Financial Accounting Report: Analysis of Company Liquidations

This financial accounting report provides an in-depth analysis of the liquidations of HIH Insurance, ABC Learning, and One Tel Phone, three prominent Australian companies. The report begins by outlining the reasons behind each company's collapse, including poor business decisions, aggressive accounting practices, and strategic failures. It then delves into the roles of ethics and corporate governance, highlighting instances of unethical behavior and governance failures within each company. The report also examines the impact of liabilities on the companies' financial stability and eventual liquidation, including debt structures, reclassifications of liabilities, and the effects of debt covenants. The analysis covers the acquisition of FAI Insurance, movie financing, natural disasters, aggressive accounting policies, illegal accounting practices, and management failures. The report emphasizes the importance of ethical business practices and sound corporate governance in preventing financial failures and provides valuable insights into the factors that can lead to corporate collapse.

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

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Executive Summary
The main aim of this report involves in the analysis of the reasons behind the liquidation of HIH
Insurance, ABC Learning and One Tel Phone. The first part of the report shows the reasons behind the
liquidation of these companies. The next part shows the role of ethics and corporate governance in the
collapse. The last part shows the role of the liabilities in the collapse.

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Table of Contents
Introduction.................................................................................................................................................3
Introduction of the Companies....................................................................................................................3
Reasons for Liquidation...............................................................................................................................3
HIH Insurance..........................................................................................................................................3
One Tel Phone.........................................................................................................................................4
ABC Learning...........................................................................................................................................4
Ethics and Corporate Governance...............................................................................................................4
HIH Insurance..........................................................................................................................................5
One Tel Phone.........................................................................................................................................5
ABC Learning...........................................................................................................................................5
Role of the Liabilities...................................................................................................................................5
Conclusion...................................................................................................................................................6
References...................................................................................................................................................7

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Introduction
Liquidation refers to the process to wind up all the business operations of the companies and for
this reason, the companies have to go through some of the major business liquidation processes. In this
process, the liquidators have the responsibility to carry out all the required steps for the process of
liquidation like the recognition of the rights and the liabilities of the company’s payment of the dues of
the creditors either fully or partially and others (Dodo, 2017). Some specific events or reasons play the
major role behind the liquidation of the business enteritis and there is not any exception of this fact in
case of the liquidation of three of the major companies in Australia; they are ABC Learning, One Tel
Phone and HIH Insurance. The main aim of this report involves in the analysis of the reasons behind the
liquidation of these three companies.
Introduction of the Companies
ABC Learning was one of the leading educational organizations of Australia and the company
was established on the year of 1988 in Queensland, Australia. The company had its name in the
Australian Securities Exchange (ASX) and the market capitalization amount of the company was $2.5
billion. ABC Learning made the acquisition of Busy Bee Group in the year 20016 for $330 million in order
to enter the market of US and UK. ABC Learning went into managerial receivership due to the increased
amounts of debts and liabilities as a result the world mortgage crisis (Debbage and Dickinson, 2013).
One Tel Phone was established in the year of 1995 and was one of the major telecommunication
companies in Australia. The motto of the company was to create a youth oriented image of their
companies by selling high quality of mobiles and providing internet services. The company was always
ready to fulfill the needs of their customer with the help of quality products and services. Thus, the
company used to be regarded as the fourth largest telecommunication companies in Australia (Clarke
and Dean, 2014).
HIH Insurance was established in the year of 1968 and it was regarded as the largest insurance
company in Australia. The company made their global as well as Australian expansion in the year of 1997
and 1998. The company enlisted their name in ASX in the year of 1992. HIH Insurance sold its majority
stake one of the companies in Switzerland in the year 1995 The loss amounted to $5.3 billion is
considered as one of the major reason for the fall of the company and still world considers the fall of
HIH Insurance as the largest collapse in the world (Logan, Sumsion and Press, 2015).
Reasons for Liquidation
HIH Insurance
It needs to be mentioned that HIH Insurance made some of the major wrong decisions that led
to their business collapse and the acquisition of FAI Insurance is considered as one of those major wrong
business decisions. This was a huge investment for the company and was also too risky for the insurance
business. Thus major damage was there for the company (Vucetich, Perry and Dean, 2014). Entering into
the business to finance the movies is considered as another major reason for the collapse of the
organization as it contributed towards million of losses for the company. The natural disaster in Florida
also caused many large business losses for HIH Insurance. Due to this, the company had to face large
business losses that lead to the collapse. Accounting is another major reason for the collapse of the
company as HIH Insurance adopted aggressive accenting policies for the payment of the employee

