Reasons for Liquidation of ABC Learning, HIH Insurance and One Tel Phone

This report analyzes the reasons for the liquidation of three major Australian companies, ABC Learning, HIH Insurance, and One Tel Phone. It discusses the introduction of the companies, reasons for liquidation, ethics and corporate governance, and the role of liabilities in the collapse of these companies.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The first part of the report provides introduction of the three companies; they are ABC Learning,
HIH Insurance and One Tel Phone. The second part shows the reasons for liquidation of these
three companies. The third part put emphasis on the ethical and corporate governance related
issues for the collapse of these three companies. The last part shows the role of liabilities in the
collapse of these companies.

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Table of Contents
Introduction......................................................................................................................................3
Introduction of the Companies........................................................................................................3
ABC Learning..............................................................................................................................3
One Tel Phone.............................................................................................................................3
HIH Insurance..............................................................................................................................3
Reasons for Liquidation...................................................................................................................3
HIH Insurance..............................................................................................................................3
One Tel Phone.............................................................................................................................4
ABC Learning..............................................................................................................................4
Ethics and Corporate Governance...................................................................................................5
HIH Insurance..............................................................................................................................5
One Tel Phone.............................................................................................................................5
ABC Learning..............................................................................................................................6
Role of the Liabilities......................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
The main objective of this report involves in the analysis and evaluation of the reasons
for the liquidation of three of the major Australian companies; they are ABC Learning, HIH
Insurance and One Tel Phone. Liquidation is considered as the process of winding up the
business and the business organizations have to go through some of the major processes in order
to complete the process of liquidation. Some of the major processes involves in liquidation is the
recognition of assets and liabilities of the companies, the fulfillment of the obligation of the
creditors either fully or partially and others. For every company, there are some major reasons
that led to the liquidation of these companies (Ozkan and Ozdevecioğlu, 2013).
Introduction of the Companies
ABC Learning
The establishment year of ABC Learning was 1988 and the company was established in
Queensland, Australia. ABC Learning was regarded as a leading company operating in the
educational sector of Australia. The company had a market capitalization of $2.5 billion and the
company was also listed in the Australian Stock Exchange (ASX). ABC Learning was successful
in establishing more than 900 centers all over the Australia. The company did the acquisition of
Busy Bee Group in the year 2006 for $330 million; and the main aim of this acquisition was to
expand in the market of United States and United Kingdom (Matusick, et al., 2013).
One Tel Phone
The establishment year of One Tel Phone was 1995 in Australia. The company was
regarded as one of the major companies operating in the telecommunication sector of Australia.
The major business strategy of One Tel Phone was the expansion of their business by satisfying
the needs of the customers. With the help of this strategy, the company was able to possess the
position of the fourth largest telecommunication company in Australia. One major part of the
business strategy of One Tel Phone was to provide their customers with high quality of mobile
phones along with the One Net internet services (Haines, 2014).
HIH Insurance
HIH Insurance was regarded as the largest company in the insurance industry of
Australia. With the view of the expansion both globally and in Australia, HIH Insurance made
many acquisitions in the period starting from 1997 to 1998. The company was enlisted in ASX in
the year of 1992. HIH Insurance did sale their major stakes in the 1995 and changed their name
to HIH Insurance. It needs to be mentioned that the company had a total loss of $5.3 billion at
the time of the liquidation. Many members from the senior management of the company were
responsible for the liquidation of HIH Insurance (Matusick, et al., 2013).
Reasons for Liquidation
The following discussion shows the major reasons that were responsible for the collapse
of these three companies:

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HIH Insurance
1. HIH Insurance did take many wrong business decisions and one of the major wrong
decisions of the company was the acquisition of FAI Insurance. The company had to
make huge investment for the acquisition that was too risky for the company. This reason
led to the major of the company.
2. To enter into the business to finance the films was another major decision from the
management of HIH Insurance. Due to this wrong decision, the company had to face a
loss of more than hundred millions of dollars.
3. Apart from the above, the natural disaster in Florida also hurt the financial position of
HIH Insurance. The company had to incur huge amount of debt for reviving their
financial situation and this debt led to major business loss. This was a major reason or the
collapse of HIH Insurance (Leung, et al., 2014).
4. It needs to be mentioned that HIH Insurance made an abrupt change in the accounting
policy for the payment of the compensation of the employees of California. For this
reason, the company had to face major business loss.
5. At the time of the liquidation, the liquidator estimated that HIH Insurance registered as
loss of almost $800 million dollar over a time of six months and the major reason for this
loss was quick expansion, change in accounting policy, wrong business decision and
others (Leung, et al., 2014).
One Tel Phone
1. One of the major reasons for the collapse of One Tel Phone was the wrong business
decisions of the management. The management of One Tel Phone took the strategy of
showing superior amount of profit by deferring the business expenses for three years.
This accounting policy was against the accounting standards.
2. For the adoption of this illegal accounting policy, One Tel Phone had to register a loss of
$291 million in the year 2000. This had negative effects in the share prices of the
company as the price of share decreased to below $1 (Clarke and Dean, 2014).
3. In the year 2001, the management of One Tel Phone realized that they were running out
of fund for running their business operations; and thus, the management sold their 5
million shares at a price of $2.5 million. This aspect hurt the financial situation of the
company and the management took the decision to lay off 1400 employees from the
workforce.
4. At the time of the liquidation, the company had the major obligation for the payment of
$92 million as compensation for the shareholders and other stakeholders as the
management of the company did not exercise their duty of due care and diligence
(Clarke and Dean, 2014).
ABC Learning
1. There were some of the major reasons responsible for the collapse of ABC Learning. Due
to the effects of the wrong business decisions, the company registered as 42% fall in the
profit amounted to %37.1 million in the year 2007. In order to revive the situation, the
company had to take a debt of $1.8 billion. This was one of the prime reasons for the
liquidation of ABC Learning (Hessian, 2014).
2. Due to the effect of the above factor, there was a 43% fall in the share price of ABC
Learning to $2.15 after starting the day with a all time low trading of $1.15. All of these
negative aspects forced the management of the company in selling their stakes of $20

