A company's liabilities can be its downfall.

The assignment content discusses the reasons behind the collapse of well-established companies such as ABC Learning Company, HIH Insurance Company, and One Tel Phone Company due to liabilities. It highlights the importance of maintaining proper accounting and regulatory processes, strategic planning, and effective governance to avoid liquidation. The recommended strategies include using more capital, registering with the security on

Running head: LIQUIDATION OF COMPANIES
Factors Leading to Company Liquidation
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1LIQUIDATION OF COMPANIES
Executive Summary
Through taking examples of the selected companies those are well-published such as ABC
Learning, HIH Insurance and One Tel Phone Company, the current paper will consider revealing
several factors that contributed to liquidation of these companies along with certain ethics and
governable aspects that describes such financial stress. The objective of the paper is to reveal the
reason for which several companies went into liquidation. The paper revealed that as the
companies were not capable to pay its creditors, entering within formal insolvency appointment
might be deemed unavoidable. An option that can be considered by these companies is to sell the
business or assets to a different organization which can trade profitably in future.

2LIQUIDATION OF COMPANIES
Table of Contents
1. Introduction......................................................................................................................3
2. Events Leading to Liquidation.........................................................................................3
2.1. Events Leading to ABC Learning Liquidation.........................................................3
2.2. Events Leading to HIH Insurance Liquidation.........................................................3
2.3. Events Leading to One Tel Phone Company Liquidation........................................4
3. Ethics and Governance in Companies.............................................................................4
3.1. ABC Learning Company Ethics and Governance Failure........................................4
3.2. HIH Insurance Company Ethics and Governance Failure........................................4
3.3. One Tel Phone Company Ethics and Governance Failure.......................................5
4. Company Liquidation due to Liabilities..........................................................................5
4.1. ABC Learning Company Liquidation Due to Liabilities.........................................5
4.2. HIH Insurance Company Liquidation Due to Liabilities.........................................5
4.3. One Tel Phone Company Liquidation Due to Liabilities.........................................5
5. Recommendations............................................................................................................6
6. Conclusion.......................................................................................................................6
Reference List......................................................................................................................7

3LIQUIDATION OF COMPANIES
1. Introduction
Liquidation of a company can be explained as a process of shutting down of the firm
because of certain reasons such as lack of visionary management, unnecessary fictitious assets
depicted in accounts and increasing debt with incapability to address the same. Lack of profit
planning control and continuous losses over years can also result in company liquidation (Ang
2014). Over the past years, it has been observed that a number of well-known companies went
into liquidation for the reason that they are not capable enough to address their liabilities when
they fall due. The objective of the paper is to reveal the reason for which several companies went
into liquidation. Through taking examples of the selected companies those are well-published
such as ABC Learning, HIH Insurance and One Tel Phone Company; the current paper will
consider revealing several factors that contributed to liquidation of these companies along with
certain ethics and governance aspects that describes such financial stress.
2. Events Leading to Liquidation
2.1. Events Leading to ABC Learning Liquidation
Failure to maintain appropriate accounting and regulatory processes and poor
development of the company’s law and accounting standards has contributed to the collapse of
ABC Learning. Before collapsing totally, ABC Learning Company made huge losses for the year
ending that wiped out all the profits made by the organization ever. In addition, the company has
erased its entire dubious claim to make profit (Ashtaeva et al. 2015). As per ASIC complaint it
was revealed that the financial reporting methods those were used by ABC Learning Company
were developed for artificially generating shareholder value despite the fact that such value is
associated with childcare licenses. This was relied on the company’s future cash flows that might
not be realized. For this reason, it is stated that such conduct of the company was misleading for
investors. Profits acquired by ABC Learning Company increased gradually through acquisitions
that questioned about the valuation of underlying assets by the company. It was found that more
than 70% of its assets were intangibles. Such inherent risk linked with assets valuation was huge
and indicated liquidation risks for the business (Carpinelli et al. 2016).
2.2. Events Leading to HIH Insurance Liquidation
Failure of governance in HIH Insurance Company with no actual oversight resulted in
checking the strategy developed by HIH Company was financially unstable. Liquidation of the
company took place as it failed to understand the extent to which extra provisions were made
necessary to make changes in the company’s market environment (Gray 2017).
A major factor recognized for collapse of HIH Insurance was its incapability to address
the likely future claims. Covering all the future claims is deemed to be a vital aspect of the
insurance company’s business. Another reason for failure of HIH Insurance was reported to be
faulty management of altering market conditions that increased liabilities of HIH Insurance. This
was not backed up by initiatives of strategic planning that was greatly expected in order to
absorb such changes. This explained that changing market conditions caused destabilization for
the insurance company. However, with the end of HIH Insurance Company’s existence it was in
a situation in which a negative shift of 1.7% that was enough to make the company insolvent
(Gerner-Beuerle and Schuster 2014).

