ACC701 Analysis: Liquidation of Stellar Homes, HIH & ABA in Detail

This report provides an in-depth analysis of the liquidation of Stellar Homes, HIH Insurance, and Aluminium Boats Australia (ABA), examining the events that led to their financial collapse. It discusses the reasons for liquidation, including decreased sales and cash flow crises for Stellar Homes, poor investment decisions and natural disasters for HIH Insurance, and a fire incident for ABA. The report also explores the APES 110 Code of Ethics for Professional Accountants, highlighting five key ethical codes, and identifies corporate governance issues that contributed to the downfall of HIH Insurance. Furthermore, it classifies the types of liquidation for each company, distinguishing between court liquidation for HIH Insurance and voluntary liquidation for Stellar Homes and ABA, and assesses the role of liabilities as a major contributing factor to their downfall.

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

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Executive Summary
The aim of this report is to conduct a discussion on the reasons as well as circumstances that
contributed towards the liquidation of Stellar Homes, HIH Insurance and Aluminium Boats
Australia (ABA). This report also discusses about the Code of Ethics of APES 110 in relation
to the behaviour of the managements of the companies. It puts focus on the role of liabilities
to the collapse of these companies along with the types of liquidation.

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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.........................................................................................................................4
Aluminium Boats Australia (ABA)........................................................................................4
Code of Ethics............................................................................................................................4
Corporate Governance Issues.....................................................................................................5
Types of Liquidation..................................................................................................................5
Role of Liabilities.......................................................................................................................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
The presence of many large companies can be seen in Australia that went to
liquidation due to certain reasons and circumstances. The process of liquidation is also
considered as the process to wind up the businesses where the liquidators have the
responsibility to conduct the whole liquidation process. In the recent years, Australia has
witnessed the collapse or liquidation of some of their large business corporations; and three
of them are the liquidation of Stellar Homes, HIH Insurance and Aluminium Boats Australia
(ABA). The intention of this report is to conduct a discussion on the reasons as well as
circumstances that contributed towards the liquidation of these three Australian companies.
At the same time, this report also considers to shed light on the other aspects like the
corporate governance as well as ethical issues for the liquidation of these companies, types of
their liquidation and the role of liabilities in their liquidation.
Company Background
Stellar Homes
Stellar Homes used to be a leading company based on Florida having business
operations in the real estate development industry. Stellar Homes took some major initiatives
for the reshaping of Miami-Dade, Broward countries and Palm Beach in the presence of the
environment friendly and healthy communities. At the same time, the company was majorly
involved in investing in the real estate business along with the residential sector. It was the
aim of the business operations of Stellar Homes to consider the impact of their business
operations on the community as well as environment (stellarhomes.ca, 2019).
HIH Insurance
HIH Insurance was regarded as the largest insurance company in Australia before
their liquidation occurred. The company was established in the year of 1968 and they had
their business operations in the regions of Australia in the initial periods of establishment.
However, during the years 1997 to 1998, HIH Insurance made their business expansion in the
foreign soil. At the same time, the company got enlisted in the Australian Securities
Exchange (ASX). It needs to be mentioned that a significant portion of the business of HIH
Insurance was acquired by a company from Switzerland (hih.com.au, 2018).
Aluminium Boats Australia (ABA)
ABA was also regarded as one of the major business organizations in Australia. The
company was established in the year of 1999. It was the aim of ABA to deliver high
performance and quality products to all of their customers. In Australia, the involvement of
the company could be seen to deliver multi-disciplinary shipyard and to provide their
customers with the needed technical support for their products. Hence, it can be said that the
company had speciality in delivering high performance commercial boats and luxury vessels
to their customers with the help of advanced aluminium construction. ABA was also a
specialist to provide some of their premium customers with complete solution of their
products and services (aba-global.com, 2019).
Reasons for Liquidation
Stellar Homes
In Australia, the liquidation of Stellar Homes is a significant case of business
liquidation that attracted many attentions. The commencement of the process of liquidation of
Stellar Homes can be seen from 20th October, 2014; and the responsible personnel for
conducting the whole liquidation process of the company were PI Macks and IW Burdform
from the Macks Advisory (insolvencynotices.asic.gov.au, 2019). According to the report of

