Financial Accounting: Analysis of Company Liquidations in Australia

This report provides a comprehensive analysis of the liquidation of three Australian companies: HIH Insurance, Stellar Homes, and Aluminium Boats Australia (ABA). It investigates the events leading to their collapse, including poor management decisions, financial mismanagement, and external factors. The report delves into the role of liabilities, corporate governance issues, and the types of liquidation each company underwent. It also explores the APES 110 Code of Ethics for Professional Accountants, highlighting key ethical principles. The report examines the specific reasons behind each company's downfall, such as HIH Insurance's risky investments and faulty accounting, Stellar Homes' decline in sales, and ABA's loss of a major contract. The analysis draws upon academic sources and provides a detailed understanding of the factors contributing to these corporate failures.

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

1FINANCIAL ACCOUNTING
Executive Summary
The first part of the report involves in providing description of the selected companies; they are HIH
Insurance, Stellar Homes and Aluminium Boats Australia. The next part shows the reasons for the
liquidation of these companies. After that, the report involves in the analysis of the role of liabilities as
well as corporate governance in the failure of these companies.

2FINANCIAL ACCOUNTING
Table of Contents
Introduction............................................................................................................................................ 3
Company Background........................................................................................................................... 3
Stellar Homes..................................................................................................................................... 3
HIH Insurance.................................................................................................................................... 3
Aluminium Boats Australia (ABA)....................................................................................................... 3
Reasons for Liquidation......................................................................................................................... 3
Stellar Homes..................................................................................................................................... 3
HIH Insurance.................................................................................................................................... 3
Aluminium Boats Australia (ABA)....................................................................................................... 4
Code of Ethics....................................................................................................................................... 4
Corporate Governance Issues............................................................................................................... 4
Types of Liquidation............................................................................................................................... 4
Role of Liabilities.................................................................................................................................... 5
Conclusion............................................................................................................................................. 5
References............................................................................................................................................ 6

3FINANCIAL ACCOUNTING
Introduction
The present business world has witnessed the collapse as well as liquidation of many famous
business organizations all over the world and the same can be seen in the business industry of
Australia. In Australia, the occurrence of the liquidation of many business organizations indicates
towards the crucial fact that there are certain major reasons that have contributed towards the
collapse of these famous companies (Eidenmuller 2013). Winding up of the businesses and the
liquidation of businesses is considered as the same process where the administrators or liquidators
have to follow certain processes for the completion of the liquidation process. The objective of this
report is to take into consideration the analysis and evaluation of different dimensions of the collapse
and liquidation of three major Australian companies in three different sectors; they are Stellar Homes,
HIH Insurance and Aluminium Boats Australia. In this process, this report also considers the analysis
of the issues or reasons behind the collapse of these three companies.
Company Background
Stellar Homes
Stellar House is one of the major Florida-based company and the company has its operation
in the real estate development industry. It needs to be mentioned that the company played a crucial
part in reshaping Palm Beach, Miami-Dade and Broward countries with healthy as well as
environment friendly communities. At the same time, involvement of the company can be seen in the
investment of real estate as well as residential sector. Under the business operations of Stellar
House, the company takes into account the effects of their operations on the environment as well as
community (stellarhomes.ca, 2018).
HIH Insurance
HIH Insurance was established in the year of 1968 and it was the largest insurance
companies in Australia. In the initial stage, the presence of the business operations of HIH Insurance
could be seen in the area of Australia. However, the company was successful in their expansion in the
foreign market during the years 1997 to 1998. The name of the company could be seen enlisted in the
Australian Securities Exchange. During the peak time of their operation, one company from
Switzerland acquired one major portion of the business of HIH Insurance (Carnegie and O’Connell,
2014).
Aluminium Boats Australia (ABA)
Aluminium Boats Australia (ABA) was one of the leading Australian companies and the
company was established in the year of 1999. The mission of the company was to deliver quality as
well as performance every time to their customers. In Australia, the company was regarded as one of
the major companies involves in the delivery of multi-disciplinary shipyard along with providing the
services and technical support to their customers. In this context, it requires to be mentioned that the
speciality of ABA was the delivery of high performance commercials along with military and luxury
vessels in advanced aluminium constructions. At the same time, the company was well known for
providing complete solution to their major customers (aba-global.com, 2018).
Reasons for Liquidation
Stellar Homes
In the recent years, the case of the liquidation of Stellar House attracted the attention of the
business world. The administration process of the liquidation of Stellar House started from October
20, 2014; and PI Macks and IW Burford from Macks Advisory were responsible for the conduction of
the whole liquidation process. The inspection of these liquidators indicates towards the fact that the
company had to witness large decline in their sales volume and this aspect led to major crisis of cash
flow in the company. This aspect affected the long-standing reputation of the company of complete
construction of over 500 homes in the last 10 years. According to the analysis of the administrators,
South Australia was facing major economic downturn at that time and thus, the company was not able
in generating high revenue at that time; and this whole aspect affected the cash flow position of Stellar
House. Due to the unexpected collapse, Stellar House was not able in completing huge number of
homes as a part of their contract. As per the assessment of the administrators, the number of
uncompleted homes were thirty-six. The administrators were involved in the assessment of these
victims with the aim to refinance them from the company fund (news.com.au, 2018).

