Financial Accounting and Decision Making: Company Liquidation Analysis

This report delves into the intricacies of financial accounting and its role in company liquidations, focusing on the failures of HIH Insurance, One.Tel, and ABC Learning. It meticulously examines the events and circumstances that led to their downfall, including breaches of ethical codes of conduct and non-compliance with ASX listing rules. The analysis highlights key contributing factors such as unsustainable liabilities, poor management, and failures in financial transparency. The report provides a detailed examination of the code of ethics, emphasizing integrity, objectivity, professional competence, confidentiality, and professional behavior. It also outlines the importance of ASIC listing rules in ensuring business sustainability. The report concludes that a combination of financial mismanagement, ethical lapses, and regulatory non-compliance ultimately led to the liquidation of these companies. The study underscores the critical importance of sound financial practices, adherence to ethical standards, and compliance with regulatory frameworks for long-term business success.

RUNNING HEAD: Financial Accounting and decisions
Financial Accounting and liquidation

Financial Accounting and decisions 2
Executive summary
With the ramified economic changes, every organization needs to maintain liquidity
position and effective profitability throughout the time. In this report, different three companies
named HIH insurance; One Tel Company and ABC learning have been undertaken and analyzed
to determine the reasons and failure of the code of conducts and ASX listing rules which
company failed to comply and faced the destruction in the business.

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Contents
Introduction......................................................................................................................................4
Events and cases that led to liquidation...........................................................................................4
ABC Learning..................................................................................................................................4
HIH Insurance..................................................................................................................................5
One.Tel............................................................................................................................................6
Code of Ethics..................................................................................................................................6
ASIC – Listing rules........................................................................................................................8
Major contributing factor – Liabilities............................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
The liquidation is the process which brings company’s functioning to its end. It is
analyzed that when company fails to pay off its creditors and deb holders then there are two
processes which company follows first is related to voluntary winding up and compulsory
winding up process. It is analyzed that if company wants to keep its business sustainable in long
run then it will have to comply with the applicable code of conduct and ASX listing rules and
regulations. However, there are several circumstances and factors which negatively impact the
business and result to liquidation of business. The main reasons of liquidation of business are
based on the poor management, failure of payment of liabilities, unfavourable market condition
and business failure of business. These three companies have faced the liquidation of the
business due to the imbalance of assets, failure to comply with the ethical code of conducts and
listing rules. This report reflects the understanding on the ethical code of conduct, ASX listing
rules and regulation which company should have complied if it wants to keep its business more
sustainable in long run.
Events and cases that led to liquidation
There has been done case study analysis of three different companies to identify the reasons and
facts which leads to liquidation of these three different companies. The main reason of
liquidation and winding of these companies is related to failure of companies to comply with the
ethical code of conducts and ASX listing rules. However, the main reason of failure of the
business and liquidation is not to pay off their current and future liabilities.
ABC Learning
This ABC learning company was an Australian company which was indulged in providing the
child care services. This company was incorporated in 1988 and had been offered child care
services. This company focused on offering child health care services in Australia and New
Zealand. ABC Learning was having objective of expanding its business by investing in buying
more care centres and properties in Australian market. However, after expending its business, it
got listed in Australia securities exchange and had market capitalization of AUD $ 25 million.
After, arrangement of these undertaken business activities and expanded business in other

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market, company failed to comply with the ethical code of conducts. ABC learning faced issue
of legal compliance and transparency in its reporting frameworks to divulge the true and fair
view of the assets and liabilities. The failure of ABC Company to comply with the listing rules
and events led to liquidation and forced company’s directors to declare the company insolvent.
Company had to follow the voluntary winding up procedure to liquidate the company to
distribute the required benefits to its stakeholders. Company failed to pay off its debts and
creditors which resulted to perform its legal obligation code of ethics and business transparency
rules as per the ASX listing rules. This resulted to delisting of the company from the Australian
stock exchange in 2009 and company went for the winding up for the proportion distribution of
its assets to pay off the debts of the company. However, in the auditor’s report, auditors gave
opinion that company failed to comply its listing rules and did not hire proper independent
directors.
HIH Insurance
This company was operating its business to offer the insurance services to its clients. HIH
insurance had more than 17 controlled entities and amounted to AUD $ 8 billion overall
turnover. Before, winding up of the company, it had to pay off AUD $ 7.5 billion investment to
its creditors and other lenders. In addition to this, company also made high cash outflow of its
capital to buy another venture in insurance industry so that it could compete with the rivals.
These all events resulted to high cost of capital and it became incapable to cover up its cost of
capital and increased business costing. However, company went to liquidation as it failed to
comply with the professional integrity code of conduct and consistently find in defaulting in its
listing rules and regulations. The main reason of liquidation and winding of HIH was related to
failure to comply with the ethical code of conducts and ASX listing rules. This company also
failed to establish harmonization in its domestic and international legal compliance program.
One.Tel
The one Tel Company was indulged in operating its telecommunication services in Australia.
This company was founded in 1995 with a view to offer its telecommunication services to the
clients in Australia. However, due to its failure to maintain liquidity in its business, company
went to the liquidation and faced the winding up in its business. It is analyzed after assessing the

