(PDF) The Company Liquidation

Running head: REASONS FOR LIQUIDATION OF COMPANIES
Reasons for Liquidation of Companies
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1REASONS FOR LIQUIDATION OF COMPANIES
Table of Contents
1. Introduction......................................................................................................................2
2. Reasons Causing Selected Companies Liquidation.........................................................2
2.1. Liquidation of ABC Learning...................................................................................2
2.2. Liquidation of HIH Insurance...................................................................................4
2.3. Liquidation of OneTel Company..............................................................................5
3. Financial Stress Explained through Ethics and Governance...........................................6
3.1. Ethics and Governance Issues in ABC Learning136................................................6
3.2. Ethics and Governance Issues in HIH Insurance......................................................7
3.3. Ethics and Governance Issues in OneTel Company.................................................7
4. Conclusion.......................................................................................................................8
References............................................................................................................................9

2REASONS FOR LIQUIDATION OF COMPANIES
1. Introduction
A company is deemed to attain a major objective of attaining profit along with
considering maximization of value of the organization in order to enhance shareholders wealth.
A company is concerned with the perceptual existence rather than certain factors that can shut
off its business operations and the major cause of the organizational liquidation (Ali 2016).
Consideration of the business operations or the size of a company irrespective, it can be stated
that it gets liquidated and gets wiped out of the existence. There are numerous reasons for which
the organizations face the issue of liquidation that encompass lack of management and corporate
governance alignment, negligence along with resource misuse. In consideration to same, the
main objective of this paper is to explain the failure of some Australian renowned companies
because of faulty governance and ethics (Amendola, Restaino and Sensini 2015).
2. Reasons Causing Selected Companies Liquidation
The three Australian organizations that are focused on this paper and they enjoy the
advantage of being increasingly valued organizations of their times. This is because of their
insolvency because of which liquidation of their assets took place on poor governance along ith
ethical grounds. The Australian company’s incudes HIH Learnings, ABC Learnings and OneTel
Company that paid the expenses of following a wrong path for maximizing value (Anderson
2016).
2.1. Liquidation of ABC Learning
ABC Learning has its business operation within Australia along with other parts of the
world with a service of early childhood education. Eddy Groves is observed to be the founder of

3REASONS FOR LIQUIDATION OF COMPANIES
the company who started it with opening few business units and went for strategic acquisition
quest. This is for the reason that the founder believed in following aggressive growth strategy
that can decreased the intense competition from the industry. For this reason, the management’s
important motive was focused on acquiring most of the rival organizations that caused threat to
the ABC Learnings. At the time of quest to acquire companies, the organization considered
registering decline in its profits at the end of mid-2017 (Bartlett 2015). It was eventually clarified
that the organization was not in a better position to adhere with the liabilities and went into the
situation of receivership.
The management of the organization was dragged into certain legal proceedings in the
court because of the fact that it was alleged with tampering management of its earnings that
indicates positive image of the company through hiding the actual value. The management of
ABC Learning Company was alleged to overstate their profitability on order to indicate the
bright side of the organizations financial position (Betta 2016). This can persuade the investors
to increase investment within the organization. It was also observed that the owner of the
company was held responsible for its failure who was the suspect who was involved in
misguiding the company’s shareholders through not indicating the real situation of its financial
situation. The finance team also are the owners of the company regarding the consequences that
was neglected by them (Saravanan and Thakkar 2018). The debt of the company drastically
increased through its constant acquisition strategy and the financial statements also encompass
government subsidy that was considered within future profit. This served as an aspect that
overstated company profits in the viewpoint of shareholders. In addition, the owner considered
implementation of their ideas within their business decisions that not just liquidated the
organization but also impacted confidence of shareholders (Bhadily and Hosie 2016).

