The Role of Liabilities in the Organisations and Companies Liquidation

This is deemed to be highly imperative as it might cause ethical problem to the organizations from existence despite of its size along with nature of business in which it is involved. Considering the same, the objective of the paper will put great focus on the selected Australian organizations that resulted in liquidation because of poor governance along with deceased ethical values. Events which Lead to Organizations Liquidity ABC Learning, HIH Insurance along with OneTel Company that has obtained a great privilege of positioning as among the highly valued organizations within Australia

Running head: LIQUIDATION OF COMPANIES
Liquidation of Companies
Name of the University:
Name of the Student:
Authors Note:

1LIQUIDATION OF COMPANIES
Table of Contents
1. Introduction............................................................................................................................2
2. Events which Lead to Organizations Liquidity......................................................................2
2.1. ABC Learning.................................................................................................................2
2.2. HIH Insurance Company.................................................................................................2
2.3. OneTel Company............................................................................................................3
3. Ethics and Governance in Order to Explain Financial Stress................................................3
4. Role of the liabilities:.............................................................................................................4
4.1. ABC Learning:................................................................................................................4
4.2. HIH Insurance:................................................................................................................4
4.3. One Tel:...........................................................................................................................5
5. Conclusion..............................................................................................................................5
References..................................................................................................................................6

2LIQUIDATION OF COMPANIES
1. Introduction
The major objective of any company is focussed on profit-making or shareholder
wealth maximization. A company is deemed to have concern that has perpetual existence that
represents a great threat such as liquidation (Wood 2017). This is deemed to be highly
imperative as it might cause problem to the organizations from existence despite of its size
along with nature of business in which it is involved. Such situation has been observed in
numerous nations because of which a huge number of companies turned out to be liquidated.
In addition, several studies have been carried out to learn the reason behind this, resources-
based misstatement along with absence of corporate governance (Davies 2016). This further
resulted in the failure of the company. Considering the same, the objective of the paper will
put great focus on the selected Australian organizations that resulted in liquidation because of
poor governance along with deceased ethical values.
2. Events which Lead to Organizations Liquidity
ABC Learning, HIH Insurance along with OneTel Company that has obtained a great
privilege of positioning as among the highly valued organizations within Australia had to
deal with liquidation on poor ethical grounds (Dempsey 2017). In addition, the organization
selected wrong path regarding maximization of value that dealt with the consequences.
2.1. ABC Learning
ABC Learnings Ltd was involved in the business of offering early childhood education
services. Eddy Groves was the person behind the business that has a few business units and
starting acquiring its business rivals aggressively. The company also started to open new
centres in order to grow at a rapid rate. In consideration to the same, the company spent a
great amount of money that was generally funded by all investors along with the banks
(Dibra 2016). Conversely, decreasing profit in the last half of 2017 has indicated that the
organization was not in a situation to address all the obligations as well as company that went
into receivership.
The management of this company has been observed to experience and main a poor
governance for the reason that misinterpretation of the company’s financial statements took
place. This also resulted the shareholders believe within the false positive image generated by
Mr Groves that is the founder as well as CEO of ABC Company misguided all its
shareholders through not informing them regarding the real financial situation of the
organization. This was also focussed on neglecting all the warnings from the team that was
used for measuring the position of the organization (Du Plessis, Hargovan and Harris 2018).
The person is extremely keen to expand the business of this company through acquiring new
branches along with increasing the debt. It is also evidenced that the management of this
company was relied on the government subsidy and indicated them to be the future profit
within the financial statements of ABC Learning Company.
2.2. HIH Insurance Company
Being emerged in the year 1968 by Ray Williams along with Michael Payne that is
termed as M W Payne Underwriting Agency, the company as acquired by CE Health PLC
along with the former partner was appointed within the boards. In the year1996 the company
changed its name to HIH Winterthur. The organization attempted to maintain an aggressive
initiative towards growth along with acquiring a lot of companies in Australia as ell as all
over the globe. Conversely, in the year 1999 it acquired its largest business rival that is FAI
Insurance along with Winterthur Swiss that sold most of its shares to the public and the
organization attained its current name HIH Insurance (Sullivan 2015).