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auditor’s report and opinion that company failed to maintain finance for its business to pay off its
current and future obligation. This resulted to failure of business to entertain its obligation.
However, company tried to manage this deteriorated position of its business by selling some of
its business units and arranging capital but due to the lack of availability of the proper finance, it
failed to manage its current and future liabilities. The main reasons of failure of One Tel were
based on its inability to cover the interest payment. In order to expand its business, management
of company had to undertake the high investment or cash outflow for opening up new ventures
(Schiano, Bourgoise, and Rhodes, 2015). The failure of this business resulted to AUD $ 291
million loss of capital in its business. This Loss of the business resulted to increased cost of
capital and company with a view to save its business from the external factors, made default in
its legal compliance. It failed to reflect the true and fair view of the assets and liabilities recorded
in the books of accounts of company (ASX., 2018).
Code of Ethics
The code of ethics is issued with a view to strengthen legal compliance and accounting
professional ethical integrity of company in compliance with the applicable laws and regulations.
It is analyzed hat all the companies which have listed their shares on the stock exchange needs to
comply with the code of ethics and listing requirements (Bodolica, and Spraggon, 2015).
 Integrity: This code of ethics focuses on how company could work ethically with its integrated
business functioning and effective legal compliance In case of HIH Insurance, members and
directors of company did not work ethically with integrity which resulted to failure of its
business. All the managers of company failed to maintain proper ethical code of conduct while
operating its business and failed to maintain proper due diligence in their work which resulted to
failure of HIH business (IFAC. 2018).
 Objectivity: The code of ethics of objectivity allows company to comply with the applicable
rules and operate its business in the best interest of its stakeholders. The conflict related to set up
the ethical work condition and aligning the interest of its stakeholders with the organization
development and it resulted to arise due to the failure to comply with the accounting principles
and objectivity code of conduct. This code of ethics reflects that company should make its
judgement free from all the influencing factors which might destruct the proposed business

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decisions. The One Tel Company and ABC costing were found in guilt of not complying with
the applicable laws and regulations (Elbayoumi, Awadallah, and Basuony, 2018).
 Professional Competence and Due Care: All the key managerial persons and board of
directors should have professional competency and due care while discharging its business
activities. It is analyzed that company should focus on hiring proper proportion of independent
and executive directors in its key managerial persons who could take imperative decisions in
long run (CPA Australia. 2018). All the directors and board members needs to establish the
harmonization in its undertaken work which could align the interest of the stakeholders with the
organization development.
 Confidentiality: The confidentially of the business process is also one of the aspect which every
company needs to adopt. It is analyzed that if proper confidentiality in not maintained in the
process then it will not only destruct the business issues but also result to increased insider
trading. It is analyzed that if company fails to manage the confidentiality in its business then it
will destruct the business in long run (Elliott, 2010).
 Professional behavior: All the employees and directors needs to maintain the professional
behaviour and code of conduct in its business if they want to keep its business sustainable in long
run. The main professional behaviour of key managerial person is to strengthen the transparency
of the business process and increasing the overall outcomes of the organization (Garegnani,
Merlotti, and Russo, 2015).
ASIC – Listing rules
It is analyzed that all the listed companies are required to comply with the applicable
rules and listing rules if it wants to maintain its business in long run. It is analyzed that these
three companies fails to manage its business due to the legal compliance and listing rules issues.
Company has failed to improve and maintain its legal compliance with the Australian
government. The listing rules 4.10.3 and 4.10.02 focused on keeping the business transparent to
its stakeholders by filling the annual report with the reporting authority. Corporate governance
program needs to be followed by companies if it wants to survive its business in long run. These
below 8 listing rules show that if company comply with it then it could operate its business in
long run (IFAC. 2018).

