ACC701 Financial Accounting: Analysis of Liquidation of Companies

This report examines the liquidation of Aluminium Boats Australia (ABA), HIH Insurance, and Stellar Homes, analyzing the events leading to their financial collapse. ABA's liquidation stemmed from a fire that destroyed a navy vessel, leading to contract losses. HIH Insurance's downfall resulted from poor management decisions, risky investments, and accounting irregularities. Stellar Homes faced liquidation due to declining sales and liquidity issues in the real estate market. The report also discusses APES 110 Code of Ethics for Professional Accountants, highlighting key ethical principles and corporate governance issues that contributed to the companies' failures. Furthermore, it identifies the type of liquidation for each case and assesses the role of liabilities in their respective collapses. Desklib offers a variety of resources including past papers and solved assignments to aid students in their studies.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
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Author’s Note

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Executive Summary
The main purpose of the assessment is to analyse the causes of liquidation of the business of HIH
Insurance, Stellar House and Aluminium Boats Australia and investigated on the reasons which
led to the liquidation of these companies. The assessment also puts focus on corporate
governance issues of the business and the role they play in the downfall of the company. In
addition to this, the liabilities of the businesses are also considered whether the same contributed
to the liquidation of such companies.
Table of Contents

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Introduction......................................................................................................................................3
Background of the Companies.........................................................................................................3
Reasons for Liquidation...................................................................................................................4
Code of Ethics..................................................................................................................................4
Corporate Governance Issues..........................................................................................................5
Types of Liquidation........................................................................................................................5
Roles of Liabilities...........................................................................................................................6
Conclusion.......................................................................................................................................6
Reference.........................................................................................................................................7

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Introduction
The recent years have witness a large number of well established organization going into
to liquidation and the reasons are numerous for different organization. The process of liquidation
is undertaken by a business when the business is about to close down. For the purpose of
effectively conducting the liquidation process, an individual is appointed who looks after the
liquidation process and ensures that the same smoothly goes down. This person is known as the
liquidator of a business. The liquidator is vested with the responsibility to recognize the assets of
the business and also the claims of the creditor and help the management of the company to
settle the same (World Bank Group 2013).
The assessment considers the aspect of liquidation and analyse the case of three
companies which had to be liquidated. The reasons for the liquidation of such companies would
be discussed in the assessment below. The companies which are considered for this assessment
are HIH Insurance, Stellar House and Aluminium Boats Australia and all these companies had
their main operations in Australia. The main consideration is the reason which led to the
downfall of such major companies operating in Australia.
Background of the Companies
Aluminium Boats Australia: Aluminium Boats Australia (ABA) was considered to be one of the
largest shipyard company which had its operations in Australia. The main operations of the
company comprised of repairs, construction, supply and technical development of ships. The
speciality of the company was in high performance commercial, military and luxury vessels and
the company also constructed and ships for the navy (Aba-global.com. 2019). The company was
founded in 1999 and had an objective of providing the best quality of products to the customers.
HIH Insurance: The company was regarded as one of the largest insurance company which
operated in Australia and it is estimated that most of the residents of Australia got their insurance
contracts from the company. It was during the year 1997 and 1998 that the company aimed
towards global expansion and achieved the same. The company was a giant in the industry until
it had to undergo liquidation process for certain reasons and the company had to incur a loss of
$5.3 billion in the process.
Stellar Homes: The company was engaged in the business of real estate business and operated
mainly South Florida region of Australia. The company was actively involved in reshaping
Miami-Dade, Broward and Palm Beach countries with stellar quality, environment friendly and
healthy communities. The company has invested significantly in residential areas since 2009.
The company was well recognized among the residents of Australia.
Reasons for Liquidation
Aluminium Boats Australia: The business of Aluminium Boats Australia (ABA) went into
liquidation on 4th November 2014 and the nature if the liquidation was voluntary. The immediate
cause for the liquidation can be attributed to the fact that the company lost one of their navy
vessels to fire. Kelly-Anne Trenfield and John Park from FTI Consulting were appointed to
administer the process of liquidation and ensure that the process went down smoothly. The
administer was also of the view that the main cause behind the liquidation was the fire which
broke out in the month of August and the same destroyed the navy ship HMAS Bundaberg. The
navy ship which was destroyed effectively costed around $45 million. Due to the fire the
company lost it contract with the navy and therefore the same can be regarded as main reason for
the collapse of the company. The company had to lay off certain number of staff in order to cut
down the costs of the business but the same could not save the business from shutting down.

