Financial Analysis: Liquidation of HIH, Stellar & Aluminium Boats

This report examines the events leading to the liquidation of HIH Insurance, Stellar Homes, and Aluminium Boats Australia, focusing on corporate governance issues, the nature of liquidation, and the role of liabilities. HIH Insurance's collapse stemmed from incorrect financial standards, losses from natural disasters, risky acquisitions like FAI Insurance, and unsuccessful film financing ventures. Aluminium Boats Australia's liquidation was triggered by a fire destroying a navy vessel, leading to contract losses and job cuts. Stellar Homes faced liquidation due to a significant decrease in sales revenue and economic issues. The report also discusses APES 110 Code of Ethics for Professional Accountants, highlighting integrity, objectivity, professional competence, confidentiality, and professional behavior. Corporate governance failures contributed to HIH Insurance's downfall, while liabilities played a significant role in the liquidation of HIH Insurance and Stellar Homes. HIH Insurance underwent court-ordered liquidation, while Stellar Homes and Aluminium Boats experienced voluntary liquidation.

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Executive Summary
The aim of the report is to study and examine the events that led up to the liquidation of three
major Australian companies; they are HIH Insurance, Stellar House and Aluminium Boats
Australia. Discussion on the corporate governance related issues is another aim of this report.
After that, this report also discusses about the nature of liquidation of these companies and
the role of liabilities.

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Table of Contents
Introduction................................................................................................................................3
About Companies.......................................................................................................................3
Events Contributed To the Liquidation......................................................................................3
Ethical Codes.............................................................................................................................4
Issues Related to Corporate Governance...................................................................................4
Liquidation Types......................................................................................................................5
Role of Liabilities.......................................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................6

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Introduction
There are certain reasons or events behind the liquidation of the business
organizations and other companies are needed to consider these reasons in order to avoid
unexpected closure or liquidation of the businesses (Ucbasaran et al., 2013). It is the
objective of this report to study and examine the events that led up to the liquidation of three
major Australian companies; they are HIH Insurance, Stellar House and Aluminium Boats
Australia (Aluminium Boats). This repot also examines certain other aspect related to the
liquidation of these companies like corporate governance issues, nature of liquidation, role of
liabilities and others.
About Companies
Aluminium Boats Australia (Aluminium Boats): Aluminium Boats was an Australian
company established in 1999 and the company was involved in the development, repair,
maintenance and technical support of luxury, commercial and military vessels and boats.
Aluminium Boats was regarded as an organization with high performance and they had the
reputation of surpassing expectation and specification in their projects (aba-global.com,
2019).
HIH Insurance: HIH Insurance commenced their business operations in the year of 1968
and they were the second largest provider of insurance services before liquidation
(hih.com.au, 2019). The business operation of the companies was spread within different
regions of Australia along with many overseas countries. The company was enlisted in
Australian Securities Exchange (ASX). The collapse of HIH Insurance is viewed as the
largest collapse in the history of Australia. Major global business expansion of the company
could be seen between the years 1997 to 1998 (hih.com.au, 2019).
Stellar Homes: Stellar Homes was a major company based on Florida and the business
operations of the company could be seen in the Australian real estate development sector.
Apart from this, Stellar Homes was also involved in the investment business in the real estate
development industry. In addition, the company was renowned for considering the effects of
their operation on the environment and community (stellar-homes.ca, 2019).
Events Contributed To the Liquidation
HIH Insurance: Certain specific reasons led to the liquidation of HIH Insurance. It can be
seen that the management of the company did introduce incorrect financial standards related
to the remuneration of the employees of California and this standard failed after some time.
In addition, HIH Insurance suffered from huge loss when a natural disaster did attack Florida
and the company had to incur huge debt for the same. It needs to be mentioned that the
company acquired the business of FAI Insurance that involved huge investment from the
company and this huge amount of investment for an insurance company was hazardous.
Hence, the company had to face huge damage due to this. Lastly, another risky event that led
to the liquidation of the business of HIH Insurance was the company’s decision to enter into
the business to finance film that did not work for the company. Due to this, the company had
to face a loss of more than hundred million dollars over a year. These events together led to
the liquidation of the company (smh.com.au, 2019).
Aluminium Boats Australia: The main event that led to the liquidation of Aluminium Boats
was the unexpected fire in the Australian navy vessel. The commencement date of the
liquidation of Aluminium Boats started from November 4, 2014 and the two administrators of
the liquidation process were John Park and Kelly-Anne Trenfield. It can be found from the
assessment report of the administrators that the fire fully destroyed HMAS Bubdaberg that

