ACC701 Financial Accounting: Corporate Failure, Ethics & Governance

This report analyzes the corporate failures of Aluminium Boats Australia, HIH Insurance, and Stellar Homes, identifying liquidation due to unmet liabilities and inadequate corporate governance. The report highlights the lack of a robust corporate governance structure as a primary cause of their downfall. It emphasizes the importance of adhering to the APES 110 Code of Ethics for Professional Accountants to build a strong corporate governance model, protecting investor interests. The analysis covers specific events leading to liquidation for each company, including the role of liabilities and corporate governance issues. The report recommends implementing a sound corporate governance model and compliance with APES code of ethics to mitigate business and fraudulent risks.

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Accounting Financial ACC701

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Executive Summary
The underlying report is developed for carrying out analysis of the corporate failure of
Aluminum Boats Australia, HIH Insurance and Stellar Homes. It has been identified through the
analysis of their corporate failure that they had undergone liquidation due to non-meeting of
liabilities as they become due. The lack of adequate corporate governance structure leads to the
downfall of these companies. In this context, it has been recommended to the company to follow
the APES code of ethics in order to develop a strong corporate governance model that helps in
protecting the interests of the investors.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Information on Liquidation within all three given companies........................................................4
Aluminium Boats Australia.........................................................................................................4
HIH Insurance..............................................................................................................................5
Stellar Homes...............................................................................................................................6
Role of APES 110 Code of Ethics for Professional Accountant in building the strong corporate
governance within the organization.................................................................................................6
Recommendation and Conclusion...................................................................................................7
References........................................................................................................................................8

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Introduction
The present report is developed for undertaking analysis of some well-renowned
companies that have undergone liquidations as they were not able to meet their liabilities as they
become due. This means that a company would have to sell its assets in order to meet its
obligations and this can result in marking the end of a company. As such, liquidation can be
described as a situation that a company faces when it becomes insolvent depicting its inability to
meet its obligations. The overall analysis in the report is carried out on the companies such as
Aluminium Boats Australia, HIH Insurance and Stellar Homes. The analysis will be conducted
in relation to the corporate governance issues that were responsible for the collapse of these
companies. In addition to this, the role of APES code of ethics developed for professional
accountants are discussed in detail in the report for explaining their importance in relation to
developing strong corporate governance structure within a company.
Information on Liquidation within all three given companies
Aluminium Boats Australia
Aluminium Boats Australia (ABA) is the famous Australian entity which was founded in
year 1999 with the aim to produce world class aluminum and ultra performance crafts. The water
vehicles produced by the Aluminium Boats Australia (ABA) are produced through using the
highest quality materials and best in class technology available in the market. Apart from
commercial ferries and leisure crafts, Aluminium Boats Australia (ABA) has been engaged in
providing the tailored solutions to commercial and private owners. Australia based company in
Brisbane was specialized in shipbuilding has collapsed and gone under voluntary administration
due to the loss of one of its navy ship vessels due to massive fire in year 2014 (ABA History,
2014). The FTI Consulting Group’s John Park and Kelly Trenfield have been appointed as the
administrator to administrate the liquidation of Aluminium Boats Australia (ABA).
The statement by the officials of Aluminium Boats Australia (ABA) said voluntary
liquidation would help them to meet the financial challenges that have occurred due to major loss
within the company. The statement by Roy Whitewood has clearly reflected that through going
under the voluntary liquidation company definitely return to the business back on track and will
gain the financial health. In this regard administrators and officials have worked to solve all the
disputes of various liabilities and will use assets to pay such liabilities. The major reason that has
caused the company to undergo voluntary liquidation was due to fire in company’s HMAS
Bundaberg that has caused destruction of one of major naval ship. It has been found by the
administrator that major contractors that have deal with the Aluminium Boats Australia (ABA)
were the Queensland Police service, Cruise Whitsunday, Mooloolaba Coast Guard and Royal
Australian Navy. It has been found that before voluntary liquidation company employs 160
employees but due to fire of the navy ship, company had been forced to remove 90 employees as
company has left with less business process to employees this much amount of workers. So it

