Financial Accounting Report: HIH, Stellar, ABA Liquidation Analysis

This report meticulously analyzes the liquidations of three Australian companies: HIH Insurance, Stellar Homes, and Aluminium Boats Australia (ABA). It begins by providing background information on each company, followed by an in-depth examination of the factors that led to their respective collapses, including risky investments, accounting policy failures, and economic downturns. The report then delves into the corporate governance issues that exacerbated the financial troubles, such as lack of approval for acquisitions and unethical business practices. Furthermore, it explores the different types of liquidation each company underwent, distinguishing between court-ordered and voluntary liquidation processes. The role of liabilities, including high debt levels and unpaid obligations, is also assessed as a major contributing factor to the downfall of these companies. The report concludes with a comprehensive overview of the ethical codes, corporate governance problems, liquidation types, and liability issues that led to their downfall, providing a valuable insight into financial failures.

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

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Executive Summary
The aim of this report is the analysis of the reasons of the liquidation of three Australian companies;
they are HIH Insurance, Stellar Homes and Aluminium Boats Australia (ABA). This report provides
description of these three companies. After that, this report involves in identifying the reasons for the
collapse of these three companies. After that, this report shows the corporate governance issues in
these three companies. Lastly, this report shows the role of liabilities in the collapse of these
companies.

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Table of Contents
Introduction............................................................................................................................................ 3
Company Background........................................................................................................................... 3
Reasons for Liquidation......................................................................................................................... 3
Code of Ethics....................................................................................................................................... 4
Corporate Governance Issues............................................................................................................... 4
Types of Liquidation............................................................................................................................... 4
Role of Liabilities.................................................................................................................................... 5
Conclusion............................................................................................................................................. 5
References............................................................................................................................................ 6

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Introduction
In the recent years, it can be seen that many renowned business organizations had to go into
liquidation in the presence of various reasons. The liquidation process of the companies is also
considered as the winding up process. It is needed for the business organizations to go through
different steps under the liquidation process (Coad 2014). More specifically, a person is responsible
for conducting the liquidation process of the company and the person is called the Liquidator. The
main responsibility of the liquidators is to recognize the main assets of the companies along with the
liabilities and claim of the creditors so that they can be settled down in the proper manner. The main
aim of this report is the analysis and evaluation of various dimensions of the liquidation of three
famous companies; they are HIH Insurance, Stellar House and Aluminium Boats Australia. More
specifically, this report takes into consideration the identification as well as analysis of the major
reasons that led to the liquidation of these three companies.
Company Background
HIH Insurance: HIH Insurance was regarded as the largest insurance company in Australia and the
presence of this company’s operation could be seen in different regions of Australia. Between the
years 1997 to 1998, the company made major global expansion. The company was enlisted in
Australian Securities Exchange (ASX). HIH Insurance sold one major portion of their business to a
company of Switzerland. Due to some of the specific reasons, the company went to liquidation and
the company had to incur a loss of $5.3 billion in the process of liquidation (Carnegie and O’Connell,
2014).
Stellar Homes: Stellar Homes was one of the leading South Florida-based real estate development
company. The company reshaped Miami-Dade, Broward and Palm Beach countries with stellar
quality, environment friendly and healthy communities. Since the year 2009, Stellar Homes has been
investing in the residential as well as real estate sectors. The main aim of the company could be seen
in considering as well as analysing impact of each of their project on the community as well as on the
environment. The company was well recognized all over the world for their ongoing passion as well as
dedication for maintaining a Florida Green standard throughout their communities (stellarhomes.ca,
2018).
Aluminium Boats Australia (ABA): ABA was considered as one of the largest multi-disciplinary
shipyard delivering new constructions, refit, repair, support and technical advice to the highest of
international standards, quality, safety and efficiency. Speciality of the company can be seen in high
performance commercial, military and luxury vessels in advanced composites and aluminium
constructions. In addition, the company delivers a complete solution to some of their largest operators
in the country. The company was founded in the year 1999 and the mission of the company was the
delivery of quality as well as performance every time. ABA has developed a reputation to exceed
specification and expectations on their every project (aba-global.com, 2018).
Reasons for Liquidation
HIH Insurance: Certain reasons led to collapse of HIH Insurance. In order to acquire FAI Insurance,
the management of the company invested a large amount that was risky for the insurance companies.
This wrong decision was one of the reasons for the collapse of HIH Insurance. After that, the
company decided to invest into the business to finance the films and due to this decision, the
company had to incur a loss of more than hundred million dollars. In addition, the natural calamity of
Florida can also be regarded as one of the major reasons for the collapse of this company as this
natural calamity led to huge amount of debts to the company (Junaid, 2013). This huge amount of
debt contributed towards a major loss for the company. The presence of faults in the accounting
policies is another major reason for the collapse of HIH Insurance. For the employees of California,
the company changed the accounting policies for payment to the employees and the failure in the
change of accounting policies did not work for HIH Insurance and led to liquidation. At the time of the
liquidation process, it was seen that the company did incur a loss of $800 million within six months in
the presence of various reasons like change in accounting policies, quick business expansion and
others. The combination of all these reasons led to the liquidation of HIH Insurance (smh.com.au,
2018).
Stellar Homes: Another major case of liquidation is the liquidation of stellar Homes Pty Ltd (stellar
Homes). The company was placed into administration on 20th October 2014; and the administrators
are PI Macks and IW Burford of Macks Advisory. According to the investigation of these