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was an Armidale class patrol boat of the Royal Australian Navy and this particular incident
had certain major negative impact on the company that led to the decision to liquidation. Due
to the fire, the company lost the above mentioned boat worth $45 million and they lost the
contract to provide maintenance services to the Australian Navy that was the major source of
revenue of the company. As a result of the huge loss due to the fire, large number of
employees of the company loss their job. All these events together contributed towards the
winding up or the liquidation of the business operations of Aluminium Boats
(couriermail.com.au, 2019).
Stellar Homes: The main event or reason that led to the liquidation of Stellar Homes was the
massive decrease in the sales revenue of the company that ultimately affected the cash flow
position of the firm. The initialization of the liquidation process of Stellar Homes could be
seen from October 20, 2014 and names of the two administrators of the liquidation process of
the company were IW Burford Macks and PI Macks. Stellar Homes had a long standing
reputation of developing more than 500 homes within ten years. It can be found from the
assessment report of these two administrators that South Australia was facing major
economic issues that affected the ability of Stellar Homes to earn high amount of sales
revenue. The company left many houses unfinished due to their sudden decision of
liquidation. It could be obtained from the assessment report that more than 36 houses were
unfinished due to the collapse of Stellar Homes (news.com.au, 2019).
Ethical Codes
The presence of five ethical code can be seen in the document of APES 110: APES
110 Code of Ethics for Professional Accountants and they are discussed below:
Integrity: It is needed for the professionals to stay honest and straightforward at the time to
provide the professional services (apesb.org.au, 2019).
Objectivity: It is not expected to have any kind of bias and conflict of interest from the
professional’s side that can hamper the professional services (apesb.org.au, 2019).
Professional Competence and Due Care: The requirement for the professionals is to
acquire the needed skills, knowledge and competence for providing professional services.
Confidentiality: It is the restriction on the professionals not to share the private business
information when they do not have the needed approval from the clients
(cpaaustralia.com.au, 2019).
Professional Behaviour: It is the utmost requirement for the professionals to make
compliance with the required standards and principles while providing the professional
services (apesb.org.au, 2019).
Issues Related to Corporate Governance
Issues in corporate governance can be viewed as a major reason for the liquidation of
HIH Insurance. The absence of lack of corporate governance can be seen when HIH
Insurance made the acquisition of FAI Insurance without gaining the proper approval from
the Board of Directors. Poor corporate governance can also be seen from the ineffective
decision of the company to enter into such a business venture that led to major business
losses. There was lack of attention from the company’s side to the due diligence and constant
changes in managerial position of the company show weak corporate governance mechanism
in HIH Insurance. Lastly, the management of HIH Insurance was accountable for profit
overstatement and material mission. All these aspect shows the lack of effective corporate
governance framework with the company (Kang et al., 2013).

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However, there was not any issue related to poor corporate governance in the
liquidations of Stellar Homes and Aluminium Boats.
Liquidation Types
It can be seen from the liquidation of HIH Insurance that the order of liquidation came
from the court on August 27, 2001 after the review of the financial statements of the
company by KPMG. As the court passed the order of liquidation, the liquidation of HIH
Insurance can be considered as court liquidation. However, the situation is different for
Stellar Homes and Aluminium Boats as these companies were liquidated on voluntary basis.
In the case of these companies, the liquidation order passed as per the regulation of paragraph
446A(1)(a) special resolution under s491 (insolvencynotices.asic.gov.au, 2019). Voluntary
liquidation puts the obligation on the directors of the companies to keep sufficient reserve for
fulfilling the obligations of the creditors and others. In the presence of all these reason, it can
be said that the nature of liquidation of these two companies is voluntary liquidation.
Role of Liabilities
Presence of huge liability affected the business operations of HIH Insurance and
Stellar Homes. It can be seen in the case of HIH Insurance that the company had to incur
huge amount of debts due to wrong business decision and other reasons like acquisition of
FAI Insurance, entering the film investment business and others (aph.gov.au, 2019). In case
of Stellar Homes, the company had $3.4 million and $1.5 million as secured and unsecured
loans respectively; and this huge amount of liability was created due to the unfinished houses
by the company. These liabilities contributed towards the collapse of these companies.
However, Aluminium Boats was not liquidated due to the presence of liabilities.
Conclusion
The above discussion discusses about the main events that led up to the liquidation of
these three companies. It can also be seen that the presence of liabilities was one major
reason for the liquidation of HIH Insurance and Stellar Homes. According to the above
discussion, HIH Insurance liquidated as per the order of the court where voluntary liquidation
can be seen in the cases of Stellar Homes and Aluminium Boats. In addition, issues in
corporate governance were also reasons for the liquidation of these companies.

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References
Aluminium Boats Australia | Shipbuilders Brisbane, Australia. 2019. Aluminium Boats
Australia | Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-
global.com/ [Accessed 5 Jan. 2019].
Apesb.org.au. 2019. APES 110 Code of Ethics for Professional Accountants. [online]
Available at: https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf
[Accessed 5 Jan. 2019].
Aph.gov.au. (2019). HIH Insurance Group collapse – Parliament of Australia . [online]
Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
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Couriermail.com.au. (2014). Fire helps sink Brisbane boat builder. [online] Available at:
https://www.couriermail.com.au/business/hmas-bundaberg-fire-blamed-for-brisbanebased-
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gone-into-administration/news-story/a8903cbc8762cae1a67d6f43e4d27fa8 [Accessed 5 Jan.
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