Financial Analysis: The Causes and Effects of Company Liquidations

This report provides an in-depth analysis of company liquidations, focusing on the financial crises that led to the downfall of ABC Learning, HIH Insurance, and One.Tel. It explores the various reasons for liquidation, including mismanagement, misuse of funds, unethical practices, and financial stress. The report highlights specific instances of poor management, such as cost-cutting techniques, low wages, and misleading information provided by management. The study also examines the role of liabilities in driving liquidation, the impact of financial leverage, and the consequences of unethical behavior by company directors. The report emphasizes the importance of ethical and corporate governance practices and their impact on a company's financial stability. The report concludes that various factors, including poor market conditions, inefficient management, and negative business outcomes, contributed to the liquidation of these companies. The analysis draws upon financial concepts and real-world examples to provide a comprehensive understanding of the causes and effects of company liquidations.

Accounting financial ACC 701
Individual Assignment
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Contents
1. Introduction.................................................................................................................................4
2. Reasons for Liquidation..............................................................................................................5
3. ABC LEARNING LIQUIDATION............................................................................................5
4. Liquidation of HIH Insurance.....................................................................................................5
5. Liquidation of One.Tel................................................................................................................6
6. Financial Stress - Facts and Practices.........................................................................................7
Customs and kingship practice pertaining to financial stress..............................................................7
7. The reason for liquidation is Liabilities......................................................................................8
8. Conclusion...................................................................................................................................9
9. References.................................................................................................................................10
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Abstract
The entire world has noticed the financial crunches as the main reason for the closure of big
companies. This report will discuss the details about three companies ABC Learning, HIH Insurance
and One Tel. Financial crunches have been the main reason for the close of these comps but there are
various other reasons for downfall which have hit the goodwill of the companies as well. The report
highlights these reasons individually. The management failed in following properly and controlling
the working. The shortfall of the managers in observing the point of losses. The management has
misled to some unethical practices which are not for the betterment of any business. The distrust acts
done by the management are very serious issues which should attract the site in any business.
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Introduction
In today’s changing economic scenario and the breaking economic business, components exert
business organization is trying to find the means to bet this market. The use of advanced technology
has increased by the companies as the means to overcome the market conditions. The difficulties have
increased in the market due to the depression in the business. Many companies have liquidated and
wrapped up. The reason found behind the liquidation of these companies is miss use of the funds and
uncontrolled and less efficient management. On liquidation, the assets and the liabilities are
distributed among the owners in the same ration of their value in the company this is done because it
is closing of a running operation. Thus it can be said that there are many companies which have
closed due to the in proper management and misuse of funds like ABC Learning, HIH Insurance and
OneTel.
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Reasons for Liquidation
Kratz and Schoenborn explain it as “Different business run in different scenarios and hence face
different factors that result in their liquidation”. In simple words, it could be said that when the
company is not able to make its payments and liabilities on time and to pay such dues the assets are
sold to pay the creditors and the other claimants. No payment of the debts is considered the factor of
liquidation.
ABC LEARNING LIQUIDATION
ABC learning a childhood Learning was an educational institute. The organization hit the Australian
Securities Exchange listing once. It was the world largest education provider. Soon s downfall was
observed. The payments of debts remained pending in high numbers. The main reason considered for
the downfall by the economic experts was that there were mismanagement and incorrect method of
running a business. It was found that the factors for the big hit and maximum profits were cheap cost-
cutting techniques, low wages employees which were not suitable for any business in the long run
(Anon, 2016). The ABC Learning was found guilty in the misuse of its funds and opposed the
imposed the fines on it, this leads them to enter the legality I the later period. The shares went low
and they were suspended later this damaged the situation more. On the non-payment of the overdue
debts even after the selling of the assets the company went into receivership. Finally, the shares got
unlisted and the creditor called for the winding of the company in the year 2010 (Ramachandra &
Olabode 2012).
Liquidation of HIH Insurance
HIH insurance unlikely ABC Learning did not collapse just cause to financial crunches. It was the
second largest insurance company in Australia, but due to the unethical and illegal business practices
brought the downfall of the company. The company had to sell its assets which were $8 billion some
time, to pay the debts the renaming balance was just $133 million. This was a provisional liquidation.
The company cannot return back to the expectations of the management after all this and the criminal
burden (Ferguson, 2013). The former HIH director Rodney Adler was impassioned for 4 1/2 year.
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HIH Insurance has done many false commitments in the market and therefore has been facing issues
from stakeholders. They have given incorrect information even after knowing that it was incorrect.
This was a big offence. This company faced liquidation due to its high financial leverage and less
effective return on capital employed (Horton, 2011).
Liquidation of One.Tel
Hofer says that “OneTel is one of the biggest transmission and telecommunications organizations of
Australia commenced operation in the year 1995. Got the support of distinguished families and
headed way towards a golden future.
The management had a very good policy to achieve the market their targets were the youths with
cellular phones, wireless transmissions, and portable devices the company did very hard word to
bring the company to the position of fourth biggest media transmission organization. The step
towards the downfall started with the OPTUS terminated its terms with One Tel. It holds one-fourth
share in the company. Thereafter one by one event took place for the downfall of the organization
(Berry‐Stölzle, 2008). The finance of the company was misused for personal benefits and the cooks
were tempered by the co-chief executive he was one of the main supporters in the progress of the
company. This situation has led to short in finance or lack of cash and cash equivalents in the
company to repay their current debts. Later the major shareholders News Limited and Publishing &
Broadcasting also exited the company as there were upset about the manipulation in the books of the
company (Lindberg, 2012). This was the biggest reason for the downfall of One Tel.