4REASONS FOR LIQUIDATION OF COMPANIES
2.2. Liquidation of HIH Insurance
Ray Williams and Michael Payne are observed to be the founders of HIH Insurance
company in the year 1968 and at that time it was referred as M W Payne Underwriting Agency
Pty Ltd. Conversely, the company was also acquired by other organization referred as CE Health
PLC with Ray Williams got appointed as one of the board members. In the later years, the name
of the company was changed into HIH Winterthur. Same as the previous company, HIH
Insurance also believed in the company growth by means of aggressive acquisition and acquired
a lot of its business rivals in Australia as well as all over the world (Doyle 2017). One of the
major competitor of HIH Insurance was FAI Insurance that was acquired by the company in the
year 1999. Another partner of the organization Winterthur Swiss sold most of their shares to
public that gave the organization its name HIH Insurance.
As the company is considered as one of the most renowned and reliable organization,
HIH Insurance failed in the year 2011 in March. The organization has a large asset base and an
increased focus indicated that the company’s liabilities were increasing than its assets that led to
its insolvency. The company is indicated to acquire several failed businesses at prices higher in
comparison to its real worth (Jackson 2015). In addition, it is also indicated that HIH Insurance
served its consumers at lower prices than its competitors that finally indicated that it tapped
within a market that was not totally understood by it. It was clarified that the company
compromised its ethics and governance for attaining business growth and hid its deficits through
managing its earnings. It was involved in assets overstatement along with liabilities
understatement along with several other debts which deceived the company’s stakeholders
(Kumar 2017).

5REASONS FOR LIQUIDATION OF COMPANIES
2.3. Liquidation of OneTel Company
OneTel was positioned as an organization of high values that initiated its business
operations in the year 1995 within Australia through entering into an agreement with Optus. As
per such agreement, the company was involved in using the network services offered by Optus in
order to serve its consumers in a better manner (Keay 2015). Conversely, in order to enhance the
existing base of consumers, OneTel Company started providing services at a cheaper price than
its competitors. Such act of the company has resulted to cause a dispute with the service provider
of the company that is Optus. After the end of the agreement with Optus, OneTel got involved in
an agreement with the company GlobalOne and resumed its spare on the company growth. The
company also launched an international growth strategy for expanding its business outside the
Australian as well as making an international presence (Foreman 2014). In order to maintain a
competitive position over its major business rivals, OneTel acquired a lot of spectrums within
Australia in order to enhance the network of the company. Considering the same, the company
raised fund from few of its investors as they expect to attain advantages from the same.
In such scenario, it can also be evidenced that OneTel spend a large sum of money in its
acquisition strategy and went into an agreement in order to offer consumer services at a cheaper
cost than its business rivals with an intention of attracting a huge consumer base. It was also
evidenced that OneTel paid ten times fir its license and also got involved in several other similar
agreements (Foreman 2014). In consequence of the same, it started observing losses from the
year 2000 and even reported availability of low cost. Considerably in the year 1991 the creditors
along with the shareholders voted in the favor to liquidate the organization.

6REASONS FOR LIQUIDATION OF COMPANIES
3. Financial Stress Explained through Ethics and Governance
Among the most important aspects of the company is deemed to be its business ethics
that centers on normal along with the guidelines that is required to be followed by the
organization. This is actually the code of conduct that is required by an organization in dealing
with all its stakeholders. This is also deemed as among the major support of the company’s
governance process that also ensured about the stability of the company in the long term. This
gradually facilitates in enhancing the transparency in the system along with supervising the
financial movement (Doyle 2017).
The personal opinion of any individual can be deemed as individual ethics but the ethics
of the companies such as ABC Learning, HIH Insurance and OneTel Company is guided by the
views of people that holds importance within the company and all the members of the
organization are bound to follow the same. Ethical considerations liable to be followed by these
three companies observed to be different based on organization that might also get indulge in
certain illegal practices in case the corporate governance is weak. The ethical morals of an
accountant are of great importance when it comes to financial reporting of these companies.
They are anticipated to reveal the fair value of these companies of its stakeholders (Damiani,
Bourne and Foo 2015). The financial situation of the organization serves as a factor on the basis
of which the investors make vital decision and for this reason it requires to be reliable along with
the accountants those prepared it.
3.1. Ethics and Governance Issues in ABC Learning136
ABC is observed to get involved in non-compliance with ethics and governance as it was
involved in manipulating its financials and presented the same in a manner that it reflected the
positive nature of the organization. The company is observed to have a net asset of 4.5bn with