3LIQUIDATION OF COMPANIES
In the March 2001, the organisation failed in operating its business and it was not
anymore considered as among the most reliable insurance companies. The anticipated asset
base of the organisation was observed to be late but on additional analysis of the company’s
internal reports, it was gathered that increased liabilities resulted into drastic insolvency.
This turned out to be a great opportunity for the stakeholders of the company those were
remained stuck having unpaid claims. There are several claims on HIH Insurance that in the
intention of attaining high growth have acquired risky business at elevated prices. In addition,
it is also evidenced that the organization tapped within the overcrowded market through
priding services at decreased prices at decreased prices. It is also gathered through analysis of
the company’s strategic and financial position that HIH Insurance Company stepped within
the industry without having knowledge regarding it to a great extent (Vyas, Ambadkar and
Bhargavaϯ 2015). Considering the situation of this company, it was gathered that ethical
considerations were compromised in order to attain confidence of its stakeholders through
reflecting a false financial statement. In addition to that, the assets of the company were
overstated along with the liabilities that was understated in order to indicate a positive image
of the company among its stakeholders. The company experienced a lot of major issues and
was even alleged ith negligence for the reason that its actuarial advisor offered a warning to
the management regarding it before its business failure.
2.3. OneTel Company
OneTel Company was originated in the year 1995 that was involved in an agreement
with the second largest telecom organization within Australia, Optus that was using its
network services in order to serve its own consumers. On the other hand, the organization
additionally considered to provide cheap call rates for increasing the target consumer base.
Such initiative taken by OneTel Company resulted n the dispute with its service provider
Optus (Tricker and Tricker 2015). Moreover, in the year 1997, the company went int another
agreement with the organization GlobalOne for resuming the goth of the business that was
previously intended by the company. It also took an initiative of launching global strategy in
order to expand its network all through the world. In addition, in the year 1998, the company
acquired spectrums from most of the geographical regions of Australia for advancing the
services of the company.
3. Ethics and Governance in Order to Explain Financial Stress
Among the most vital factors of the company is the company’s business ethics that
centres on the norms along with guidelines which is an organization requires to following
dealing with the stakeholders (Dodo 2017). It is also deemed that among the major support of
the governance system of an organization that also made sure of the stability in the long run.
It generally encourages transparency in the system that also facilitates monitoring of financial
statements. The personal view of an individual can be considered as individual ethics and on
the other had ethics followed by companies are guided by perception of individuals those
have importance within the organization. Moreover, all the members of the company are
bound to follow such ethics (Markham 2015). For the reason that ethics varies from one
culture to another but with an effective governance system is highly vital for all the
profession. A poor ethical background might be important to the company for the reason that
it can result in the unprofessionalism within the company is resulting in fraudulent activities.
The board members along with other vital people within the company might also get involved
in certain unethical conducts in case there is weal corporate governance.
Ethics to be followed by the accountants of ABC Leaning is deemed to be
increasingly important at the time of financial reporting as they are anticipated to reveal he
fair value of the organization to all its stakeholders (Roy 2017). The financial situation of the

4LIQUIDATION OF COMPANIES
organization serves as a factor relied on which investors take vital decisions and is reliable
for the accountants those prepared it. Authentic financial figures are expected from the
accountant who requires to develop it in an unbiased and effective manner. In other words, in
case an accountant lacks ethics than the financial reports developed by that individual might
indicate an unrealistic image of the company and might harm the stakeholders financially.
The accounting standards of ABC Learning offers aa guideline for its accountants to follow
but the individual ethics issue might result in leading him to manipulate its financial
information. This might also have loopholes within the company’s accounting standards for
earnings management (Sharma 2015). The accountants of OneTel Company were also
involved in such ethical concern for attaining individual profit that might even get impacted
by the management that are against ethics but is commonly practiced internationally. The
accountant of ABC Learning can also offer quality report in case an individual’s ethical
values includes the characterises that is posed by people.
The financial report of these companies is prepared that is not just important to the
investor or management but also others as it contributes to the organizations economy. For
this reason, the accountants of these organisations are advised to follow the ethical
accounting standards that might be helpful for them in developing a financial report of better
quality along with keeping the individuals aware of such material misstatement (Soltani
2014). With ethics attaining an increased importance at the time it is implemented within the
company, it generates a corporate governance that sets rules for all the members of the
company to follow. A poor corporate governance within HIH Insurance company resulted in
the collapse of this company. It is also revealed that this offers the accountant with better
responsibility to safeguard the interest of the shareholders along with keeping the investors
away from such unnecessary risks. Conversely, at the time the organizations mentioned
within the report are considered, then none of these businesses maintained their ethical
integrity as they were involved in unethical practice of maintaining a dark side of managing
earnings. Such practice resulted in collapse of these companies through liquidation (Sorensen
and Miller 2017).
4. Role of the liabilities:
It is to be borne in mind that the liabilities had played a significant role in the
corporate collapses of the three above-stated organizations, which are discussed briefly as
follows:
4.1. ABC Learning:
In the beginning period of 2007, the liquidity position of ABC Learning was observed
to be stable. However, there had been a change in the situation later on in the year. This is
because the organization was encountered with a re-categorization of liabilities. Such
liabilities include both short-term liabilities and long-term liabilities amounting to $1.1 billion
for the organization (Appelbaum, et al., 2016). This has mandated the need of arranging
funds for the organization. It has been found that during the period 2007-2008, ABC
Learning had to incur $1.2 billion because of breaching the debt covenant. This had direct
effect on the profit of the organization, as the profit fell by 42% (Abid and Ahmed, 2014).
4.2. HIH Insurance:
For this particular organization, the debt structure was leveraged highly having term
debts. This could be identified as one of the primary causes that had made the organization
insolvent. In addition, deficiency could be observed in decision-making power of the
management of HIH Insurance in terms of acquisition. It had undertaken an incorrect
decision by acquiring FAI for an amount of $300 million. However, in reality, the actual cost