4LIQUIDATION OF COMPANIES
2.3. Events Leading to One Tel Phone Company Liquidation
One Tel Phone Company had highly inappropriate structure of corporate governance
despite of having a secure position. Liquidation of the company took place as non-executive
directors attained insufficient monitoring and management oversight that was indicated in audit,
corporate governance and remuneration committee’s composition (Kaveri 2016).
One Tel Phone Company liquidation took place because of its aggressive acquisition
policies that resulted in conflict among maximization of profit along with implementation and
adherence to effective procedures of corporate governance. The fundamental problem that
resulted in liquidation of One Tel Phone Company was their interest in maintaining low yield
business along with not setting aside adequate capital in order to cover future liabilities (Jones
2016).
3. Ethics and Governance in Companies
3.1. ABC Learning Company Ethics and Governance Failure
There were certain ethical concerns that resulted in liquidation of ABC Learning
Company. Liquidation of ABC Learning Company took place because of drastic failure of ethics
and governable structure in the company. Along with problems of owning the market, there were
several quality concerns in the education offered within the centres. There was a decided format
of children to stuff ratios. In addition, it was not likely to generate great amount of profits
through abiding by rules of ethics. For this reason, certain degradation in the quality within the
services of the company was observed for there was inadequate number of staff for attending the
students (LoPucki and Doherty 2015).
It is revealed that the company did not have adequate series of major corporate
governance structures and became a victim of drastic, debt based acquisition spree. Poor
corporate governance and doubtful accounting was the case of the company (Locke 2015). The
company did not abide by the rules of corporate governance.
3.2. HIH Insurance Company Ethics and Governance Failure
Revaluation of the licenses was allowed within the accounting standards. Moreover, new
standard of AASB 138 “Intangible Assets” facilitates intangible assets revaluation in some cases.
Such standards just apply in which accounting treatment has certain material impact. Moreover,
presence of a dominant CEO within HIH Insurance Company is deemed to e a huge threat to
function of the company’s corporate governance model and elevated its risk of getting detached
from the stakeholders interest and getting involved in corporate excess.
Considering the same, it is evident that HIH Insurance Company was involved in
malpractices in case of its account maintenance because of which value of its shares dropped.
Legal actions were also taken against the organization (Manganelli, Morano and Tajani 2014).
The government developed a commission for questioning the matter of failure of ASIC that can
value effectively certain operating licenses of HIH Insurance Company. The government
questioned failure of ASIC in care of the company in effectively valuing its operating licenses.
HIH Insurance Company claimed increased value in such licenses those were actually of less
value in consideration to trading sense (Maburutse 2015).

