Liquidation in Three Australian Companies: APES 110 Code of Ethics and Principles of Good Governance

This report discusses the reasons why three companies in Australia were wound up and will try to look if at all if was the inability to pay its liability that was the main cause for the companies winding up. A further discussion on the APES 110 Code of ethics as well as the principles of governance as set by ASX will help to identify weaknesses in the operation of these three companies for proper conclusion to be formulated.

Student Name
Course Title
College
TASK: Liquidation in three Australian Companies.
Apes 110 code of ethics
Principles of good governance

Executive Summary
Companies are normally wound up for a variety of reasons. Most of the time one reason may
stand out that may be pointed as the main reason that lead to the winding up, but it should be
noted that a series of occurrences from the past operations could have contributed in one way or
another to the winding up even if it cannot be directly linked up at the end.
A company leadership or governance is an important element in the company and its decisions
determines the success or failure of operations. It is charged in making the rules, policies and
procedures in the company.

Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Liquidation of the three companies..........................................................................................................4
ABC Learning.....................................................................................................................................4
HIH Insurance.....................................................................................................................................4
One Tel Phone Company.....................................................................................................................4
General comment on the three companies Liquidation........................................................................4
Apes 110 Code of Ethics.........................................................................................................................5
Codes of ethics........................................................................................................................................5
Integrity...............................................................................................................................................5
Objectivity...........................................................................................................................................6
Professional Competence and Due Care..............................................................................................6
Confidentiality.....................................................................................................................................6
Professional Behavior..........................................................................................................................6
Principles for corporate Governance.......................................................................................................6
Lay Solid Foundation for management and oversight.........................................................................7
Structure the board to add Value.........................................................................................................7
Promote Ethical and responsible decision making...............................................................................7
Safeguard Integrity in financial reporting............................................................................................7
Make timely and balanced disclosure..................................................................................................7
Respect Shareholders Rights...............................................................................................................7
Recognize and manage Risk................................................................................................................7
Remunerate fairly and responsibly......................................................................................................7
Recommendation and Conclusion...............................................................................................................8
References...................................................................................................................................................9

Introduction
This report discusses the reasons why three companies in Australia were wound up and will try
to look if at all if was the inability to pay its liability that was the main cause for the companies
winding up. A further discussion on the APES 110 Code of ethics as well as the principles of
governance as set by ASX will help to identify weaknesses in the operation of these three
companies for proper conclusion to be formulated (Miglani, 2014).
Liquidation of the three companies
Liquidation normally arises in the event that a company cannot discharge its responsibilities i.e.
cannot pay for its liabilities as when they arise. The company thus in this case will be forced to
sell off its assets to pay off its pending liabilities.
ABC Learning
In the financial year 2007 and a 2008 a potential liquidity crisis was noted in the company from
the ration of current assets and current liabilities that was at 30cents of current assets to 40 cents
of current liabilities. This meant that the company could not discharge its current liabilities as
and when it could arise. The company was termed insolvent by the administrators in the second
half of 2008 and there was an agreement to wound up 39groups which had a total debt of $1.9
billion (Boshyk, 2014).
HIH Insurance
It was liquidated due to insolvency and liquidity crisis that was indicated by current liabilities
which was at 7billion Australian Dollars and current assets at 5 billion Australian Dollars. The
company is said to have poor governance as per the review of factors that led to insolvency. The
company also is accused of issuing inaccurate financial reports as per its accounts. HIH
Insurance also overvalued their assets by stating its value above the current market value. This in
return indicated a higher credibility rather than the actual state (Henderson and Hobson, 2010).
One Tel Phone Company
The Company had a debt of $300 million by May 2001 and was not aware of the cash crisis it
was in until May 27. This indicates that the company had poor internal structure policies and
procedures that could not identify this crucial element in time. The company thus had poor
governance and is said to have acted unethically by charging high call rates unlike others in the
same industry. Financial reporting also became a flop as the company faced noncompliance
claims.
General comment on the three companies Liquidation.
The three companies were faced with high debt level which was directly linked to insolvency
and thus liquidation. It should be noted that liquidation was the final result of poor governance
and poor internal structure that could not indicate crucial elements like financial crisis as in the
case of One Tel Phone as an example. Unethical practices like noncompliance to financial
reporting and overstating of assets value also was a contributory factor as the true financial
position could indicate a crisis earlier that could be resolved before it could get out of hand. Thus
liabilities cannot be set out as the major reason why the three companies went into liquidation
but is just the last call that exposed the three companies irresponsible behaviors as far as running
the company was concerned (Rolea, 2014).

