Factors Resulting in Liquidation of Companies: An Analysis

This report delves into the multifaceted factors that contribute to company liquidation, providing a comprehensive analysis of real-world examples such as ABC Learning, HIH Insurance, and One Tel Phone Company. The report examines the impact of financial mismanagement, including the inability to handle liabilities, flawed accounting practices, and inadequate capital reserves. It highlights the role of corporate governance and ethical considerations, such as misleading financial reporting and conflicts between profit maximization and adherence to governance procedures, in precipitating company failures. The analysis extends to the liabilities associated with liquidation, emphasizing the consequences of ineffective financial planning and debt management. Recommendations are provided for companies to mitigate liquidation risks, including the importance of capital management and the development of payment plans. This report offers valuable insights into the complexities of financial distress and the critical role of sound financial practices and ethical governance in ensuring business sustainability.

Running head: LIQUIDATION OF COMPANIES
Factors Resulting in Liquidation of Companies
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1LIQUIDATION OF COMPANIES
Executive Summary
The reason for which several companies deal with liquidation concern will be analysed in the
current report. Examples of a few renowned companies are considered in the report that
supported in elaborating aspects leading to organizational liquidation. Some of these factors
oncludes ethics and governance of companies such as HIH Insurance, ABC Learning, and One
Tel Phone Company that led to financial troubles of these firms. Before the total failure, ABC
Learning Company faced great losses at the end of the year that decreased all the profits which
got acquired by organization. Moreover, the company got rid of every dubious claim for
attaining profit. The companies are recommended to prepare settlement account with all its
creditors along with developing a payment plan. Such recommendation might be effective for the
organization might have to deal with decreased creditors.

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Table of Contents
1. Introduction......................................................................................................................3
2. Factors Leading to Liquidation........................................................................................3
2.1. Factors Leading to ABC Learning Company Liquidation.......................................3
2.2. Factors Leading to HIH Insurance Company Liquidation.......................................3
2.3. Factors Leading to One Tel Phone Company Liquidation.......................................4
3. Governance and Ethics within Organizations..................................................................4
3.1. ABC Learning Company’s Ethics and Governance Issues......................................4
3.2. ABC Learning Company’s Ethics and Governance Issues......................................4
3.3. ABC Learning Company’s Ethics and Governance Issues......................................5
4. Liabilities Associated with Company Liquidation..........................................................5
4.1. ABC Learning Company Liquidation with Liabilities.............................................5
4.2. ABC Learning Company Liquidation with Liabilities.............................................6
4.3. ABC Learning Company Liquidation with Liabilities.............................................6
5. Recommendations............................................................................................................6
6. Conclusion.......................................................................................................................6
Reference List......................................................................................................................8

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1. Introduction
Liquidation of a company is deemed to serve as technique of closing down an
organization due to several causes that includes absence of unnecessary fictitious assets
presented within the accounts, visionary management and high debt with less capability to deal
with the same. Constant losses along with inefficient profit planning control over passing years
might result in the company’s liquidation. Over the passing years, it was seen that the renowned
companies dealt with liquidation concern as thry were not able to manage their liabilities. The
preset report is focused on elaborating causes that leads to the company’s liquidation.
Considering some renowned companies that collapsed such as HIH Insurance, ABC Learning
along with One Tel Phone Company, the report will elaborate on factors that caused liquidation
of these organizations and explaining ethics and governance aspects that caused such financial
concern.
2. Factors Leading to Liquidation
2.1. Factors Leading to ABC Learning Company Liquidation
 Before total failure, ABC Learning Company faced great losses at the end of the year that
decreased all the profits that was ever acquired by the organization. Moreover, the firm
has got rid of all the dubious claims for attaining profit (Damiani, Bourne and Foo 2015).
 Incapability to sustain suitable regulatory and accounting systems along with faulty
development of accounting standards as well as company law has resulted in the failure
of ABC Learning Company.
 Profits attained by the company drastically increased by means of acquisitions which
doubted about ABC Learning Company’s underlying assets valuation. It was observed
that almost about 70% of the company’s assets remains intangibles. This associated risk
linked with assets valuation was large and signified several liquidation risks for the
company.
 Considering the ASIC complaint it was gathered that methods of financial reporting that
was employed by ABC Learning Company was advanced in order to generate
shareholders value artificially devoid of the fact that this value is linked with children
care licenses. The same was dependent on future cash flows of the company that may not
get realized. Due to such reasons, it is gathered that this conduct of the organization
turned out to be misleading for investors (Doyle 2017).
2.2. Factors Leading to HIH Insurance Company Liquidation
A key aspect that resulted to the liquidation of HIH Insurance was lack of capacity to deal
with the possible future claims. In consideration to such future claims, this serves as a key factor
of organizational business. In addition, with the collapse of HIH Insurance Company it was
observed to be a condition in which an adverse change of 1.7% worked well in turning HIH
Insurance Company totally insolvent (Gannon 2014).
Another aspect that contributed to HIH Insurance Company’s liquidation was observed to
be improper management of altering market conditions that increased HIH Insurance Company’s
liabilities. Such aspects were not supported by some strategic planning initiatives those were

