ACC701 Financial Accounting: Liquidation, Ethics, and Governance

This report investigates the liquidation of HIH Insurance, Stella Homes, and Aluminium Boats Australia, exploring the events leading to their financial downfall. It examines the background of each company, the specific reasons for their liquidation, and the role of corporate governance failures. The report also discusses the APES 110 Code of Ethics for Professional Accountants, highlighting five key ethical principles. Furthermore, it identifies the type of liquidation called for each entity and assesses whether liabilities were a major contributing factor to their collapse. This analysis provides insights into the complex interplay of financial mismanagement, ethical breaches, and governance weaknesses that can lead to corporate failure. Desklib provides access to similar solved assignments and past papers for students.

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Executive summary
The purpose of this report is to find out the reasons behind liquidation of some of the well
known Australian entities like HIH Insurance, Stella Homes and Aluminium Boats Australia.
The report will discuss about the background of the companies and the reasons that lead those
towards liquidation. It will further discuss the APES 110 Code of Ethics for Professional
Accountants and will highlight 5 codes of ethics. Further, it will focus on the issues related to
corporate governance that led to the collapse of above mentioned entities and the liquidation
type that was called for each of the entities.

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Table of Contents
Introductions..............................................................................................................................3
Company backgrounds...............................................................................................................3
Reasons behind liquidation........................................................................................................3
Corporate governance and ethics...............................................................................................5
Corporate governance issues contribution to collapse...............................................................5
Types of liquidation and contribution of liabilities for liquidation............................................6
Conclusion..................................................................................................................................7
Reference....................................................................................................................................8

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Introductions
Liquidation is the process under which the entity sells its inventories at discount for
generating cash. This process involves bringing the business to end and distributing its
remaining assets to the claimants. This process generally takes place while the company is
not solvent anymore that is it is unable to meets its obligations. The report will focus on
finding out the reasons behind liquidation of some well known Australian entities like HIH
Insurance, Stella Homes and Aluminium Boats Australia. The report will discuss about the
APES 110 Code of Ethics for Professional Accountants and will highlight 5 codes of ethics.
Further, it will focus on the issues related to corporate governance that led to the collapse of
above mentioned entities and the liquidation type that was called for each of the entities
(Chan and Martek, 2017).
Company backgrounds
Aluminium Boats Australia –
It was established in the year 1999 and the main business of the company was
repairing and building boats. The company was specialised in leisure craft and ferries and
only used highest quality of materials and the latest techniques for construction. Further, it
used to provide the tailored solutions for the private as well as commercial owners. The
company was proud for its team for trades-people that were bringing strong knowledge base,
specialised and extensive knowledge together. Their dedicated and experienced team used to
deliver each vessel with the reputation for excellence and quality (Aluminium Boats Australia
| Shipbuilders Brisbane, Australia, 2019).
HIH Insurance –
HIH Insurance Limited that was an Australian public listed entity was the 2nd largest
general insurance company in Australia before the company’s collapse during the year 2001.
It used to cover different segments for insurance such as private and public liability,
commercial and industrial insurance, property and worker’s compensation insurance. It was
also expanded its business globally into UK and US markets. At the time of its liquidation the
company’s estimated loss was amounted to $ 5.3 billion due to underestimation of liability
and over estimation of assets and it was the biggest corporate collapse in history of Australia
(Hih.com.au, 2019).
Stellar Homes –
It is the leading real estate development entity based in South Florida that reshaped
Miami-Dade, Palm Beach countries with the stellar quality, environmentally friendly, modern
designed and healthy communities. Since 2009, it served more than 2000 happy residents and
it was developing and investing in some of most desired suburban, urban and coastal
locations of South Florida. Stellar Homes analyze and considers each of its projects impact
on the area carefully with foal for enhancing the lives of the communities and residents under
which it was built. Further, while planning for each project the construction and design teams
considers efficiencies associated with the materials, designs, operations and constructions
(Steller, 2019).