Apes 110 Code of Ethics
APES is an acronym for Accounting Professional & Ethical Standards. As the name suggests it
is a set of rules, principles and guidelines that set the ethical framework within which
accountants should operate in order to remain ethical in whatever tasks they engage in. APES
specifically emphasize the need for accountants to put public interest before any other interest or
party in any dealing. Any accountant who puts public interest first fully complies with APES 110
code of ethics. As a general guideline, APES 110 gives basic principles that guide accountants in
working within the limits of this code of ethics (Yoo, 2015).
The code further highlights any significant threat that may be faced in compliance with the set
principles or the circumstances that may lead to non-compliance. It helps accountants to judge
the materiality of the threats as well as offering guidelines to eliminate the threats or bringing the
threats to a manageable level to ensure that compliance is never compromised in whatever
situation (Ueno, 2017)
Some of the threats that may lead to compromise of this code of ethics that is not putting public
interest first may include:
 An interest by the individual accountant to benefit financially or in any other way from
dealing with a client. (Self-Interest Threat.)
 Lack of right knowledge to judge how to deal with a certain ethical issue at hand or to
know whether it was done within the acceptable framework. (Self- Review Threat)
 A threat due to familiarity within parties in a transaction which makes an individual to act
in a sympathetic way rather than in an ethical way. (Familiarity Threat)
 A threat that may arise from external pressures that make an individual not to make
ethical but rather forced decisions that will not be ethical.(Intimidation Threat)
Accountants are offered with a number of safeguards that help them to deal in one way or
another with the above threats. This includes:
 Being offered with proper education and training as well as exposure that give them
required experience.
 Continuous review of accountants or members’ works and decisions to correct and
condemn any unethical practice.
 Clearly set disciplinary measures and mechanisms that discourage noncompliance.
 Availability of documented rules, policies and procedures that offer direction to be
followed in an undertaking.
 Proper leadership in an organization that emphasizes on the importance of compliance.
 Proper procedures that help in the identification of noncompliance and identification of
the wrong doer to avoid blame transfer.
 Peer review of ones work by an independent party that was not part of dealing.
Codes of ethics
The 5 code of ethics are as below.
Integrity
This code calls for truthfulness and honesty in any business undertaking within their profession.

It calls for members to be honest in their own as well as expose any other member who willingly
gives false information aimed at misleading or benefiting them financially or in any other
manner.
Objectivity
This code calls for members not to act out of any biasness or any third party pressure that may
interfere with their ethics. Situations will always arise that may compromise with objectivity and
members can only avoid compromising situations by not engaging in them.
Professional Competence and Due Care
This requires members to apply required skill and knowledge in dealing with clients. Members
should continuously be aware of new or developing professional skills to ensure that they are
well suited for the market. Members should also ensure that those working under them have the
required skills and knowledge to act professionally and are accorded the right
This code of ethics also requires members to act in a manner conforming to the task at hand and
deliver within the set period of time (Dicks, 2017).
Confidentiality
This code requires members not to expose confidential information attained in the course of their
business operation to other parties not in the dealing without proper permission or authority to do
so from responsible authority. It also calls for members not to use confidential information
obtained for their own personal interest or benefit.
Members are only allowed to expose confidential information in some instances including;
 If information is required by law for example where a firm is dealing in illegal activity.
 If disclosure of information will act as evidence in legal proceedings.
 If disclosure is as a result to response to an enquiry or an investigation.
 If disclosure has been permitted by relevant authority.
Despite this scenarios described above, members who are required to disclose confidential
information without proper authority are normally advised to seek legal advice first (Francis and
Francis, 2014).
Professional Behavior
Professional behavior states that members should act in a manner that is acceptable in their
profession and at no time should their behavior ruin the reputation of their profession.
Members should be truthful in their advertising of their ability and tasks they perform so as to
attract tasks they can accomplish confidently and satisfactorily to avoid complain or negative
publicity from clients. A member should also not at any time ruin the reputation of another
member as a way of using the negative publicity portrayed for his or her own benefit (Clemente,
Espinosa and Urra, 2011).
Principles for corporate Governance
Corporate governance is basically a set of rules that dictates how a company should be operating
and tries to ensure that the interests of all stakeholders are met. Corporate governance also makes
those in charge of running company operations to be accountable for the decisions they make on
behalf of the company (Apreda, 2011).

The eight principles of corporate governance as listed by ASX are as below:
Lay Solid Foundation for management and oversight
This principle dictates that a clear line should be drawn to bring out the roles and responsibilities
of the company’s leadership i.e. the Board and the management of a company. A clear guideline
should also exist that assists in evaluating the performance of these governing bodies.
Structure the board to add Value
The chosen board of the company should be capable in that all necessary duties and
responsibilities are discharged effectively, efficiently and in a timely manner. The procedure for
evaluating performance for the board as whole as well as individual directors should also be well
known and documented. The principle also dictates that the majority of the board composition
should be made up of independent directors (Grove and Clouse, 2017).
Promote Ethical and responsible decision making
A company should make sure that decisions made are ethical and made for the good of the
stakeholders. Integrity should be upheld at all times and stakeholders should have confidence in
the company’s operations. A company should also lay a framework of individuals responsible for
investigating unethical processes in the company as well as the consequences for any unethical
issue that may arise (Savitri, 2017).
Safeguard Integrity in financial reporting
An independent audit committee should exist in the company that will check on the integrity in
financial reporting.
The board should form an audit committee which will have a chair who is not a chair to the
board and compromised by at least three members who should be non-executive directors.
Make timely and balanced disclosure
Any material information about the company should be disclosed as and when it arises. Clear
rules and procedures should be set out to ensure that timely disclosure is adhered to.
Respect Shareholders Rights
Shareholders rights should be exercised effectively by a company. Shareholders should receive
timely communications from the company and should be encouraged to participate and air their
views in meetings. Companies policies that affect shareholders should also be well known to
them (Sharvani, 2011).
Recognize and manage Risk
Companies should set out mechanisms and clear policies that will enable them to identify and
eliminate potential risks that may be faced in the course of operations.
Remunerate fairly and responsibly
A remuneration committee should be formed by the board. The committee should ensure that fair
remuneration is given for the tasks and responsibilities offered to the company (Shipley and
Kovacs, 2008).

Recommendation and Conclusion
Apes Code 110 and the 8 principles for corporate governance discussed above should be adhered
to by any company that seeks to succeed in its operations. A company should specifically ensure
it has strong management teams that are responsible, ethical and knowledgeable (Shen, 2010).
It should be noted that a failure of one element in the organization will apparently affect the
whole operation and thus it should be ensured that all the activities in the company do run in
harmony for the success of a company (Ueda, 2009).

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