Liquidation and Winding up: Events, Ethics, Governance and Liabilities

This report discusses the events and acts which have resulted in the winding up of companies like ABC Learning, HIH Insurance and One.Tel. It also explores the role of ethics and governance, liabilities contributing to liquidation and more.

WInding up
Liquidation and Winding up
Liquidation and Winding up laws
System-P
University Name-

Table of Contents
EXECUTIVE SUMMARY........................................................................................................1
EVENTS THAT LED TO LIQUIDATION..............................................................................1
INTRODUCTION......................................................................................................................1
ABC LEARNING......................................................................................................................2
HIH INSURANCE.....................................................................................................................2
ONE.TEL...................................................................................................................................2
ROLE OF ETHICS AND GOVERNANCE..............................................................................3
DOES BAD ETHICS AND GOVERNANCE LEAD TO FINANCIAL STRESS?.................3
LIBILITIES CONTRIBUTING TO LIQUIDATION...............................................................3

EXECUTIVE SUMMARY
In this report we will discuss regarding the results of a significant corporate theory i.e.
Liquidation. The description includes the events and acts which have resulted to the winding
up. For understand the theory properly, we will take the examples of real Australian
companies, ABC learning, HIH Insurance and one Tel phone. Further we will take the
reference from the incidents happened into the above mentioned companies. At the end of the
discussion we will conclude the role of liabilities in the case of liquidation. The liquidation
and winding up comes when company fails to pay off all the debts in long run.

EVENTS THAT LED TO LIQUIDATION
INTRODUCTION
Liquidation is a process by which the company brought to an end. Usually the liquidation
occurs when a company becomes insolvent. Insolvency refers to the situation, when the
company cannot pay its obligation and also unable to meet its day to day requirements. At the
end of the company’s operations, the distribution of assets made among the interested parties
on the basis of the priority of their claims. This is an initial stage of ending of the company
which becomes the winding up and the process of liquidation is not a single day process that
goes through the various procedures and events. These companies went into liquidation as it
failed to comply the code of ethics and principles of corporate governance.

ASX corporate governance principles and rules
 Board of directors and managers are collectively responsible for any legal issues and
transparency of the business.
 Company should comply with the all the applicable listing rules and regulation.
 Transparency and ethical code of ethics should be complied to strengthen the busienss
functioning.
 Company should follow formal transparency process while appointing and re-appointing the
directors in organization.
 Every listed company needs to define clear and concise all the terms, busienss objectives
and policies.
 As per the ASX corporate governance principles, company needs to establish the
effective corporate governance program
 Management of listed company should perform ethically and align the interest of the
society with the organization development (ASX, 2018).

ABC LEARNING
In 1988, ABC learning founded as a childcare centre. At that time the children care centres
were considered as an organisation supported by the government subsidies. In 2001, it was
listed on Australian Stock Exchange with a market capitalization of A$25 million. By
November 2005, ABC had 697 centres throughout the Australia and New Zealand. After that
ABC purchased the third largest childcare centre in the United States and had mergers with
some other childcare centres, which results into a considerable increase in number of ABC
centres (Code of ethics, 2018).
ABC was the listed Organizaiton which was offering the best quality services to client and
having market capitalization of AUD $2.5 billion in 2006. Company has increased its debt
payment and its entire UK subsidiary and 60 per cent of its US subsidiary. Although the
company was famous for its childcare policies but being the monopolist, it started avoiding
the safety policies and safety and alleged for the false behaviour and the company found
guilty when the allegations got proved. This resulted to failure of the ASX corporate
disclosure listing rules and principles (ASX, 2018).
HIH INSURANCE
HIH Insurance was one of the biggest insurance companies in Australia with the assets of $8
billion. But due to the mismanagement of the company the company has suffered from an
adverse series of downfall. However, after the repayment of the debts of the company out of
its assets, the company left with the net assets of $133 million. The company was suffering
from cost of marginal solvency cost be results into assets deficiency after a small movement
in asset value. However, the company has a stable financial condition with $133 million of
assets against its entire liabilities, even when it sold its assets. Hence the company couldn’t
help itself to protect its existence and it resulted into provisional liquidation. As per the ASX
corporate governance principles, company needs to establish the effective corporate
governance program. The major reason behind the liquidation of the company was the
breaches of civil and criminal laws by the company’s management. It concluded in the
provisional liquidation of the company (ASX, 2018).