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HIH Insurance: The main reason which led to the collapse of HHI insurance can be attributed to
the wrong decision making by the management of the company. The company had invested
significantly to acquire FAI insurance and the management had spent huge amount of money for
such a risky investment. After the same, the company again made huge investments in films and
due to this decision, the company had to suffer losses of more than hundred million dollars. In
addition to this, the losses which was suffered by the business further enhanced when the country
suffered from natural calamity. The natural calamity enhanced the debts of the company which
further led to the down fall of the company. Another reason which can be identified for the
downfall of the company is the faults in the accounting policies which was followed by the
business in reporting framework (Eidenmüller and van Zwieten 2015). The management of the
company changed the accounting policy which id related to the payments which was made to the
employees of California. After the liquidation process, it was confirmed that the company
suffered around 800 million as losses which was a result of all the factors which are mentioned.
Therefore, it can be said that a combination of all the discussed factors led to the downfall of the
company.
Stellar Homes: The company of Stellar Homes Pty Ltd went into liquidation on 20th October
2014 and this was a major liquidation from the point of view of real estate industry. The
administrators which were PI Macks and IW Burford of Macks Advisory who were give the
responsibility to ensure that the liquidation process went down smoothly. The main reason for
the liquidation of the business was due to the significantly fall in the sales of the business and
that led to liquidity issues in the business. The liquidation of Stellar homes was a major blow to
the real estate industry as the company had constructed around 500 homes in Australia in the last
10 years of operations of the business. The company was still working on certain projects when
the business was liquidated and therefore the company faced further losses. The downfall of the
company as per the administrator was due to the decline in the sales of the business.
Code of Ethics
APES 110 is consider to be an important standard which should be followed by every
profession in order to adhere to the standard. The standard deals with code of ethics which
should be followed in a business environment (Apesb.org.au. 2018). As per the standard, there
are five ethical principles which every accounting professional needs to adhere to in a business
environment. The five principles which are stated in the standard are listed below in point form:
 The principle of integrity states that professionals who are engaged in a business must
have a straightforward and honest in their approach
 The principle of objectivity is the second main principles and the principle states that the
professional should be biased in any way and there should not arise any situation where
there is a conflict of interest which can affect the professional judgement of the
professional (Han Fan, Woodbine and Cheng 2013).
 The third principle states that professionals should demonstrate professional competence
and due care in any activity of the business. This principle states that the professional
should have required skills and efficiency in order to provide a competent service to the
clients.
 The principle of confidentiality states that the professional should maintain secrecy about
any activity of the business (George, Jones and Harvey 2014). The professional should no
disclose any confidential information about their clients to any third party.

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 The last principle which is covered in APES 110 is the principle of professional
behaviour which requires professionals to adhere to all rules and regulations of the
country.
Corporate Governance Issues
Corporate Governance can be defined as the rules and regulations which are set by the
management if the company. In other words, it can be defined as the code of conduct which
every professional is required to be follow in a organization. In many cases, the management of a
company also uses corporate governance as a tool for exercising control over the business. In the
case of three companies which are considered in the assessment, there are certain corporate
governance issues which led to the downfall of the businesses.
In the case of HIH Insurance, there is a clear case of mismanagement as the decision-
making process of the business is at faults. The company had not received required approval for
acquisition of FAI insurance which was very risky. Then there was the poor decision to make
investment in films which caused the company huge losses. Furthermore, the company was also
engaged in unethical practices when it came to financial reporting process (Pukala 2014). These
all facts clearly indicate that the business was inadequately governed by the management of the
company. The financial statement of the business showed that there was omission of material
information in the financial reports and in addition to this, the profits of the business was
overstated.
In the case of Stellar homes and ABA, the downfall of the company was mainly due to
natural causes and inappropriate corporate governance did not contributed much to the cause.
The reason for the collapse of Stellar homes and ABA were bad economic condition of South
Australia led to the decrease in sales and cash flow related issues and fire accident which
destroyed a navy ship respectively.
Types of Liquidation
In the case of HHI Insurance, the company went into liquidation under the order of the
court on 27th August 2001. The liquidation can be regarded as an official liquidation or court
liquidation.
In the case of Stellar homes and ABA, the liquidation was voluntary in nature and the
same was passed as per paragraph 446A(1)(a) special resolution under s491
(insolvencynotices.asic.gov.au 2018). The creditors of the business had to be paid in full and the
balance funds was transferred to the directors of the business.
Roles of Liabilities
One of the reasons which leads to liquidation of a company in most cases is the increase
in the liabilities of the business. In the case of HHI Insurance, the liabilities of the business was
high as the business was highly equipped with debt capital as the same can be seen from the
loans which is taken by the business. The debts of the company had further enhanced when the
natural calamity hit Australia and the management had to incur insurance covers for most of the
residents. The overall debt which was recorded for the business was around $ 800 million at the
time of liquidation of the company.
In the case of stellar homes as well the liabilities of the business played a crucial part in
the fall of the business. At the time of liquidation, the company owed around 1.5 million to the
home owners. There were still projects which was in progress when the company went into
liquidation and therefore such losses also had to be beared by the business. In the case of ABA,

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the liabilities of the business did not play a vital role in the downfall of the company but was due
to natural causes.
Conclusion
The above discussion shows the factors which led to the dissolution of three businesses
which was operating in Australia. In case of ABA, the collapse was due to the fire which
damaged the navy vessel. In the case of Stellar Homes, the sharp fall in demand and sales of the
business combined with liquidity issues contributed to the fall of the company. In the case of
HHI Insurance, the main reason for the collapse of the company was due to the mismanagement
and poor decision-making process of the business. The above discussion also shows the role of
liabilities in the liquidation of the three companies which are considered for this assessment.
There were also corporate governance issues in HHI Insurance which led to the downfall of the
business.

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Reference
Aba-global.com. 2019. Aluminium Boats Australia | Shipbuilders Brisbane, Australia Aluminium
Boats Australia | Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-
global.com/ [Accessed 15 Jan. 2019].
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 22
Dec. 2018].
Eidenmüller, H. and van Zwieten, K., 2015. Restructuring the European business enterprise: the
European Commission’s Recommendation on a new approach to business failure and
insolvency. European Business Organization Law Review, 16(4), pp.625-667.
George, G., Jones, A. and Harvey, J., 2014. Analysis of the language used within codes of ethical
conduct. Journal of Academic and Business Ethics, 8, p.1.
Han Fan, Y., Woodbine, G. and Cheng, W., 2013. A study of Australian and Chinese
accountants’ attitudes towards independence issues and the impact on ethical judgements. Asian
Review of Accounting, 21(3), pp.205-222.
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
22 Dec. 2018].
Pukala, R., 2014. The impact of the global economic crisis on polish insurance
market. Актуальні проблеми економіки, (8), pp.341-350.
World Bank Group, 2013. Doing business 2014: Understanding regulations for small and
medium-size enterprises (Vol. 11). World Bank Publications.

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