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these two liquidators on Stellar Homes, there was major decrease in the volume of sales of
the company and the company had to face major cash flow crisis due to this decline in sales.
For this reason, the long-standing reputation of Stellar Homes was affected as the company
constructed more than 500 homes in the last 10 years. The analysis of both the liquidators
heighted the fact that there was major economic downturn in South Australia and it restricted
the ability of Stellar Homes for generating high level of revenue and the cash flows of the
company were affected majorly. This unexpected collapse of Stellar Homes contributes to
large number of unfinished business contracts by the company. The assessment of the
administrators states that 36 housed were unfinished at the time of the company’s liquidation.
Stellar Homes is ready to refinance them through the liquidation process (news.com.au,
2019).
HIH Insurance
Some major wrong decisions could be held responsible for HIH Insurance’s collapse.
HIH Insurance made a huge investment for acquiring FAI Insurance and this large investment
was not profitable for the company. It could also be seen that HIH Insurance did take the
decision for investing in the film industry and the failure of this particular project did cost
HIH Insurance more than hundred of dollars as major business loss (smh.com.au, 2019). In
addition, the occurrence of the natural disaster in Florida hugely contributed towards the
collapse of the company as this natural calamity led to huge amount of business debt for the
company. Inability of the company to repay this debt pushed the company one step closer to
liquidation. Fraud and manipulation in the company’s accounting policies was a major
contributor for their collapse as the company introduced wrong accounting policies for the
pay structure of the employees of California. In this context, it needs to be mentioned that all
these above-mentioned incidents created a loss of more than $800 million for HIH Insurance
and it was never possible for HIH Insurance to recover this huge amount of business loss
(aph.gov.au, 2019).
Aluminium Boats Australia (ABA)
The liquidation of ABA is another surprise in the business society of Australia and it
is believed that the major reason for the liquidation of this firm was the file that cost the
company in losing major navy vessel. The liquidation process of ABA started on 4th
November, 2014 and personnel responsible for conducting the liquidation process were John
Park and Anne Trenfield from FTI Consulting. According to the assessment report of these
two administrators, the fire in the HMAS Bundaberg was the main reason for the liquidation
of the company as it contributed towards major loss for the company (couriermail.com.au,
2019). Due to this, the management of ABA removed their employees from the respective
positions. In addition, due to the fire in the navy vessel, the company lost the patron boat of
Australian Navy worth $45 million. This fire put some major negative impact on ABA like
the company lost the contract for providing services and maintenance to the Australian Navy.
It is believed that it was an unexpected incident for the management of ABA as they were
expecting good financial performance of the company in coming years and they were
planning for the further expansion of ABA in different regions.
Code of Ethics
To the accounting professionals, APES 110: APES 110 Code of Ethics for
Professional Accountants can be considered as a crucial article as the accounting
professionals can access the required standards and principles from this that they need to
comply with. There are five ethical codes in this article that is crucial for the professionals
(apesb.org.au, 2019).

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Integrity is considered as the first ethical code and it puts the commitment on the
accounting professionals to be honest and straightforward in the business and profession.
Objectivity is the net code of ethics and this code states that there must not be any unfairness
in the accounting professionals that may lead to undue influence and conflict of interest in
professional judgement. Professional Competence and Due Care is regarded as the next
code of ethics in APES 110 and this particular code states that the accounting professionals
are required to maintain the required professional skills and competence for the delivery of
effective professional services (Han Fan, Woodbine and Cheng, 2013). After that,
Confidentiality is regarded as the next code of ethics under APES 110 and this code puts the
ban on the accounting professionals of not disclosing any confidential and important business
information of the clients obtained at the time of providing professional services to any
outsider in the absence of proper approval. The last code of ethics in APES 110 is
Professional Behaviour and it indicates towards the major requirement of the accounting
professionals to adhere to all the regulations and standards at the time of providing the
professional services (Martinov-Bennie and Mladenovic, 2015).
Corporate Governance Issues
Most of the times, issues related to corporate governance can lead a company towards
unwanted liquidation. It can be seen in the case of HIH Insurance that the company did not
obtain the required sanction from their Board for the acquisition of FAI Insurance. It shows
lack of integrity, objectivity and professional behaviour. In addition, inefficient corporate
governance made the company able to make the improper business decision to invest into the
firm business (Tricker and Tricker, 2015). Unethical behaviour can be seen from the
management of HIH Insurance as they did not feel it necessary to pt attention in the
maintenance of required due diligence of business. Due to the absence of effective corporate
governance system, the management of HIH Insurance went on issuing wrong business
prospectus that were missing the material business aspects of the company. In addition, the
management and auditors of the company were involved in the overstatement of profit. It
needs to be mentioned that ineffective corporate governance practice was one major reason
for the collapse of HIH Insurance. However, in case of the collapses of both Stellar Homes
and ABA, the reasons that led to the liquidation did not have anything to do with ineffective
corporate governance (Todorovic, 2013).
Types of Liquidation
It can be seen that the court provided the order for initiating the process of liquidation
of HIH Insurance on 27th August, 2001 and the responsibility was on KPMG for the review of
the financial statements of the company. It indicates towards the fact that the nature of
liquidation of HIH Insurance was Court Liquidation where the company is liquidated after
the court’s verdict (Byrne and Shepherd, 2015).
Different scenario can be seen for Stellar Homes and ABA as the occurrence of
voluntary liquidation could be seen for these two companies. It could be noticed in case of
both these companies that the order for liquidation was given according to the regulation of
paragraph 446A(1)(a) under the special resolution of s491. Voluntary liquidation is
considered as the liquidation when the management of the company closes the business on
intended basis and accurate reserves are there to pay off the obligations of the creditors and
other lenders (Carpinelli et al., 2017).
Role of Liabilities
Increased amount of liabilities has been a major reason behind the liquidation of the
companies and the same can be seen for HIH Insurance. HIH Insurance was highly leveraged

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as there was the presence of high amount of debts in the company’s balance sheet due to the
fact that the majority portion of financing used to come from term debts. HIH Insurance
acquired FAI Insurance for $300 million where the actual cost of the deal was $100 million
and it affected the debt position of the company (treasury.gov.au, 2019). In case of Stellar
Homes, it could be seen that the company had a debt of $1.5 million to the owners of the
unfinished homes. At the same time, the amount of secured and unsecured loans of the
company was $1.5 million and $3.5 million respectively. However, it needs to be mentioned
that liabilities did not play any role in the liquidation of ABA.
Conclusion
The above discussion indicates towards the fact that certain reasons and
circumstances have contributed towards the collapse of these three companies. In addition, it
also shows that the companies are needed to comply with the ethical code of conducts of
APES 110 at the time of business operations. HIH Insurance collapsed due to wrong business
decisions, ineffective corporate governance and increased debts. Decrease in sales due to bad
economic condition was the reason for the liquidation of Stellar Homes and fire in the navy
boat was the reason for the liquidation of ABA. It can also be seen from the above discussion
that the business executives of the companies are needed to comply with the required ethical
code of conduct and need to incorporate the required corporate governance mechanism.

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References
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