7REASONS FOR LIQUIDATION OF COMPANIES
obligation of $1.8bn and on additional analysis it has been gathered that the organization had
most of its assets that were intangible in nature and the intangible assets of the company were
hardly attempting to make $1 bn (Chow 2018). Considering the spree of the company’s
acquisition, ABC Learning was observed to invest a great amount in opening new centers along
with acquiring several organizations in the same business.
3.2. Ethics and Governance Issues in HIH Insurance
Starting from a small organization, HIH Insurance observed an increased growth in its
early business period. The organization started investing an increased amount within a freely
competitive market along with offering service at a decreased cost. Over the past few years, the
company acquired more than 200 subsidiaries all through the world and also merged with
troublesome businesses. The company also acquired its largest competitor FAI Insurance that
pays $300mn and the actual value of this business is observed to be $100mn (Clift 2018). At the
end of the year 2000, HIH Insurance Company had attained an asset base of more than $8.1bn.
This included a high leverage debt along with the liabilities related with insurance because of
which this organization went into liquidation with an anticipated loss of around $5bn
(McCormack 2016).
3.3. Ethics and Governance Issues in OneTel Company
An aggressive acquisition strategy of the organization turned out to be a poor decision. It
attained a culture of growth at all the cost that has its own consequences. Though at the time of
the company failure it was observed to attain an annual sale of $653mn but was low on profit and
it also faced high expenses to experience. The company has also experienced constant decrease
in its asset returns along ith its profits (Foreman 2014). The cashflow of the company is also
deemed to be positive in the beginning and through aggressively acquiring other business.

8REASONS FOR LIQUIDATION OF COMPANIES
OneTel Company also entered within the agreements had generated a cash crunch. The
organization ahs also acquired the license of telecommunications that is ten times higher in
comparison to its competitors. For this reason, with having an increased liability along with
decreased income, the organization turned out to be insolvent that later takes place on
shareholders votes.
4. Conclusion
The main objective of this paper was to explain the failure of some Australian renowned
companies made sure of faulty governance and ethics. It was gathered from the report that the
three Australian organizations that are focused on this paper and they enjoy the advantage of
being increasingly valued organizations of their times. This is because of their insolvency
because of which liquidation of their assets took place on poor governance along with ethical
grounds. Moreover, the company compromised its ethics and governance for attaining business
growth and hid its deficits through managing its earnings. It was involved in assets overstatement
along with liabilities understatement along with several other debts which deceived the
company’s stakeholders.

9REASONS FOR LIQUIDATION OF COMPANIES
References
Ali, S., 2016. Corporate Governance and Firm Risk in Australia.
Amendola, A., Restaino, M. and Sensini, L., 2015. An analysis of the determinants of financial
distress in Italy: A competing risks approach. International Review of Economics & Finance, 37,
pp.33-41.
Anderson, H., 2016. An Introduction to Corporate Insolvency Law.
Bartlett, R.P., 2015. 6. A founders’ guide to unicorn creation: how liquidation preferences in
M&A transactions affect start-up valuation.
Betta, M., 2016. Three Case Studies: Australian HIH, American Enron, and Global Lehman
Brothers. In Ethicmentality-Ethics in Capitalist Economy, Business, and Society (pp. 79-97).
Springer, Dordrecht.
Bhadily, M.A. and Hosie, P., 2016. Australian employee entitlements in the event of insolvency:
Is an insurance scheme an effective protective measure. Adel. L. Rev., 37, p.247.
Chow, J.C., 2018. Analysis of Financial Credit Risk Using Machine Learning. arXiv preprint
arXiv:1802.05326.
Clift, H., 2018. Insolvency law: Linc insolvency in environmental context. Proctor, The, 38(3),
p.16.
Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic Round-
up, (1), p.37.

10REASONS FOR LIQUIDATION OF COMPANIES
Doyle, M., 2017. Market-based indirect causation after HIH. Australian Resources and Energy
Law Journal, 35(3), p.205.
Foreman, R., 2014. Insolvency: It's a wind-up. Law Society Journal: the official journal of the
Law Society of New South Wales, 52(1), p.71.
Jackson, T.H., 2015. Building on Bankruptcy: A Revised Chapter 14 Proposal for the
Recapitalization, Reorganization, or Liquidation of Large Financial Institutions. Making Failure
Feasible.
Keay, A.R., 2015. Challenging Payments Made by Insolvent and Near Insolvent
Companies. Nottingham Insolvency and Business Law e-Journal, 3, pp.215-228.
Kumar, R., 2017. A hundred years of corporate responsibility. Something to Believe In: Creating
Trust and Hope in Organisations: Stories of Transparency, Accountability and Governance.
McCormack, G., 2016. US exceptionalism and UK localism? Cross‐border insolvency law in
comparative perspective. Legal Studies, 36(1), pp.136-162.
Saravanan, J. and Thakkar, J.J., 2018. An integrated approach for lead time reduction of military
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Management, 35(1), pp.2-33.