4FINANCIAL ACCOUNTING
HIH Insurance
The management of HIH Insurance took some major wrong decisions that led to the collapse
of the company. A large amount of investment could be seen by the company for the acquisition of
FAI Insurance; and this large investment was not suitable for the company. At the same time, the
management of HIH Insurance took the decision to enter into the business of file investment. Due to
the failure in this project, there was a loss for the company more than hundreds of dollars. At the
same time, it needs to be mentioned that the natural calamity in Florida was one of the reasons that
led to the liquidation of the firm. The company had to incur high amount of debt due to the loss from
this California natural calamity. The company was unable to handle this large amount of debts. At the
same time, it can be seen that the faulty accounting policies of the company was another major
reason for the company’s liquidation. For the employees of the California Company, the company
introduced wrong accounting policies that was a major failure for the company. Thus, on the overall
basis, there was a loss of around $800 million for HIH Insurance due to the issues like quick business
expansion, entry in the wrong business industry and others (smh.com.au, 2018).
Aluminium Boats Australia (ABA)
The liquidation process of ABA started from November 4, 2014 and the prime reason for the
liquidation of the company was that the company lost one of their major navy vessels in fire. Kelly-
Anne Trenfield and John Park from FTI Consulting were responsible for the liquidation of the
company. The assessment report of these liquidators indicates towards a crucial fact that the main
incident that contributed towards the collapse of ABA was the fire in HMAS Bundaberg in August. The
employees of the company had to suffer massively as they were removed from their position. Due to
the fire, the patrol board of Australian Navy worth $45 million that was the prime reason for the
liquidation of the company. As a part of the negative impact of this fire, ABA lost their contract to
provide maintenance and services to the Australian Navy. To ABA, the collapse of the company was
an unexpected event as the management of the company was expecting good performance of the
company and thus, they planned for the expansion of their business (couriermail.com.au, 2018).
Code of Ethics
APES 110: APES 110 Code of Ethics for Professional Accountants is an important
document for the accounting professionals as it deliver the professional with the needed code of
ethics that need to be adhered to by the accounting professionals. APES 110 states that the
accounting professionals are needed to adhere to five major codes of ethics (apesb.org.au, 2018).
The first code of ethic is Integrity and this code states that the accounting professionals need
to be honest and straightforward in their professional and business relationship. The next code of
conduct is Objectivity and this code of conduct states that that the accounting professionals should
not be bias and there needs not be any influence and conflict of interest in the professional judgment.
The next code of conduct as per APES 110 is Professional Competence and Due Care and this code
of conduct states that there is a need for the accounting professionals for the maintenance of needed
skills and professional knowledge with the aim to ensure effective delivery of the professional
services. As per APES 110, the next code of ethics is Confidentiality and this code of ethics shows
that it is the restriction on the accounting professionals for not disclosing the confidential business
information of their clients to any third party. According to APES 110, the last code of ethics is
Professional Behaviour and this code of ethics tells that it is the top requirement for the accounting
professionals to comply with all the needed laws and regulations (Athanasiou, 2014).
Corporate Governance Issues
It needs to be mentioned that there are certain corporate governance issues that contributed
towards the liquidation of these companies. For the liquidation of HIH Insurance, there was not any
approval from the Board of Directors of the company at the time of the acquisition of FAI Insurance.
Thus, lack of governance can be seen in this aspect (Velnampy, 2013). After that, the decision of the
company to enter into the film business did not work for the company and it was due to the lack of
governance. As a part of the unethical business practices, the management of HIH Insurance did not
provide enough attention to main the required due diligence. Apart from this, the management of HIH
Insurance issued wrong business prospectus without including the material issues of the company.
Lastly, the involvement of the company could be seen in the process of profit overstatement. The lack
of effective corporate governance led to the occurrence of these unethical business practices.
However, in case of both ABA and Stellar Homes, lack of corporate governance did not have any part
to play in the liquidation or collapse of these companies as certain different reasons were there behind
the collapse (Bushee, Carter and Gerakos, 2013).