ONE.TEL
One Tel was an Australian company and was incorporated in1995. It was the fourth largest
telecommunication company in Australia. Company has been serving to more than 2 million
customers and operations in eight countries. The company was much focused on youth and
had very clear market strategies. The qualitative and quantitative data analysis from various
sources shows that One-Tel’s collapse is very significant case of failed expectations, false
pricing policies and strategic mistakes. As per the corporate governance ASX principles,
company should have given followed equal pricing policies and program. The failure to the
same was even led to the ultimate winding up of the company (Kant, 2017).
Code of ethics which company failed to comply
Code of ethics ABC Learning HIH Insurance One. Tel
Integrity ABC learning failed
to pay off its debts
It failed to meet its
obligation towards its
stakeholder.
One Tel and other
companies have gone
into liquidation as
they have failed to
pay off its short term
and long term debts.
Governance Failed to meet its
applicable liabilities
and corporate
governance program.
Legal compliance
issues.
Failed to establish
harmonization in its
domestic and
international legal
compliance.
Transparency Failed to file its
annual report with
the reporting
authority (Code of
ethics, 2018).
The collapse
happened due to the
management fraud
instead of insolvency
or bankruptcy.
Personnel of
The company was
suffering from cost
of marginal solvency
cost be results into
assets deficiency
after a small

company’s
management have
made manipulations
the books of account
for their personal
benefits. At the result
of which, company
lost the transparency
and ended its
business
relationships with its
business colleagues.
movement in asset
value. It hides it
from(Code of ethics,
2018). its
stakeholders.
Safety and
compliance standards
Failure to meet the
compliance program.
All the incidents
influenced the share
prices adversely and
after that it all went
negative. As the
result of this,
company was
delisted from
Australian stock
exchange (ASX,
2018).
After failure to
comply with the
applicable laws,
company was
voluntarily liquidated
and acquired by the
Good Start limited in
2009.
Professionalism Apart from the
bankruptcy, the
inadequate working
capital, lack of
planning, poor
marketing and weak
financial skills are
also the reasons of
As per the corporate
governance and ethic
policies, the
management of
company should
perform ethically and
for the interest of the
society
The unethical
behavior of
management brought
the One Tel
Company to its end

the liquidation
There may be several reasons behind liquidation of a business but these two reasons are no
more interested and want to leave the business. These reasons are very common in case of
bankruptcy and the situation where the business has no enough earning to support itself. The
court takes the control over the assets of the company in order to sell them at auction in case
of bankruptcy. With the ramified economic changes, there are several companies such as HIH
Insurance, One Tel and other companies which have gone into liquidation as they have failed
to pay off its short term and long term debts (ASX, 2018).
. Sometimes a running business entity decides to close its business or merge its business with
other entity. Also the company goes into liquidation on the completion of its objective. The
reasons mentioned here above can also be the reasons for the liquidation.
In order to get the clear view and concepts of liquidation, it would be better to study some
significant cases. The cases we will discuss further in the report are well known corporate
entities, which had an excellent goodwill before its winding up.
ROLE OF ETHICS AND GOVERNANCE
DOES BAD ETHICS AND GOVERNANCE LEAD TO FINANCIAL STRESS?
Businesses do not only functions for profit earning but also performs in social and public
connection. A company cannot think of its own profit without considering the good faith of
society (Babich, Hodyayev, & Uleksin, 2016). As per the corporate governance and ethic
policies, the management of company should perform ethically and for the interest of the
society. It is deemed for a company that it works adequately for log run without having any
closure plan. If a company has done anything inappropriate for profit at the cost of ethics, it
would be considered unethical and may results into an end of whole empire (Kant, 2018).
In case of ABC, the company liquidated due to the avoidance of policies and misuse of
financial status by its management. The use of cheap techniques, low cost labour and the
misuse of government subsidies were the reasons behind the end of the company (Kelly,
Brien, & Stuart, 2015).

The unethical behavior of management brought the HIH Insurance to its end. The
management of HIH Insurance has performed for their personal benefits and presented the
wrong and false data to mislead the investors (Brahmaiah, 2018).
In case of One-Tel’s liquidation, it was an un-expected event for the entire management of
the company. It was the result of management fraud. In that case the management of the
company misled the shareholders of the company (Khan, & Williamson, 2016).
LIBILITIES CONTRIBUTING TO LIQUIDATION
To meet the day to day requirements, the company needs an adequate finance. During the
course of business various liabilities and obligations arise against a business, whether for
short term and for long term period (Brahmaiah, 2018). A Company should always possess
adequate financial sources to meet its liabilities. When the debts of a company exceeds to its
assets, it becomes unable to pay its liabilities. The situation can be called as financial stress or
a prior-condition of liquidation. In this kind of situation the interested parties of company i.e.
shareholders and creditors want their money back due to the falling down of business (Smith,
2016).
Conclusion
This brings a company to an end. It shows that liabilities have a vital and significant role in
the liquidation of the company. The liquidation process of a company ends with the payment
to all interested parties of the company. After liquidation the existence of the company ends
with the process of winding up. In above discussed case studies, the important factors which
influenced the liquidation of the companies were manipulation, greediness, avoidance and
carelessness.

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