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Reasons behind liquidation
Aluminium Boats Australia –
Aluminium Boats Australia Pty Ltd was placed in voluntary administrator after it lost
one of the navy vessels. The reason behind the company’s collapse was the fire that destroyed
the HMAS Bundaberg in the month of August 2014. The fire that devastated Australian Navy
patrol boat amounting to $ 54 million was blamed for the demise of the company. While
going through the maintenance at Hemmant shipyard HMAS Bundaberg was demolished that
led to placing the entity into voluntary administration (Biddle and Macpherson, 2017). Soon
after that it lost the contract for maintenance and servicing of the Australian Navy vessels that
forced the company to cut 90 jobs. Apart from that 70 staffs sacked after appointment of the
FTI Consulting administrator, who were estimated to take lower than 5 weeks time for
assessing the future of the entity. As per the statement of the company’s director, Mr.
Whitewood, the company was expecting that the business still could recover though the
assistance of administrator. In October 2013 only the general manager of the entity, Tommy
Ericson stated that the company was expecting that the year will go very well and was
planned for 25% increase towards the number of staff members. Further, the entity was going
through tough times fighting off with cheap imports from Taiwan, Malaysia, China, Italy and
US and very few number of people actually are able to keep going through such crop
imported into the nation (Kashyap et al., 2019).
HIH Insurance –
On 15th March 2001, APRA (Australian Prudential Regulation Authority) served the
company with the notice to appoint the liquidator. After that the company made application
for provisional liquidation to the court for the below mentioned reasons –
 Deficit for assets over liabilities was estimated to be AUD 5 billion out of total
balance sheet amount of AUD 7 billion.
 Royal commission tracked the entity for the period of more than 18 months for
recovering cost of more than AUD 50 million.
 It has inefficient corporate governance in accordance with the justice in charge for
reviewing the company’s insolvency.
 Conglomerate complexity issues raised for different times
 Re-insurance abuses that were done for numbers of years and hence, the company was
not getting all the things right at all the times (Ballantyne, 2015).
 Inappropriate and inadequate asset valuation as the company generally used to show
the assets at the higher values as compared to the actual values. In accordance with
the IFRS, the entity must value the assets at actual prices or the lower of cost and
market value. However, the company used to record their assets at higher than its
market value which in turn shows higher credibility for the entity rather than actual
(Damiani, Bourne and Foo, 2015).
Stellar Homes –
Home builder company Stellar Homes collapsed with leaving number of South
Australian owners for home with the half – built homes. As per the joint administrator of the
company Peter Macks from Macks Advisory stiff competition is there for working under the
sector for residential construction. Basically the tough economic climate in the location of
South Australia for the builders was the main reason for the competition. Eventually, it led to
reduction in sales that resulted into crisis of cash flows. Owing to the collapse, around 36
homes those were in various stages of construction and 173 tradies for 7 News Reports were

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left in lurch those involved amount of $ 1.5 million. Though the administrator was not able to
estimate it accurately, it was estimated to be $ 1.5 million owed to the unsecured creditors
and $ 3.4 million was owed to the secured creditors and the entitlements to the staffs were yet
to be finalised (Weekes 2017). Website of the company was shut down however; the
company stated that the administration was I best interest for all the creditors (Steller, 2019).
Corporate governance and ethics
APES110 Code of Ethics for Professional Accountants was issued by APESB
(Accounting Professional & Ethical Standards Board Limited). All the professional members
from Australia shall be complied with the APES 110 while providing the professional
services. However, this code is not meant for detracting from any of the responsibilities that
are imposed by the regulations or laws (Apesb.org.au, 2019). APES 110 Code includes 3
parts where Part A determines fundamental principles for professional ethics for the members
and delivers conceptual framework those must be applied by the members to –
 Recognising the threats for complying with fundamental principles
 Analysing the consequence of identified threats and
 Applying safeguards, wherever required, for removing threats or reducing them to to
the acceptable level (Tricker and Tricker, 2015).
5 codes of ethics under stated under APES 110 Code of ethics are as follows –
 Integrity – integrity principle imposes the obligation on all of the members to be
honest and straightforward in all business and professional relationships. Integrity
objective further implies the truthfulness and fair dealings.
 Objectivity – objectivity principle oblizes all of the members for not compromising
business or professional judgements due to conflict of interest, bias or any undue
influence of others
 Due care and professional competence - Due care and professional competence
principle imposes the below mentioned obligation on all of the members –
 Maintaining the professional skill and knowledge at the required level for assuring
that employees or clients receive the competent professional services (Du Plessis,
Hargovan and Harris, 2018)
 Acting diligently in compliance with the required professional and technical standards
while providing the professional services
 Confidentiality - confidentiality principle imposes the obligation on all of the
members to abstain from (i) disclosing the confidential information generated from
business and professional relationships to outside of the firm without specific and
proper authority unless professional or legal duty or right is there to disclose (ii) using
the confidential information generated from business and professional relationships
for their professional advantages or for the advantages of 3rd parties (Ali, 2016).
 Professional behaviour - Professional behaviour imposes the obligation on all of the
members to comply with the relevant regulations and laws and avoiding any omission
or action those members shall know or know that it may disrepute the profession.
(Sivathaasan, 2016).
Corporate governance issues contribution to collapse
Aluminium Boats Australia –