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million and $6 million for a price of $2.7 million. Apart from this, the regulatory
authority put trade suspension on the company as ABC Learning did not disclose the
earnings for the period of 2007 to 200.
3. Apart from this, the auditors of ABC Learning failed to sign off the major accounts of the
company that led to the liquidation of the company.
4. The company was responsible for the incorrect adoption of the accounting policy related
to the accounting of intangible assets (Hessian, 2014).
Ethics and Corporate Governance
Ethics and corporate governance is considered as two of the major aspect for the success
of the business organizations. In the presence of business ethics, the management of the
companies become able to make the correct choice and business decision for their companies.
The adoption of ethical standards in business helps the management in selecting the right course
of actions. There are many instances when the companies had to reject the way that can
contribute to short-term profits (Crane and Matten 2016).
At the same time, the importance of effective corporate governance cannot ignored. The
implementation of appreciate corporate governance policies helps the business organizations in
controlling and directing this business operations in the most ethical way. Moreover, the
effective implementation of corporate governance policies helps in the reduction of the changes
of fraud and manipulations in the companies (Tricker and Tricker 2015). Thus, the importance of
ethics and corporate governance cannot be ignored.
The following discussion shows the main ethical and poor corporate governance reasons
that led to the collapses of these three companies:
HIH Insurance
1. The approval from the board of director is required prior to any major business
acquisitions. However, HIH Insurance did not obtain the approval from the board od
directors for the acquisition of FAI Insurance. This particular aspect shows poor
corporate governance as well as ethical issues in the company (Kang, et al., 2013).
2. The management of HIH Insurance did not properly discharge their duties related to due
care and diligence; and this aspect shows the lack of ethical business practice in the
company.
3. In spite of knowing the fact that entering into the film business would be a major risk, the
management of HIH Insurance entered into this business. This aspect is a major indicator
of the presence of poor corporate governance as well as unethical business practice in the
company (Kang, et al., 2013).
One Tel Phone
1. From the earlier discussion, it can be observed that One Tel Phone was involved in the
violation of accounting ethical standard by adopting incorrect accounting method. This
aspect shows the poor corporate governance as well as unethical business practice in the
company (Salim, Arjomandi and Seufert, 2016).
2. The management of One Tel Phone majorly failed in the effective monitoring of the
financial performance of their business. This aspect indicated towards the absence of

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good corporate governance mechanism in One Tel Phone that led to the collapse of their
business.
3. The failure of the company can be seen in the adoption of the effective pricing strategy
for their business operations that contributed towards a huge loss for the business of One
Tel Phone. This aspect shows both ineffective corporate governance as well as unethical
business practice in the company (Salim, Arjomandi and Seufert, 2016).
ABC Learning
1. In case of ABC Learning, the absence of effective corporate governance as well as ethical
business practice can be seen from the fact that the company adopted the incorrect
accounting policies for their accounting operations. This aspect influenced the fraudulent
as well as manipulative activities in the business operations of ABC Learning.
2. It can also be observed that the management of ABC Learning failed in correctly renders
the services of the company to their customers. This aspect indicates towards the lack of
effective corporate governance as well as ethical business practices (Chapple, Clout and
Tan, 2014).
Role of the Liabilities
In this context, it needs to be mentioned that all these three companies had some major
amount of liabilities at the time of their liquidation. They are shown below:
In the year 2007, ABC Learning had to made the reclassification of some portion of their
current as well as non-current liabilities for the amount of $1.1 billion and the company had to
made major refinancing. In the period of 2007-2008, there was huge increase in the liability of
the company that led to 42% fall in the company profit. The company had to pay $1.2 billion for
breaching the debt arrangement (Hessian, 2014).
The situation was not different for HIH Insurance as the liquidator confirmed at the time
of liquidation that the capital structure of the company as highly leveraged with term loans.
These loans increased the liability portion of the company majorly. The liability of HIH
Insurance increased by almost $200 million when the company acquired FAI Insurance (Leung,
et al., 2014).
The same situation can be seen in case of One Tel Phone. Due to the increased amount of
liability, the management of One Tel Phone was involved in hiding the liability of the company
in the illegal manner. In addition, the liability of One Tel Phone increased huge when the
company had to pay a compensation of $92 million (Clarke and Dean, 2014).
Conclusion
From the above discussion, it can be observed that the increased amount of liabilities for
One Tel Phone. HIH Insurance and ABC Learning was one of the prime reason for their
liquidations. For all the three companies, the increased amount of liabilities affected the financial
performance of the companies by reducing the profit margin. At the same time, the share prices
of these three companies were largely affected with the increased amount of liabilities of these
three companies. Not only the amount of liabilities, there were many other reasons that
contributed towards the liquidation of these three companies like wrong investment decision by

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the managements related to acquisition and expansion, adoption of incorrect accounting policies,
lack of ethical business practices, lack of good corporate governance and many others.

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