liquidations which
took place in the country. In 2014, the company was placed under administration under PI Macks
and IW Burford of Macks Advisory. The main cause for the collapse of the company was mainly
because of the fall in the sales of the business which resulted in decline in the cash flows of the
business. The company has a brilliant record for construction of new houses which numbered
above 500 houses in Adelaide. In addition to this, the economic conditions in Australia was very
competitive in nature which led to fall in the sales revenue of the business
(Insolvencynotices.asic.gov.au. 2018). At the time of liquidation, it is estimated that there were
36 homes which were left in an incomplete state. The main cause which can be attributed to the
downfall of the company was the fall in the sales of the business and highly competitive
economy.
Ethics and Code of Conduct
The ethics and code of conduct which is stated by APES 110 is considered to be an
important guideline which is to be followed by all professionals in conducting day to day
business operations. The code of conducted specified by APES 110 needs to be complied by all
accounting professionals during the course of the business. As per APES 110, there are five
ethical code of conducts to which every professional should adhere. Integrity is the first principle
which requires the professionals to be honest and straightforward in all their businesses and
professional relationship (Apesb.org.au. 2018). Objectivity is the second principle which puts an
obligation on accounting professionals to be unbiased and ensure that there is no conflict of
interest which can influence the professional judgement in a business. Another principle is
Professional Competence and Due care which requires accounting professionals to exercise due
knowledge and skills which carrying out any operations and ensure that highest level of service
is provided. Confidentiality is the forth principle which requires the accounting professionals to
maintain secrecy relating to the business of the client and do not disclose any vital information to
the third parties. The last principle is Professional behavior which is expected out of every
accounting professionals which is to abide by the rules and regulations of the economy and avoid
being charged with professional misconduct.
Issues in Corporate Governance
The corporate governance of all the three companies have been weak which has led to the
collapse of the three companies. In the case of both Stellar homes and Aluminum Boats
Australia, the collapses were mainly due to natural reasons. The fire in a ship vessel of the navy
led to the fall of Aluminum Boats Australia while tough economic conditions and fall in the sales
revenue which is generated by the business of Stellar Homes led to the collapse of the same.
The case of HIH Insurance is a bit different and the liquidation can be charged on
mismanagement and weak corporate governance of the business. When the business of HIH
Insurance obtained the FAI Insurance, the management did not take prior approval for the same
which shows a gap in the governance principles followed by the business (Tricker and Tricker
2015). Then, there was the decision to invest in films which caused the business significant
amount of losses. In additional to this, the senior management of the business was involved in
unethical practices which involved issue of improper business prospectus that involved material
omissions and there was also material misstatement of profitability of the business.

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Types of Liquidation
In the case of HIH Insurance, the supreme court ordered the business to go into official
liquidations and the same can stated as a court dissolution. The auditors statement was review by
the court before taking appropriate decisions.
In the case of Stellar Homes and ABA, the type of liquidation was voluntary in nature
and the liquidation permission was passed according to the paragraph 446A(1)(a) special
resolution under s491. In such a liquidation, the creditors were required to be paid in full and the
balance funds was to be transferred to the directors.
Roles of Liabilities
In most of the cases, the liabilities of the business are regarded as the main factor which
is responsible for liquidation of a business. In the case of HIH Insurance, the management had to
face, significant amount of debts which had accumulated. In addition to this, the acquisition of
FAI insurance also resulted in higher debts of the business. Thus, it can be said that the amount
of debts played a vital role in the liquidation of the business.
In the case of Stellar homes as well the management had unfinished homes which owed
around $ 1.5 million from the company to the clients of the business. Therefore, it can be said
that there was some role of debts in the downfall of the company of Stellar Homes. The
liquidation of Aluminum Boats Australia was not because of any liabilities of the business but
because of some natural situation.
Conclusion
The above discussion effectively highlights the circumstances in which the three
companies were liquidated. In the case of HIH Insurance, there were several factors which led to
liquidation and the main reason was the mismanagement practices which led to the downfall of
the business. However, in the case of Stellar homes and Aluminum Boats Australia, the causes
which led to the liquidation of the businesses were mostly due to natural causes. In addition to
this, the above discussion also points out issues in governance of all three companies which also
contributed to the downfall of the company. In case of liabilities both Stellar Homes and HIH
Insurances had huge liabilities, which was also a factor in down fall of the companies.

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Reference
Aluminium Boats Australia | Shipbuilders Brisbane, Australia. 2018. Aluminium Boats Australia
| Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-global.com/ [Accessed
30 Dec. 2018].
Apesb.org.au. (2018). APES 110 Code of Ethics for Professional Accountants. [online] Available
at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 30
Dec. 2018].
Aph.gov.au. (2018). HIH Insurance Group collapse – Parliament of Australia . [online]
Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/Publications_Archive/archive/hihinsurance [Accessed 30 Dec. 2018].
Insolvencynotices.asic.gov.au. (2018). STELLAR HOMES PTY LTD 107 791 453 | Creditors'
Voluntary Liquidation | Appointment | | Published : 12/03/2015 | ASIC Notice Details . [online]
Available at: https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/
STELLAR-HOMES-PTY-LTD-107791453/00b614e4-780a-4df8-b958-f3f48e4ee9f1 [Accessed
30 Dec. 2018].
Jackson, T.H., 2015. Building on Bankruptcy: A Revised Chapter 14 Proposal for the
Recapitalization, Reorganization, or Liquidation of Large Financial Institutions. Making Failure
Feasible.
Markowicz, I., 2013. Hazard function as a tool to diagnose business liquidation. Folia
Oeconomica Stetinensia, 13(2), pp.23-36.
The Sydney Morning Herald. (2001). HIH Insurance in liquidation. [online] Available at:
https://www.smh.com.au/business/hih-insurance-in-liquidation-20010316-gdfdte.html [Accessed
30 Dec. 2018].
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.