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The corporate governance that was violated by the company was due care and
professional competence that imposes an obligation on all of the members that they shall
maintain the professional skill and knowledge at the required level for assuring that
employees or clients receive the competent professional services. Further, they shall act
diligently in compliance with the applicable professional and technical standards while
providing the professional services. As the company collapsed due to the fire that occurred in
the Australian Navy patrol boat likelihood is there that the company did not applied due care
and professional competence while the boat was manufactured. Further, the boat may have
been destroyed as the company did not apply the applicable professional and technical
standards while manufactured the boats and provided the services (Aluminium Boats
Australia | Shipbuilders Brisbane, Australia, 2019).
HIH Insurance –
Various corporate governances those were violated by the company are as follows –
 Objectivity for lack of independence from management for the non-executive director
– audit committee member Justin Gardener was the auditor for FAI during 1980 and
FAI had been sold to the HIH during 1998. The transaction of this takeover was
considered as one of the main reason behind failure of HIH as it paid huge cost for
acquiring FAI. Misjudgement of financial performance and undue diligence for the
investigation led to the awful transaction. However, Justin Gardener’ independence
was questioned owing to his interest conflict (Doyle, 2017).
 Professional behaviour for inadequate risk management – though the company’s
board set the investment committee for appreciating the investment risk and set the
guidelines for investment on property and currency dealings, 3 major failures on
account of investment provides the evidences that risk management of the company
was not well shaped and well performed (Hih.com.au, 2019).
Stellar Homes –
Corporate governances that was violated by the company are as follows –
 Analyses of the financial reports were not done properly that led to decline in sales
sales which in turn raised the cash flow issues.
Types of liquidation and contribution of liabilities for liquidation
Though various corporate governance issues were involved with the liquidation of all
the 3 companies, liquidity issues cannot be ignored as a reason of liquidation. The fire that
devastated Australian Navy patrol boat amounting to $ 54 million was blamed for the demise
of the Aluminium Boats Australia. Eventually it left the company with large amount of debt
and credits. The company placed into voluntary administrator. In case of HIH the deficit for
assets over liabilities was estimated to be AUD 5 billion out of total balance sheet amount of
AUD 7 billion. Hence liability was a major reason for its liquidation (French, Vital and
Minot, 2015). The company applied for provisional liquidation (Anderson 2018). Further, in
case of Stellar Homes at the time of its liquidation, it was estimated that $ 1.5 million owed to
the unsecured creditors and $ 3.4 million was owed to the secured creditors and the
entitlements to the staffs were yet to be finalised. Hence liability was a major reason for its
liquidation. The company was placed into administration that is forced liquidation.

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Conclusion
Biggest companies from Australia went into liquidation owing to various insolvent
issues and poor management. Issues associated with insolvency were raised in front of the
entity while the members from board did not work well for entity and corporate governance
of the entity went poor. Further, chances of liquidation go up with the higher amount of debt.
As all the above mentioned entities were at higher amount of debt and were not following the
requirements of accounting standards they got liquidated for the issues. Hence, the entities
from Australia shall maintain their accounts and business operation with high quality so that
shareholders will not propose to take their consent back.

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Reference
Ali, S., 2016. Corporate governance and stock liquidity in Australia: A pitch.
Aluminium Boats Australia | Shipbuilders Brisbane, Australia. 2019. Aluminium Boats
Australia | Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-
global.com/ [Accessed 3 Jan. 2019].
Anderson, H., 2018. Insolvency—It's all about the Money. Federal Law Review, 46(2),
pp.287-312.
Apesb.org.au. 2019. [online] Available at:
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 3 Jan.
2019].
Ballantyne, S., 2015. Receivers, liquidators and undertakers. Ausmarine, 37(3), p.10.
Biddle, T. and Macpherson, H., 2017. Marketing class actions: A new frontier. Governance
Directions, 69(8), p.480.
Chan, T.K. and Martek, I., 2017, January. Profitability of Large Commercial Construction
Companies in Australia. In AUBEA 2017: Transforming built environment education and
practice: leveraging industry partnerships: Proceedings of the 41st Australasian Universities
Building Education Association Conference (pp. 139-146). EasyChair.
Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic
Round-up, (1), p.37.
Doyle, M., 2017. Market-based indirect causation after HIH. Australian Resources and
Energy Law Journal, 35(3), p.205.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
French, A., Vital, M. and Minot, D., 2015. Insurance and financial stability.
Hih.com.au. 2019. HIH Insurance. [online] Available at: http://www.hih.com.au/ [Accessed
3 Jan. 2019].
Kashyap, A.K., Jaswani, U., Bhandari, A. and Dixit, Y.S., 2019. An Introduction to
Corporate Insolvency Law and Reforms in Australia. In Corporate Insolvency Law and
Bankruptcy Reforms in the Global Economy (pp. 107-131). IGI Global.
Sivathaasan, N., 2016. Corporate governance and leverage in Australia: A pitch. Accounting
and Management Information Systems, 15(4), p.819.
Steller. 2019. Home | Steller | We Make Places. [online] Available at:
http://www.steller.com.au/ [Accessed 3 Jan. 2019].
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Weekes, J., 2017. Boomer Constructions Collapses After Voting Against Liquidation.

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