Liquidation of Companies and Related Reasons Assignment
Added on 2021-05-31
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Running head: LIQUIDATION OF COMPANIES AND RELATED REASONSLiquidation of Companies and Related ReasonsName of the University:Name of the Student:Authors Note:
LIQUIDATION OF COMPANIES AND RELATED REASONS1Table of ContentsIntroduction......................................................................................................................................2Events that Result in Liquidation of Companies.............................................................................2ABC Learning..............................................................................................................................2HIH Insurance..............................................................................................................................3OneTel Phone Company..............................................................................................................4Ethics and Governance in Explaining Financial Stress...................................................................5Liabilities in Explaining the Liquidation of the Companies............................................................7ABC Learning..............................................................................................................................7HIH Insurance..............................................................................................................................7OneTel Company.........................................................................................................................8Conclusion.......................................................................................................................................8References........................................................................................................................................9
LIQUIDATION OF COMPANIES AND RELATED REASONS2IntroductionAn organization has a primary objective of making profit or in other terms maximizingthe value of the company to increase shareholder’s wealth. An organization is a concern withperpetual existence except certain factors which can shut its operations and the primary reasonfor the same is liquidation. It is situation when a company does not have sufficient cash or assetsto pay for its obligations (Abdullah and Malik 2017). Irrespective of the business operations orthe size of an organization, if it gets liquidated then it is wiped out of existence. There arevarious reasons for a company to get liquidated which includes lack of management as well ascorporate governance, negligence or misuse of resources etc. The main motive of this paper is tohighlight the fall of a few Australian organizations due to lack of governance and ethics. Events that Result in Liquidation of CompaniesThe three companies which will be highlighted in this paper are those which enjoyed theprivilege of being highly valued companies of their times but due to their insolvency has toliquidate their assets on poor governance and ethical grounds (Ahmed and Ndayisaba 2016).These three companies are ABC Learnings, HIH Insurance, and One-Tel Phone Company whichpaid the costs of taking a wrong path for value maximization.ABC Learning ABC Learning operated throughout Australia as well as other parts of the globe with aservice of early childhood education. Eddy Groves was the founder of the organization whostarted it with a few centers but went on erratic acquisition quest as he believed in aggressivegrowth strategy as well as wiping out competition in the market (Anderson 2016). Hence, hisprior motive was to acquire most of the rival organizations which posed threat to ABC
LIQUIDATION OF COMPANIES AND RELATED REASONS3Learnings. During the quest to acquire majorly, the company used huge funds through investorsas well as took loans. With so much on plate, the company started registering decline in profitsfrom mid-2017 and eventually it was clear that the company was in no position to comply withits liabilities and went into receivership. The company’s management was dragged top court where it was alleged intomanagement of earnings by showing its positive image while hiding the true value. Themanagement was claimed to have overstated their profitability to reflect the bright side of thecompany to the investor in order to keep them investing. Mr. Groves, the mastermind behind thecompany’s fall has been the suspect who is claimed to have misguide the shareholders by notpresenting the actual financial position of the company (Lane 2016). Moreover, the finance teamalso warned Mr. Groves of the consequences which he neglected. The debt of the company wason rise with the constant acquisition process and financial statement also included thegovernment subsidy which is considered within the future profit. This was the factor whichoverstated their profits in eyes of the stakeholders. Moreover, he used to implement his ownideas in significant business decisions which not only liquidated the company but also effectedthe shareholder’s confidence. HIH InsuranceRay Williams and Michael Payne are considered the founders of this organization in1968 but at the time was named as M W Payne Underwriting Agency Pty Ltd. However, theorganization was acquired by another company named CE Health PLC with Ray Williams gotappointed as the member of the board and the company’s name was changed to HIH Winterthur(Pearson 2016). Similar to the previous organization, this company also believed in growththrough aggressive acquisition and had acquired several rivals throughout Australia and various
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