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administrators, the main reason for the collapse of stellar Homes was the massive decline in sales
that contributed to major cash flow issues. In this context, it needs to be mentioned that the company
constructed over 500 homes throughout Adelaide in the past ten years. The administrators mentioned
that the difficult economic condition of South Australia contributed towards the decline in the sales of
the company that resulted in cash flow issues. The unexpected collapse of the company left the trail
of many incomplete homes across Adelaide. Moreover, according to the reports of the administrators,
there are 36 homes in different stages of being incomplete. As a part of the jobs, the administrators
have made an assessment of the victims so that they can be refinanced with the aim to complete their
house (news.com.au, 2018).
Aluminium Boats Australia (ABA): On 4th November 2014, ABA went into voluntary liquidation after
losing one of their navy vessels. The appointed administrators for the liquidation process are Kelly-
Anne Trenfield and John Park from FTI Consulting. According to the report of the liquidators, the main
reason for the liquidation of the company was the fire that demolished their HMAS Bundaberg in the
month of August. It needs to be mentioned that all the employees of the company were removed from
their positions. The fire destroyed a $45 million Australian Navy patrol boat and it has been regarded
as one of the major reasons for the collapse of the company. Due to the effect of this fire, ABA lost
their contract of providing services and maintenance to the Australian Navy vessels and it also led to
a job cut of 90. After that, the administrators sacked another 70 staffs at the time of the assessment of
the whole situation. In this context, it needs to be mentioned that the management of the company
was expecting good performance of the company in the same year as they were planning for 25 per
cent increase in the staffs of the company (couriermail.com.au, 2018).
Code of Ethics
APES 110: APES 110 Code of Ethics for Professional Accountants is considered as a
crucial document for the professionals due to the fact that it provides the needed ethical code of
conduct that the professional are needed to comply with. According to APES 110, there are five
ethical codes that need to be adhered to (Martinov-Bennie and Mladenovic, 2015). Integrity is the
first ethical code that puts the obligation on the professionals to be straightforward and honest in all of
their business and professional relationship. Objectivity is the next ethical code and it puts the
obligation on the accounting professionals not to be bias and there should not be any conflict of
interest as well as influence in the professional judgements. Professional Competence and Due
Care is considered as the third ethical code and it states that the professional are needed to maintain
required skills and professional knowledge for ensuring effective delivery of competent professional
services on the basis of the recent developments in accounting profession (apesb.org.au, 2018).
Confidentiality is the fourth ethical code and this code states that the professional are restricted to
disclose the confidential business information of their clients to any third party in the absence of the
consent of the clients. Professional Behaviour is the last ethical code and it states that the
professionals are needed to adhere to the required laws and regulations in order to avoid professional
misconduct (apesb.org.au, 2018).
Corporate Governance Issues
The presence of certain corporate governance related issues can be seen in the collapse of
these three companies. In case of HIH Insurance, the management of HIH Insurance did not obtain
the required approval prior to the acquisition of FAI Insurance. It shows the presence of lack of
corporate governance (Armstrong et al., 2015). At the same time, there was a poor decision from the
company to enter into the film industry. In addition, the involvement of the company can be seen in
the unethical business practice as they did not pay attention in maintaining due diligence as well as
ethical business practices. Apart from this, the management of HIH Insurance was involved in
unethical business activities as they issued improper business prospectus that involved material
omissions; and they were also involved in the overstatement of profit (Tricker and Tricker, 2015).
In this context, it also needs to be mentioned that there is not any issued related to corporate
governance in the collapse of Stellar Homes and ABA as they were collapsed due to natural reasons.
Bad economic condition of South Australia led to the decrease in sales and cash flow related issues in
Stellar Homes where fire in HMAS was the reason for the collapse of ABA.
Types of Liquidation
In case of HIH Insurance, on 27th August 2001, the court placed order to HIH Insurance to go
into official liquidation after the understating review of the financial statements of the company by

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KPMG, the auditors. Thus, the liquidation of HIH Insurance is the court liquidation (Bauer and
Toborek-Mazur, 2014).
In both the cases of Stellar Homes and ABA, the type of liquidation was voluntary liquidation.
In the cases of both of these companies, the liquidation permission was passed with accordance to
paragraph 446A(1)(a) special resolution under s491 (insolvencynotices.asic.gov.au 2018). Under the
process of voluntary liquidation, the directors of the companies closes the companies with
accumulated reserves. Thus, the creditors are needed to be paid full and the remaining funds need to
be transferred to the directors (insolvencynotices.asic.gov.au 2018).
Role of Liabilities
Increasing amount of liabilities is considered as one of the major reasons for the collapse of
the companies. It can be seen in case of HIH Insurance that that management of the company had to
face high amount of debts as the company was highly leveraged in the presence of term loans from
banks and other financial institutes. Apart from this, the company incurred high amount of debt at the
time of the acquisition of FAI Insurance for an amount of $300 million while the actual price was $100
million.
Same kind of situation can be seen in case of Stellar Homes as the owners of the unfinished
homes owed almost $1.5 million from the company. According to the calculations of the administrator,
the company owed over $3.4 million to the secured creditors and $1.5 million to the unsecured
creditors; and the staffs entitlements were nor finalized. There was not any significance role of
liabilities in case of the collapse of ABA.
Conclusion
The above discussion indicates towards the fact that some specific reasons have contributed
towards the liquidation of these three companies. In case of HIH Insurance, manmade reasons are
responsible for the collapse of the company such as wrong management’s decision, investment into
wrong business, manipulation in accounting policies and others. However, manmade reasons cannot
be held responsible for the collapse of other two companies; they are Stellar Homes and ABA. The
reasons are decline in sales due to economic downturn and fire in the facility. In case of the collapse
of HIH Insurance, ineffective corporate governance can be considered as another reason for the
collapse of the company. However, there is not ant corporate governance issues in the collapse of
Stellar Homes and ABA. Lastly, increasing amount of liabilities can be seen in the cases of HIH
insurance and Stellar Homes as these liabilities were reasons for the collapse of these two
companies.

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