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can be said that voluntary liquidation has major impact on employees and they are granted with
voluntary retirement (Robb, 2014).
Overall it can be said that liabilities that has aroused due to fire breakout in one of the
major naval ship is the major reason that cause the voluntary liquidation of Aluminium Boats
Australia. The liquidation was called upon by the shareholders of the company as leader has no
option left to continue the working of the company with huge liabilities to be paid. This type of
liquidation is known as voluntary liquidation and it is self imposed wind up and dissolution of
company. There are various corporate governance issues that have contributed to the voluntary
liquidation of Aluminium Boats Australia. In Aluminium Boats Australia there was
inconsistency of proper board management as no reserves have been made to meet the situations
like fire of such a big ship and other similar event. There was lack of proper management that
has caused the situation of inadequate resources, excessive expenditure and failure to meet the
commitments to the clients due to fast development of business. All these factors clearly indicate
that there was major corporate governance failure with regards to normal business procedure of
Aluminium Boats Australia (Robb, 2014).
HIH Insurance
The company was recognized as one of the largest insurance company within Australia
that has undergone liquidation in the year 2001. The collapse of the insurance company is stated
one of the biggest corporate downfall within Australia having the overall loss of about A$5.3
billion. The company has been liquidated due to its inability for managing the liabilities and thus
its shareholders have faced significant losses on their investment. The major reason responsible
for causing the downfall of the company is lack of monitoring and inadequate management of its
operations. The directors of the company were not able to carry out their duties as per the
corporation act responsible for the failure of the company as investigated by the Royal
Commission. It has been identified by the investigation that weak corporate culture has resulted
in the downfall of the HIH. The Board of the company did not have any independent directors
and also does not adequate information about the financial position of a company. This leads to
non-identification of the weak cash position of the company which led to its downfall as it was
not able to meet its liabilities on becoming due (Carson, 2010).
It can be stated from analyzing the case of corporate collapse of HIH that agency cost
problem is main corporate governance issue that is responsible for the company failure. The lack
of independence of the non-executive directors as some of them was partners in the Arthur
Andersen which is the auditor of the HIH Company. The auditing company realizes revenue of
$8 million during its auditing and as such the non-executive director has financial interest in the
operations of the company (Clarke, 2017). This resulted in causing the lack of attention towards
the reserves of the company for meeting the future insurance claims. This highlighted the weak
corporate governance structure of the company which is characterized by lack of accountability
for performance and flawed internal processes and systems as identified by the investigation of
Royal Commission. It has identified the negligence of duties on the part of its board members

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due to occurrence of conflict with their duties and protecting the interests of the company
(Muenjohn, 2018).
Stellar Homes
Stellar Homes is a high-end luxury home builder providing quality homes within
Australia. The company was established in the year 2004 and went into liquidation in the year
2014 owing debts of more than $ 5 million. The cash-flow crisis of the company has left about
38 unfinished homes across Adelaide. The company owns $3.4 million to the creditors and $1.5
million to the unsecured creditors. The continuing decrease in the home prices within the real
estate market of Australia can be attributed to be the main reason for the downfall of the
company (Waters, 2014). The drop in demand of homes combined with higher mortgage rates
has caused the decline of the real estate companies. The cash-flow crisis of the company has
incurred mainly due to difficulty faced by the builders to run their operational activities due to
struggling economy. As such, it can be said that it succumbed into pressure that the construction
companies are facing within the Australia real estate market (Evans, 2014).
The liquidation of the company has highlighted the weak corporate governance model of
the company. The company has not out into place proper risk management policies for
identifying the operational risks in advance that it can face and thus developing strategies for
overcoming them. The lack of attention on the part of the directors of the company regarding the
insufficient cash flows in future to meet its operations leads to its liquidation. As such, it can be
said that construction companies need to have a proper risk management policy to identify any
kind of operational or financial risk in advance so that they can be mitigated. This would help in
protecting the interests of the investors who had to face ultimate loss as that occurred in the case
of Stellar Homes (Tauriello, 2014).
Role of APES 110 Code of Ethics for Professional Accountant in building the strong
corporate governance within the organization
According to the information gained from issues that have caused liquidation within all
three companies it can be said that there is requirement by professional to follow code of ethics
as provided in APES 110. The accountancy profession requires professional to act in the public
interest and also safeguards the interest of stakeholders so that company will remain going
concern and must follow all the corporate governance. There are five major codes of ethics that
every professional accountant must follow are as follows:
 Integrity: It is most important code of ethics that imposes an obligation on all
professional to remain straight forward and honest while delivering their services and
while building the business relationship. It means there is requirement of fair dealing and
truthfulness as per the integrity principle code of ethics.

