Reasons for Winding Up: HIH Insurance, One Tel Phone, ABC Learning

This report provides an in-depth analysis of the winding up of three Australia-based companies: HIH Insurance, One Tel Phone, and ABC Learning. The report's primary objectives are to identify the factors contributing to the liquidation of these companies, including financial mismanagement, risky business ventures, and poor corporate governance. It explores the ethical and governance issues related to the liquidation, such as violations of business ethics, non-compliance with corporate governance principles, and the role of liabilities in each company's demise. The report examines the specific reasons for the liquidation of each company, including HIH Insurance's risky acquisitions and exposure to natural disasters, One Tel Phone's financial mismanagement and incorrect accounting practices, and ABC Learning's issues with service quality and expansion. The report concludes with recommendations for improved management practices and the importance of sound financial and ethical conduct in the corporate world. The study emphasizes the need for companies to operate effectively and efficiently to avoid failure.

WINDING UP OF AUSTRALIA BASED COMPANIES
HIH INSURANCE, ONE TEL PHONE AND ABC LEARNING
2017
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EXECUTIVE SUMMARY
The winding up of the companies has been seen as the general phenomena across the globe and
under the major industry like banking industry, insurance industry, telecom industry and others.
The winding up of the companies has not occurred promptly but has been seen as the slow
poison which has cleaned the entire company over its life. The first objective of this report is to
discuss as to what are the factors which have contributed towards the liquidation of the
companies. The second objective of the report is to ascertain the ethics and governance related to
the liquidation and how the liabilities have been the major cause of liquidation. The study has
been presented in different headings and sub headings.
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Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................4
REASONS FOR WINDING UP OF THE COMPANY..........................................................................................5
FIRST COMPANY - HIH INSURANCE..........................................................................................................5
SECOND COMPANY –ONE TEL PHONE.....................................................................................................5
THIRD COMPANY – ABC LEARNING.........................................................................................................5
ETHICS AND GOVENRANCE..........................................................................................................................6
FIRST COMPANY - HIH INSURANCE..........................................................................................................6
SECOND COMPANY – ONE TEL PHONE....................................................................................................7
THIRD COMPANY - ABC LEARNING..........................................................................................................7
ROLE OF LIABILITIES.....................................................................................................................................7
RECOMMENDATION....................................................................................................................................8
CONCLUSION...............................................................................................................................................8
REFERENCES................................................................................................................................................8
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INTRODUCTION
The company is required to perform in the market in such a manner that the stakeholders can
have a view that the company is going concern and will continue for future years. But there have
been the cases where the companies have ended up with either liquidation or winding up or for
receivership and etc. In order to start the report, three companies have been selected and all are
based in Australia and listed in Australia Stock Exchange. First company is HIH Insurance,
second company is One Tel Phone and the third company is ABC Learning. In the report, the
reasons for the liquidation of the aforesaid companies and the financial stress that these
companies have come across over the years have been discussed along with the financial
liabilities.
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REASONS FOR WINDING UP OF THE COMPANY
FIRST COMPANY - HIH INSURANCE
The company is in the insurance sector. The major event that has brought the company to
liquidation is the areas in which the company has entered. With the acquisition of the FAI
Insurance company, the company has entered into the main risky business and lead to the major
damages. Other reason is the area of film financing in which the company has stepped its shoes
with the indication that the profit will come instead loss has been generated (O’Brien,2008; Mak,
Deo and Cooper, 2005 and Mirshekary, Yaftian, and Cross, 2005). The third reason is beginning
of insuring for the damages suffered due to any kind of natural disasters which has resulted in
loss which is suffered from the typhoon held at Florida.
SECOND COMPANY –ONE TEL PHONE
The most important reason for the winding up of the company is the irresponsibleness of the
management of the company on the part of finance function. The company has been in the
practice of accounting of the high income in the current reporting period and accounting the
related expense in the future year (Reza, 2011). By following the said practice the company’s
reported net income is higher in the nearer years and is lesser in the future years.
The second reason that has been noticed from the annual report of the company is that the
company is in the urge of paying higher remuneration to the key managerial personnel despite of
the fact that the company is running in losses on quarterly basis. The third reason that has been
observed is the incorrect business practice as the company is selling the products on installment
basis of seven months whereas the company is purchasing the product on immediate basis. This
shows that the company’s liquid position has already entered into worst situation..
THIRD COMPANY – ABC LEARNING
The first reason that has been observed is the incorrect treatment of Licenses and the like
intangibles. The company has followed the revaluation model on yearly basis and thus
accelerating the profit on yearly basis on the corresponding to that has been charging the lesser
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impairment without any proper base. The second reason is of the incorrect estimation of the
future cash flows through which the revaluation model has been adapted. In this, the company
has used the higher cash flows for the purpose of the valuation and thus leads to overstatement of
the profits at the end of the year. The third reason is the degree of the quality of service that the
company is providing to the children at their centre. There has been the claims filed by the
parents for no taking care of their children in the diligent manner and also Government of South
Wales has formed the same opinion.
ETHICS AND GOVENRANCE
FIRST COMPANY - HIH INSURANCE
The violation of the ethics has been started with the acquisition of the FAI Insurance company
which has been so acquired at the premium. The acquisition has been made without the approval
of the board of directors of the company and also without having the proper valuation of the
business of FAI Insurance company as to whether it will be feasible and viable for the company
to enter into such business or not. The said ethics is referred to as the Business Ethics.