5FINANCIAL ACCOUNTING
Types of Liquidation
On August 27, 2001, the court passed the order to HIH Insurance to go into the process of
liquidation after taking into account the review and assessment of the company’s financial statements
by KPMG. For this reason, it can be said that the nature of the liquidation of HIH Insurance is Court
Liquidation (Castro 2015). However, the situation is different in case of Stellar Homes and ABA as
both of these companies went into Voluntary Liquidation. It can be seen in the case of these
companies that the liquidation order was placed as per the regulation of paragraph 446A(1)(a) under
the special resolution of s491. In this context, it needs to be mentioned that voluntary liquidation
involves in the closure of the business by the management in the presence of accrued reserves. It
involves the full payment to the creditors (insolvencynotices.asic.gov.au, 2018).
Role of Liabilities
Many companies have been liquidated due to the increased amount of business liabilities. In
case of HIH Insurance, the balance sheet of the company shoed the presence of high amount of debt
due to the highly leveraged nature of the business as the main finances of the company came from
term loans from banks and other institutes (Haldane, 2015). At the same time, due to the acquisition
of FAI Insurance, the company had to take massive debts to afford the acquisition that is $300 million,
but the original market value of the deal was $100 million. There is not any exception of this fact in
case of Stellar Homes due to the fact that the owners of the incomplete homes owed more than $1.5
million from the company. More specifically, Stellar Homes owed $1.5 million and $3.5 million from the
unsecured and secured creditors respectively. In addition, the company did not finalize the entitlement
of the staffs (Edward Pickering, 2015). However, the absence of any role of liabilities can be seen in
case of the liquidation of ABA.
Conclusion
It can be seen from the above discussion that different incidents led to the collapse and
liquidation of the above-discussed companies. For example, wrong decision of the management along
with ineffective corporate governance mechanism was the reason for the collapse of HIH Insurance
where natural reasons like economic downturn and fire were the reasons for the collapse of Stellar
Homes and ABA respectively. The above discussion also shows that the increased amount of debts
for HIH Insurance as well as Stellar Homes was crucial factors for the collapse of these companies. At
the same time, it can also be seen that HIH Insurance liquidated under the order of the court where
other two companies liquidated on the voluntary basis.

6FINANCIAL ACCOUNTING
References
Aluminium Boats Australia | Shipbuilders Brisbane, Australia. 2018. Aluminium Boats Australia |
Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-global.com/ [Accessed 22 Dec.
2018].
Apesb.org.au. (2018). APES 110 Code of Ethics for Professional Accountants. [online] Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 22 Dec.
2018].
Athanasiou, A., 2014. Avoiding client persuasion. Taxation in Australia, 48(10), p.601.
Bushee, B.J., Carter, M.E. and Gerakos, J., 2013. Institutional investor preferences for corporate
governance mechanisms. Journal of Management Accounting Research, 26(2), pp.123-149.
Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate collapse,
accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical
Perspectives on Accounting, 25(6), pp.446-468.
Castro, L.F., 2015. Limitation of Net Operating Losses to Offset Taxable Income upon Liquidation of
Brazilian Companies: Recent Jurisprudence and Practical Issues. Int'l Tax J., 41, p.39.
Couriermail.com.au. 2014. Fire helps sink Brisbane boat builder. [online] Available at:
https://www.couriermail.com.au/business/hmas-bundaberg-fire-blamed-for-brisbanebased-aluminium-
boats-australia-going-into-voluntary-administration/news-story/ebe81d71762d198f65b28d674c4c463b
[Accessed 22 Dec. 2018].
Edward Pickering, M., 2015. Accounting firm partners to public corporation employees: An exploration
of implications and responses in a failed accounting company. Journal of Accounting & Organizational
Change, 11(1), pp.96-129.
Eidenmuller, H., 2013. A New Framework for Business Restructuring in Europe: The EU
Commission's Proposals for a Reform of the European Insolvency Regulation and Beyond. Maastricht
J. Eur. & Comp. L., 20, p.133.
Haldane, A., 2015, May. Who owns a company?. In Speech, University of Edinburgh Corporate
Finance Conference, May 22nd.
Insolvencynotices.asic.gov.au. (2018). STELLAR HOMES PTY LTD 107 791 453 | Creditors'
Voluntary Liquidation | Appointment | | Published : 12/03/2015 | ASIC Notice Details . [online]
Available at: https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/STELLAR-
HOMES-PTY-LTD-107791453/00b614e4-780a-4df8-b958-f3f48e4ee9f1 [Accessed 22 Dec. 2018].
Insolvencynotices.asic.gov.au. (2018). STELLAR HOMES PTY LTD 107 791 453 | Creditors'
Voluntary Liquidation | Appointment | | Published : 12/03/2015 | ASIC Notice Details . [online]
Available at: https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/STELLAR-
HOMES-PTY-LTD-107791453/00b614e4-780a-4df8-b958-f3f48e4ee9f1 [Accessed 22 Dec. 2018].
NewsComAu. 2014. Stellar Homes crashes down to earth. [online] Available at:
https://www.news.com.au/national/south-australia/custom-home-builder-stellar-homes-has-gone-into-
administration/news-story/a8903cbc8762cae1a67d6f43e4d27fa8 [Accessed 22 Dec. 2018].
Stellarhomes.ca. 2018. Stellar Homes - General Contractors, Residential Home Builder, Edmonton,
Spruce Grove, Stony Plain, Acreage, High-End Luxury Homes. [online] Available at:
https://www.stellarhomes.ca/ [Accessed 22 Dec. 2018].
The Sydney Morning Herald. (2001). HIH Insurance in liquidation. [online] Available at:
https://www.smh.com.au/business/hih-insurance-in-liquidation-20010316-gdfdte.html [Accessed 22
Dec. 2018].
Velnampy, T., 2013. Corporate governance and firm performance: a study of Sri Lankan
manufacturing companies.