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 Objectivity: As per this code of ethics there is an obligation on all members that they do
not have to compromise their professional and business judgment on the ground of
biasness, undue influence and conflict of interest.
 Professional Competence and due care: This code of ethics requires professional to
pursue professional knowledge and skill at the required level in order to ensure that
clients and stakeholders receive professional judgments and information. This ethics also
requires by the professional to follow all the technical and professional standards while
performing their duties and following the activities.
 Confidentiality: As per this code of ethics professional are restricted to disclose the
business information outside the firm without taking the special permission from the
specific authority.
 Profession Behavior: This ethics requires professional to comply with relevant laws and
regulations and avoid any conduct that is unprofessional (APESB, 2017).
Recommendation and Conclusion
It is recommended to the business firms on the basis of overall analysis that they need to
develop and implement a sound corporate governance model for protecting the interest of their
investors. The presence of a strong corporate governance model indicates that a company has
maintained strong internal process and systems for identifying any type of fraudulent or business
risk in advance. This helps in their early detection and thus developing consecutive strategies for
overcoming any type of weakness in its internal processes or systems. It has been analyzed from
the corporate governance practices of the companies such as Aluminum Boats, Stellar Homes
and HIH Insurance that they were having flawed corporate governance practices.
This resulted in increasing the internal risk of the companies that subsequently lead to their
downfall. The development of strong corporate governance model requires compliance with all
the APES code of ethics that are integrity, objectivity, professional competence, confidentiality
and professional behavior on the part of the professional accountants. These code of ethics need
to be strongly complied by the board of directors of a company in developing a strong corporate
culture. The compliance of the accountants with this code of ethics would helps in minimizing
the chances of corporate collapse by enhancing the transparency and integrity within company
operations.

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References
ABA History. 2014. Aluminium Boats Australia. [Online]. Available at: https://www.aba-
global.com/home-abas-mission-history [Accessed on: 18 January 2019].
APESB. 2017. Compiled APES 110 Code of Ethics for Professional Accountants. [Online].
Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/20092017153656_Compiled_APE
S_110_Sept17.pdf [Accessed on: 18 January 2019].
Carson, V. 2010. Brad Cooper, last of the HIH three, free today. [Online]. Available at:
https://www.smh.com.au/business/brad-cooper-last-of-the-hih-three-free-today-20101029-
177m2.html [Accessed on: 18 January 2019].
Clarke, T. 2017. International Corporate Governance: A Comparative Approach. Taylor &
Francis.
Evans, S. 2014. Rivals flock to half-built homes after Stellar fails. [Online]. Available at:
https://www.afr.com/business/construction/rivals-flock-to-half-built-homes-after-stellar-fails-
20141105-11h54t [Accessed on: 18 January 2019].
Muenjohn, N. 2018. Leadership. Cambridge University Press.
Robb, K. 2014. Shipbuilder collapses into administration after fire. [Online]. Available at:
https://www.smartcompany.com.au/finance/shipbuilder-collapses-into-administration-after-fire/
[Accessed on: 18 January 2019].
Tauriello, G. 2014. Custom home builder Stellar Homes has gone into administration. [Online].
Available at: https://www.adelaidenow.com.au/business/sa-business-journal/custom-home-
builder-stellar-homes-has-gone-into-administration/news-story/
a8903cbc8762cae1a67d6f43e4d27fa8 [Accessed on: 18 January 2019].
Waters, C. 2014. Construction company collapses owing $5 million. [Online]. Available at:
https://www.smartcompany.com.au/finance/construction-company-collapses-owing-5-million/
[Accessed on: 18 January 2019].