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compensation in California (Tarr and Mack, 2013). It led to the violation in the accounting standards by
the company. At the time of the process of liquidation, the liquidator estimated that the company had
to incur a loss of over $800 million in a period of six months and the reasons for this loss are quick
expansion strategy, adoption of aggressive accounting policies, in effective delegation of the
responsibilities and others.
One Tel Phone
The same aspect can also be seen in case of One Tel Phone. The major reason for the collapse of
One Tel Phone is the strategy of the company to show increased amount of profit by deferring the major
business expenses for the period of three years. It was an illegal accounting policy that violated the
accounting standards. For the adoption of this illegal accounting policy, the company had to face a loss
of $291 million in the year 2000 (Williams, Bingham and Shimeld, 2015). It has major negative effects in
the share prices and thus, the share prices fall below $1. In the year 2001, the director of the company
sold 5 million shares of the company for $2.5 million as the company was running out of required cash
for conducting the daily business operations. It was one of the prime reason or the collapse of One Tel
Phone as the company had to lay off 1400 employees for the reduction of costs. Apart from this, due to
this increase amount of loss for the investors, One Tel Phone had to pay the compensation of $92
million. Most importantly, it needs to be mentioned that the senior management of One Tel Phone
failed in exercising their power related to due care and diligence. Thus, all these reasons together
ensure the fall of this corporation (Lewis, 2013).
ABC Learning
There were some of the major reasons responsible for the collapse of ABC Learning. In the year
2007, the company had to face a debt of $1.8 million due to some of the major wrong decisions. For this
reason, the profit margin of the company witnessed a fall of 42% and the amount is $37.1 million. This
can be considered as a prime reason for the collapse of ABC Learning. Due to this scenario, the share
price of the company had a fall of 43% to $2.15 after the start of a low trading of $1.15. In the presence
of all these wrong decisions and losses, the management of ABC Learning had to sell the stakes of $6
million and $20 million for an amount of $2.7 million (Fin and McRobert, 2013). Apart from this, the
management of ABC Learning did not disclose the details of their earnings for the years 2007 and 2008;
and this reasons to the trade suspension of ABC Learning from the legal authority. The auditors of ABC
Learning had a role to play in the collapse of ABC Learning as they failed in correctly signing off the
financial accounts of the company that contributed towards the managerial receivership of ABC
Learning. The fault in the accounting treatment for the intangible assets was another major contributor
to the collapse of the company. $2.4 billion was the value of goodwill in ABC Learning related to licenses
and other intangible assets, but the company only made the impairment of $8.4 million Due to this, the
company had to face a 42% fall in the profit along with the wrong valuation of future cash flows
(Lawson, 2017).
Ethics and Corporate Governance
Ethics is considered as one of the major success factors for the business organizations that
shows the company about the concept of right and wrong. For this reason, the culture of the businesses
has major influence on the business decision making process. It is expected that the management will
take the ethical basins decisions along with the right course of actions ( Crane and Matten, 2016). In
order to be ethical, the business organizations may have to reject the short way for making large profits.
Besides, the companies are required to pay attention to the implementation of effective corporate
governance strategies. With the implementation of the correct ethical as well as corporate governance

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strategies, the companies can become majorly beneficial. In today’s world, consumers pay attention to
the ethical activities of the companies along with quality products and services. For this reason, the
companies are required to carry on their business operations in the most ethical manner in order to
attract more customers (Crane and Matten, 2016).
The flowing discussions shows the ethical reasons for the collapse of these three companies:
HIH Insurance
It can be seen that HIH Insurance did not obtain the approval from the board of directors at the
time of the acquisition of the acquisition of FAI Insurance. In addition, the directors of the company
made abrupt resignation after the disposal of the shares (Jones and Bowrey, 2013). It shows that there
was major corporate governance failure in HIH Insurance. In spite of knowing the fact that film business
would require large investment that is too risky, the decision of the management to enter into this
business shows lack of ethics and corporate governance failure for the company. The involvement of the
management of HIH Insurance can be seen as the management did not satisfy their responsibilities of
due care and diligence and this aspect indicates towards the absence of ethics for the company. Apart
from this, the management of HIH Insurance launched the company prospectus that was full of material
errors and omissions. In addition, overstating the profit in the year 1998 and 1999 was another ethical
failure from the company.
One Tel Phone
The management of One Tel Phone was involved in the violation of the accounting standards
and principles. In addition, the management of the company failed in the effective monitoring of the
financial performance of the company that shows lack of corporate governance in the company. The
management of One Tel Phone also ignored the risky investment areas in order to satisfies their own
interest and it can be considered as a highly unethical business practice. The adoption of wrong pricing
strategy is also considered as another major ethical and corporate governance issue in the company that
led to the corporate collapse (Tricker and Tricker, 2015).
ABC Learning
In ABC Learning, the adoption of aggressive as well as illegal accenting practice is considered as
a major ethical as well as corporate governance fault in the company. The company was also involved in
the adoption of unethical bookkeeping proactive for this corporation. Apart from this, the failure of the
company can be seen in the improper and unethical rendering of the business service. These are the
major ethical issues in the company (Salim, Arjomandi and Seufert, 2016).
Role of the Liabilities
The role of the liabilities cannot be ignored in the collapses of these three business
organizations.
In the initial year of 2007, ABC Learning had a stable liability position. However, later in the year,
the company had to face a reclassification of current as well as non-current liabilities for $1.1 billion that
led to the refinancing for the company. In the year 2007 to 2008, ABC Learning had to make a payment
of $1.2 billion due to the violation the debt covenant and it had its effects on the company profit as the
profit fall by 42% (Fin and McRobert, 2013).
In the case of HIH Insurance, the debt structure of the company was highly leveraged with term
debts and it was one of the major reasons for the insolvency of the company. HIH Insurance took a

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wrong decision of the acquisition of FAI for $300 million. However, in actual, the original value of the
acquisition was $100 million (Tarr and Mack, 2013).
In the case of One Tel Phone, the company had a huge amount of liability and the management
of the company was majorly reasonable to hide these inabilities in the illegal accounting manner. There
was a huge increase in the liability of the company as the company had to make the payment of $92
million as compensation. Thus, it can be seen that liabilities had major role to play in the collapses
(Williams, Bingham and Shimeld, 2015).
Conclusion
According t to the above discussion, the major reasons responsible for the collapses of these
three companies were wrong invent decisions from the senior management, wrong expansion plan,
adoption of aggressive accounting policies, failure of the management in discharging the required duties
and many others. At the same time, lack of ethics in the business operations and corporate governance
failure can also be held responsible for the collapses of these three companies. Moreover, huge amount
of liabilities was another major reason for the corporate failure of the business organizations.

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References
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