5LIQUIDATION OF COMPANIES
3.3. One Tel Phone Company Ethics and Governance Failure
Despite of having such strong financial position, the company had highly inadequate
structure of corporate governance (Ogbari et al. 2015). Liquidation of One Tel Phone Company
also indicates several major deficiencies in corporate governance structure of the company. One
Tel Phone Company collapsed because of several corporate governance failures (Sengupta and
Sharma 2016). One of such reasons was that the CEO had high influence on an inept board of
directors that can affect later ineffective along with decreasing its capability to offer an efficient
control and oversight.
Two chief executive officers of the company had huge impact on the board of directors to
an extent where One Tel Phone Company never attained designated and regular chairman in
place. Non-executive directors had faulty monitoring and view of the management that was
indicated in the audit composition, remuneration committees and corporate governance that were
dominated by the CEO as well as executive directors.
4. Company Liquidation due to Liabilities
4.1. ABC Learning Company Liquidation Due to Liabilities
Improper management of liabilities resulted in liquidation of ABC Learning Company.
After the company got listed on Australian Stock Evangel, it had $25 million market
capitalization (Manganelli, Morano and Tajani 2014). Total liabilities of ABC Learning
Company remained highly constant. However, suddenly around $1.1 billion borrowings were
reclassified from current to the non-current liabilities due to the refinancing. There were several
lenders of the company from which it attained a multi-bank option facility. However, profits of
the company dropped by 42% because of one-off charges and covenants for debts of around $1.2
billion were breached (Gerner-Beuerle and Schuster 2014). It resulted in improper liability
maintenance trouble for ABC Learning Company in which it tried negotiating certain loan
agreement with its bankers. Market capitalization of the company increased to $2.5 billion in the
next year (Van Niekerk 2015). With time, it was observed that the company was overwhelmed
with debt repayments for which it had to sell almost 50% of its US subsidiary and its entire UK
subsidiary. Such turnaround plan was rejected by its lenders and contributed to the collapse of
ABC Learning Company.
4.2. HIH Insurance Company Liquidation Due to Liabilities
HIH Insurance Company collapsed because it became insolvent that indicated it did not
have adequate funds to address all its liability claims. Liabilities of the company became $5, 3 bn
that made it the largest corporate failure in Australia. One of the major issues that resulted in
liquidation of HIH Insurance Company includes their eagerness to attain low yield business
along with not maintaining enough capital for addressing the future liabilities (Gray 2017). Such
issue resulted n management failure to enforce and check for due diligence conducts.
4.3. One Tel Phone Company Liquidation Due to Liabilities
Expenses and liabilities of the company increased so rapidly that the billing system was
not able to manage it that resulted in collapse of One Tel Phone Company (Van Niekerk 2015).
The company collapsed because it had no cash to pay off all its expenses along with having a
high debt. Faulty management of liabilities has contributed to the liquidation of One Tel Phone
Company.

6LIQUIDATION OF COMPANIES
5. Recommendations
After observing the major reasons for which well established companies such as ABC
Learning, HIH Insurance and One Tel Phone Company went into liquidation, several major
strategies are recommended to the companies that can facilitate them in dealing with adverse
situations of liquidations. These recommendations are explained under:
 Use of more capital for saving the company from liquidation can be another useful
strategy that can be used by the companies in avoiding the adverse situation. To avoid
liquidation the company must consider registering with the security on “Personal
Property Securities Register” within an assorted time.
 The companies are recommended with creditors along with considering a settlement
amount or payment plan. This recommendation can be effective as the company just has
to deal with a limited number of creditors.
 As the companies were not capable to pay its creditors, entering within formal insolvency
appointment might be deemed unavoidable. An option that can be considered by these
companies is to sell the business or assets to a different organization which can trade
profitably in future.
 The companies must consider focusing on its major profitability drivers. Financial
advisor must be appointed by the selected companies so that they are capable to maintain
its financial position.
6. Conclusion
Through taking examples of the selected companies those are well-published such as
ABC Learning, HIH Insurance and One Tel Phone Company, the current paper has considered
revealing several factors that contributed to liquidation of these companies along with certain
ethics and governance aspects that describes such financial stress. One Tel Phone Company
collapsed because of several corporate governance failures. One of such reasons was that the
CEO had high influence on an inept board of directors that can affect later ineffective along with
decreasing its capability to offer an efficient control and oversight.
Moreover, another reason for failure of HIH Insurance was reported to be faulty
management of altering market conditions that increased liabilities of HIH Insurance. This was
not backed up by initiatives of strategic planning that was greatly expected in order to absorb
such changes. The paper also recommended that the companies must consider focusing on its
major profitability drivers. Financial advisor must be appointed by the selected companies so that
they are capable to maintain its financial position. It was gathered from the paper that failure to
maintain appropriate accounting and regulatory processes and poor development of the
company’s law and accounting standards has contributed to the collapse of ABC Learning.

7LIQUIDATION OF COMPANIES
Reference List
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