5LIQUIDATION OF COMPANIES
of acquisition was $100 million (Bhasin, 2015). Thus, it could be inferred that the
organization had understated its acquisition cost so that it could enjoy tax benefits and the
amount saved could be invested in further acquisitions in future.
4.3. One Tel:
For this specific firm, it had incurred huge amount of liabilities and the management
of the organization was primarily responsible in hiding such liabilities. The liabilities were
hidden by the organization by adopting unscrupulous and illicit ways. Moreover, another
reason that could be identified behind the significant increase in its liability base was the
payment of $92 million in the form of compensation (Davies, 2016). In order to hide such
liabilities, the management of the organization had adopted illicit accounting policy by
breaching the prevailing standards of accounting. As a result, it had encountered massive loss
amounting to $291 million in 2000. Due to this, there was significant backdrop in the cash
availability of the organization in order to conduct day-to-day operations for which the
director of the organization was compelled to sell 5 million shares for an amount of $2.5
million. Another reason could be the improper pricing strategy of the organization by
representing higher profit against deferring the main business expenses for three years.
Hence, it could be stated that the role of the liabilities was significant for the collapse of One
Tel.
5. Conclusion
The objective of the paper put great focus on the selected Australian organizations
that resulted in liquidation because of poor governance along with deceased ethical values. It
was revealed from the paper that ABC Learning, HIH Insurance along with OneTel Company
that has obtained a great privilege of positioning as among the highly valued organizations
within Australia had to deal with liquidation on poor ethical grounds. It was also gathered
that the accounting standards of these companies offers a guideline for its accountants to
follow but the individual ethics issue might result in leading him to manipulate its financial
information. This might also have loopholes within the company’s accounting standards for
earnings management. Thus, it could be inferred that the organization had understated its
acquisition cost so that it could enjoy tax benefits and the amount saved could be invested in
further acquisitions in future.

6LIQUIDATION OF COMPANIES
References
Abid, G. and Ahmed, A., 2014. Failing in corporate governance and warning signs of a
corporate collapse.
Appelbaum, S. H., Calcagno, R., Magarelli, S. M., and Saliba, M., 2016. A relationship
between corporate sustainability and organizational change (part three). Industrial and
Commercial Training, 48(3), pp.133-141.
Bhasin, M.L., 2015. Corporate accounting fraud: A case study of Satyam Computers Limited.
Davies, A., 2016. Best practice in corporate governance: Building reputation and
sustainable success. Routledge.
Davies, A., 2016. The globalisation of corporate governance: The challenge of clashing
cultures. Routledge.
Dempsey, A.L., 2017. Evolutions in Corporate Governance: Towards an Ethical Framework
for Business Conduct. Routledge.
Dibra, R., 2016. Corporate Governance Failure: The Case Of Enron And Parmalat. European
Scientific Journal, ESJ, 12(16).
Dodo, A.A., 2017. Corporate collapse and the role of audit committees: a case study of
Lehman Brothers. World Journal of social sciences, 7(1), p.19.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Markham, J. W., 2015. A financial history of modern US corporate scandals: From Enron to
reform. Routledge.
Roy, S., 2017. The Significance of Business Ethics as a Competency Requirement in Fiji’s
Accountancy Profession. Australian Academy of Accounting and Finance Review, 2(3),
pp.264-279.
Sharma, P.K., 2015. Codes and Standards of Corporate Governance. In Corporate
Governance Practices in India (pp. 28-42). Palgrave Macmillan, London.
Soltani, B., 2014. The anatomy of corporate fraud: A comparative analysis of high profile
American and European corporate scandals. Journal of business ethics, 120(2), pp.251-274.
Sorensen, D.P. and Miller, S.E., 2017. Financial accounting scandals and the reform of
corporate governance in the United States and in Italy. Corporate Governance: The
International Journal of Business in Society, 17(1), pp.77-88.
Sullivan, B.A., 2015. Corporate-financial crime scandals. The Routledge International
Handbook of the Crimes of the Powerful, p.172.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Vyas, A.H., Ambadkar, R. and Bhargavaϯ, J., 2015. True and Fair View-A Fact or Illusion in
the World of Creative Accounting. International Journal of Multidisciplinary and Current
Research, 3(3), pp.572-575.

7LIQUIDATION OF COMPANIES
Wood, G., 2017. Reflections on business ethics through 1992-2017. European Business
Review, 29(6), pp.628-641.