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1. Strengthen the transparency of the business.
2. Appointment of independent and dependent directors.
3. Ethical business functioning and following code of conducts.
4. Employee safeguard rules and strengthen reporting compliance program
5. Time balanced disclosure mechanism.
6. Protecting shareholders and integrated business
7. Risk management compliance program
8. Fair remuneration program (ASX. 2018).
These all listing rules and program helps listing companies to mitigate compliance issues
and managing its business in long run. It is analyzed that if company comply with these
applicable laws and regulations then it will strengthen is overall business and disclosure process
(Insurance Journal. 2013). These three above given companies have failed to comply with listing
rules which have resulted to major factor contributing the winding up or liquidation of these
companies.
Major contributing factor – Liabilities
The major contributing factor to failure or insolvency of these companies was based on their
inability to pay off its liabilities. It is analyzed that HIH Insurance failed due to its inabilities to
pay off its debt of AUD $ 202 billion (Monem, 2016). This resulted to voluntary liquidation of
company. In addition to this, One Tel Company and ABC costing were also highly dependent
upon the external sources of funding. These companies were facing issues related to payment for
its liabilities which it failed to do. The declining business position and their incapability to
manage business result to failure to manage the business. The inability to pay their debts was the
major reasons for the liquidation of these companies.
Declining position will also make shareholders to withdraw their money from the business.
Overall, unpaid liabilities contribute to a great extent in the process of liquidation. They are
major reasons for which companies generally wound up their operations (Rodriguez-Fernandez,
2016).

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Conclusion
After analysing all the details and information given in this report, it is analyzed that
these companies have failed to manage its business due to the failure to comply with the
applicable code of ethics and listing rules and regulations. It is analyzed that the main reason of
HIH, One Tel and ABC company failure was based on their inability to pay off its short term and
long term debts. These companies failed to pay off its applicable obligation and liabilities which
resulted to failure to manage its business in long run. It is further analysed that these companies
also failed to keep the proper transparency in its business which resulted to failure to comply
with the transparency code of ethics.

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References
ASX. (2018). Corporate Governance Council. [Online]. Available at:
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-
edn.pdf [Accessed 10 September 2018].
Bodolica, V., and Spraggon, M. (2015). An examination into the disclosure, structure, and
contents of ethical codes in publicly listed acquiring firms. Journal of Business Ethics, 126(3),
459-472.
CPA Australia. (2018). APES 110 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS.
[Online]. Available at: https://www.cpaaustralia.com.au/professional-resources/accounting-
professional-and-ethical-standards/apes-110-code-of-ethics-for-professional-accountants
[Accessed 10 September 2018].
Elbayoumi, A. F., Awadallah, E. A., and Basuony, M. A. (2019). Development of Accounting
and Auditing in Egypt: Origin, Growth, Practice and Influential
Factors. DEVELOPMENT, 53(2). 45-47.
Elliott, T. (2010). One.Tel one big debacle. [Online]. Available at:
http://www.abc.net.au/news/2009-11-20/28324 [Accessed 10 September 2018].
Garegnani, G. M., Merlotti, E. P., and Russo, A. (2015). Scoring firms’ codes of ethics: An
explorative study of quality drivers. Journal of Business Ethics, 126(4), 541-557.
IFAC. (2018). Revised Code of Ethics – Completed. [Online]. Available at:
https://www.ethicsboard.org/projects/revised-code-ethics-completed [Accessed 10 September
2018].
Insurance Journal. (2013). HIH Report Cites Mismanagement as Cause of Collapse. [Online].
Available at: http://www.insurancejournal.com/news/international/2003/04/21/28160.htm
[Accessed 10 September 2018].

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Monem, R. (2016). The One-Tel Collapse: Lessons for Corporate Governance. [Online].
Available at: http://www98.griffith.edu.au/dspace/bitstream/handle/10072/42673/74746_1.pdf?
sequence=1 [Accessed 10 September 2018].
Rodriguez-Fernandez, M. (2016). Social responsibility and financial performance: The role of
good corporate governance. BRQ Business Research Quarterly, 19(2), 137-151.
Schiano, T. D., Bourgoise, T., and Rhodes, R. (2015). High‐risk liver transplant candidates: an
ethical proposal on where to draw the line. Liver Transplantation, 21(5), 607-611.