The second violation that has been is the non identification of the risk that the company has
encountered with the acquisition of FAI Insurance and other risky areas like marine, film
financing and natural disasters which had led the company into losses. This has been the
violation of ethics in compliance ((Lipton, 2013; Cheng and Seeger, 2012).
The violation of the corporate governance practices has been seen when the Chief Executive
Officer of the company has started the embezzlement of funds by having the accounting
transactions with the friends and relatives and involving them on the board of the company. In
case any violation has come, the same has been easily sorted out as all the members will only
work on the indications of the chief executive officer of the company. The second violation
which has been observed is that the statutory registers as prescribed by the Corporations Act,
2001 does not any mention of the offices opened at United States and United Kingdom which in
future has resulted huge losses to the company (UK Essays, 2013; Jiangbo, 2003).
.
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SECOND COMPANY – ONE TEL PHONE
The first violation of ethics has been done by following the incorrect method of accounting as
deferring expenses in future years and accounting for higher revenue in current year. The second
violation is related to the incorrect pricing strategy followed which results the company to
recover their costs in future seven months. In this the company has bifurcated its sale price in
seven installments and Due to this violation the auditors have neglected to authenticate the
financial statements and which has shown that the company has the very poor corporate
governance practices.(Avison, 2012; Brown and Caylor, 2009).
THIRD COMPANY - ABC LEARNING
The first violation that the company has made is sacrificing of the quality of service provided to
the children at the cost of employee and labor employed at the centre. This violation has led the
company image deteriorating over the year as the parents are now reluctant to send their children
there. The second violation of the ethics is the unnecessary expansion without carrying out the
due diligence of the proposed investment. These two are violation in ethics and compliance.
The other violation is of the Corporate Governance Principles as the company has failed to form
any of the committees as required by the ASX Governance Principles.
ROLE OF LIABILITIES
Liability has played the very essential role in the liquidation of the aforesaid companies. All the
companies have obtained the huge liabilities running in thousands of million Australian dollars
whether it is related to the more risky sector – insurance or the least risky sector – child care. All
the companies have faced the liquidity problem in the last period before the liquidation and all
have reported the huge losses significantly without any reliable forecasts. HIH Insurance has
faced the liabilities due to film financing sector and the natural disaster sector insurance. One Tel
Phone company faced the liabilities due to the huge losses and wrong estimation of the acquired
licenses and the last company has faced the liabilities due to low quality child care services and
unnecessary huge expansion despite of knowing the fact that the government has allowed both
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types of entities - profit making and nonprofit making for government subsidy financing. In this
way the liabilities have occurred and have been one of the reasons of the liquidation.
RECOMMENDATION
As per the above analysis, the management of the company shall look after all the policies,
procedures and working of the company and the company shall take each business decision in an
effective and efficient manner keeping in view the totality of the business.
CONCLUSION
The corporate world has been strongly beaten by the liquidation of the major companies across
the Globe. The companies include – HIH Insurance, One Tel Phone Company, ABC Learning
and most commonly known Lehman Brothers. In all the companies, the two major broad
categories have been found under which the reasons for liquidation of the companies have reside.
One is irregular accounting procedure and reporting and second one is the poor corporate
governance practices. These have created the lessons for the other companies which are trying to
enter into the particular industry. The study has been the exhaustive and the main conclusion that
has been drawn from the study is that the company shall work properly and effectively so that
the chance of any kind of failure either on the part of the company or on the part of the
employees of the company does not arise.
REFERENCES
Avison, D. (2012): “IT Failure and the Collapse of One.Tel” in Traunmuller, R. (ed.):
Information Systems: The e-Business Challenge, Kluwer, pp 31-46.
Brown, L. and Caylor, M., 2009, ‘Corporate Governance and Firm Operating Performance’,
Review of Quantitative Finance and Accounting, 32, 2: 133-144.
Cheng S and Seeger M, (2012), “Lessons Learned from Organizational Crisis; Business Ethics
and Corporate Communication”, International Journal of Business Management, Vol. 7, No. 12,
74-86
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Jiangbo X, (2003), “HIH Insurance Limited: Corporate Governance and Corporate Excesses”,
available at http://www.seiofbluemountain.com/upload /product/201010/2010jjfzh05a8.pdf
accessed on 11/09/2017.
Lipton P, (2013), “The Demise of HIH : Corporate Governance Lessons”, EY Journal, 27th, 273-
277.
Mak, T., Deo, H. and Cooper, K. 2005, ‘Australia’s Major Corporate Collapse: Health
International Holdings (HIH) Insurance ‘May the Force Be with You’, Journal of American
Academy of Business, 6, 2: 101-110.
Mirshekary, S., Yaftian, A. and Cross, D. (2005), ‘Australian Corporate Collapse: The Case of
HIH Insurance’, Journal of Financial Services Marketing, 9, 3: 249-58.
O’Brien, N. (2008), “Williams walks free today but HIH victims continue to pay the penalty”
The Australian, p. 5.
Reza M, (2011), “The One Tel Collapse: Lessons for Corporate Governance”, Journal of
Australian Accounting Review, pp 1-28
UK Essays. (2013), “Collapse Of HIH Insurance” available at:
https://www.ukessays.com/essays/business/collapse-of-hih-insurance.php?cref=1 Accessed
11/09/2017
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