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Financial Stress - Facts and Practices
Customs and kingship practice pertaining to financial stress
In a market, every company have to associate with ethical and corporate governance that helps the
companies to get the fines. The council or committee who is taking care or this is the backbone of any
successful idea. It is very clear that inelegancy of this practice leads to injurious effects to the
concerned entity. It is a work of management to develop and maintain the proper balance and remove
the gaps which hinder performance (Battiston & Martinez, 2018). There is straight binding of a
veteran management and a concern working. As seen above it is crystal clear that if there is any
lacuna takes place in any concerned entity it leads to deep financial stress taking to liquidation.
In the case of ABC learning, a profit was made on the cost of virtual taxpayers of Australia, which
was totally unethical (Porter & Navarro, 2015). As ABC become a single player in child care
services, they tried to imply its finance for falsely challenging allegations lay on it. And it was found
Guilty for “Failing to Enclose “
In case of HIH Insurance, it was worse. In this case, the reason for correction was the conspiracy and
crimes of its top management that includes its former director i.e. Rodney Adler. He had been
punished for four criminal offences and many other civil offences. This includes deployment of false
information even though knowing its incorrect second was to mislead their investors. The other was
to behave intentionally wrong and dishonesty which is not in the interest of the company (Evanoff,
Holthausen & Kaufman, 2013). Apart from him the former chief executive Ray Williams, Brad
Cooper, a Sydney businessman, and a former HIH chairman Geoffrey Cohen were also alleged for
being punished. This leads to unethical activities i.e. transactions and business arrangements are not
in best interest of stakeholders of the business HIH Insurance. Misleading investors and associated
stakeholders of HIH Insurance is another unethical behaviour. According to corporate governance
practices, directors or other key personnel should should not be invove in unethical practices. But in
case of HIH Insurance, management and directors has involved in unethical practices.
Lachlan Murdoch (News Corporation) and James Packer (Publishing & Broadcasting Ltd.) represents
the major investors of One.Tel. They claimed that they have been misled by the co-chief executive of
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the company i.e. Jodie Rich. Even though One Tel always keeps transparency related to its
operational and reveals all its working regarding errors, failures, problems in call centres, in Billings,
IT problems or even in cash flows deviations (Phungula, 2017). Whatever would be the reason but
the resultant of this was frighten of the same. It would be the main defect with the management for
which effect and lose the good governance (Elena, 2012).
Examples cited above are the best explanations that whenever such types of practices go unethical
and there is no check of management on such type of action, which leads to huge financial loss and
this situation tend to drag the company into liquidation hole. That allows the company to go through
high loss due to such negative business functioning. There would be one safe method by which
company would revive its business is to sell their assets to public imposes a charge on that assets.
Through this process, all the fix assets would be liquidated and it helps the organization to get cash
flows.
The reason for liquidation is Liabilities
The above study has analysed that the liabilities are the reason for the liquidation of any company. In
any type of market conditions, the company can survive. Whereas if he has to pay the liabilities that
the issue a raised. The companies have to sell their assets for the payments of the debtors. This results
in the end of the business (Schmidlin, 2014). The process of liquidation is conducted with the
managerial person along with the liquidation officer appointed by the high court. This officer will
evaluate the balance assets and liabilities. These balance assets will be allocated to the creditors first
and then to the owners. The aim of liquidation is to give the clients and the shareholders benefit
which they were deprived cause of the working of the company (Dahalan, Abdullah & Umar, 2016).
All the loans and bills payment is done first, then if any assets are remaining than the owners are paid
as per their share in the business. All the owners of such liquidated company have many problems
with all the benefits of the company are finished. Nonetheless, these owners have a role to revive the
company any cost for the benefits of the stakes holders on a sustainable basis-by Mete Soner, Reppen
& Rocket.
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Financial stress in the business management and operation of HIH Insurance and ACB Learning and
One.Tel Limited has motivated management and directors of these companies to indulge in unethical
activities.
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Conclusion
The sluggish market conditions the changes in the economy; every company is finding ways to
remain in the market. Everyone was trying the best possible means to sustain. The management is
having many loose polls in their business. Carelessness is observed in working. The management
should have proper inspections of the books and the actual position of the company. Finding of the
gaps and filling them should be the priority of the management. The efficiency of the management
and the position of the company are directly linked with each other. The three big companies
discussed above it of which two companies ABC Learning, One Tel have seen the downfall cause of
the drastic loss due to the malfunctioning of the management and negative outcomes of the business
with negative business facts this resulted in them to wrap up the business. These reasons and the poor
conditions of the market have incurred great losses to the companies.
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References
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& Turnaround Association Journal, 28(2), pp.38–39.
Battiston & Martinez-Jaramillo, 2018. Financial networks and stress testing: Challenges and new
research avenues for systemic risk analysis and financial stability implications. Journal of Financial
Stability, 35, pp.6–16.
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Risk and Insurance, 75(1), pp.207–230.
Dahalan, J., Abdullah, H. & Umar, M., 2016. Measuring Financial Stress Index for Malaysian
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Phungula, S. P. (2017). Proceedings over proceedings: how and when are liquidation proceedings
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