4LIQUIDATION OF COMPANIES
expected for accepting likely variations. This made it evident that altering market conditions
resulted in destabilization of the company.
Faulty corporate governable within HIH Insurance Company with less efficient view led
to observing strategy generated by HIH Insurance Company that was unstable financially. The
company experienced liquidation for the company was not able to realize the extent to which it
was made necessary that extra provisions must be maintained in market environment of the
organization (Betta 2016).
2.3. Factors Leading to One Tel Phone Company Liquidation
A major concern which resulted in One Tel Phone Company liquidation was the
company’s desire to sustain a business which generates decreased yield and by not maintaining
adequate capital that might facilitate in dealing with all the liabilities for upcoming years.
Along with maintaining safe situation, One Tel Phone Company maintained ineffective
corporate governance structures. Liquidation faced by the company resulted for the reason that
the non-executive directors did not monitor effectively and lack of management insight was
signified within the audit process, remuneration committee composition and corporate
governance (Lessambo 2014).
Liquidation of the company resulted due to the fact of aggressive acquisition policies that
led to conflict between profit maximization and adherence along with implementation of
efficient procedures of corporate governance.
3. Governance and Ethics within Organizations
3.1. ABC Learning Company’s Ethics and Governance Issues
ABC Learning Company’s liquidation resulted due to gradual ethics and governance
structure failure in organization. This is observed that an organization that might not attain
adequate aspects of key structures of corporate governance and turned out to be affected by debt
based drastic acquisition spree. Ineffective corporate governance along with risky accounting
that was the company’s scenario. The organization might not adhere through corporate
governable rules (French, Vital and Minot 2015).
There are few ethical concerns that led to liquidation of ABC Learning Company. Within
few concerns of attaining the market there was a lot quality concerns in education provided in
centers. There is an explained format of children to certain ratios. Moreover, might not gather
huge profit amount through dealing with the ethics rules. In consideration to same, it might not
be the case that degradation in quality within company’s services was observed for there was
decreased number of employees to deal with students.
3.2. ABC Learning Company’s Ethics and Governance Issues
Government generated a charge in order to doubt the ASIC failure matter which might
value in better manner in certain operating licenses of HIH Insurance Company. The government
doubted ASIC failure in a scenario organization in valuing efficiency its operating licenses. This
was claimed by HIH Insurance Company which enhanced value in certain licenses which
remained really of decreased value in account for trading aspect (Lee 2014).

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Revaluation licenses were allowed in accounting standards. In addition, innovative
standard of AASB 138 “Intangible Assets” facilitates intangible assets revaluation in this
scenario. Such standards are deemed to get applied within which accounting has several material
impact. In consideration the same, it is gathered that HIH Insurance Company was associated
with certain malpractices in scenario of the account maintenance due to which the shares value
decreased gradually (Pearson 2016). Legal actions were taken in opposition to the company. In
addition, existence of dominant CEO in HIH Insurance Company remained associated with
malpractices in account maintenance scenario due to which it is deemed to be a great
organizational threat. Corporate governance model related with company increased its risk of
remained detached from interest of shareholders along with remaining associated with company
excess.
3.3. ABC Learning Company’s Ethics and Governance Issues
Liquidation of One Tel Phone Company also signifies few key corporate governance
structures within organization. Rather than maintaining well developed financial sposition,
organization had increasingly corporate governance structure which is highly inadequacy.
Among the two chief executive officers of organization have a great effect on board of directors
to a great extent in which One Tel Phone Company never gathered designated along with regular
chairman in place (Tsegba, Upaa and Tyoakosu 2016). Non-executive directors had inadequate
monitoring along with management’s view which was signified within remuneration
communities, audit composition along with corporate governance which dominated any CEO
along with executive directors.
One Tel Phone Company failure was due to failures of some corporate governance
structure. One of the reasons explains CEO attained increased impact on incept board of
directors which might impact on being ineffective along with limiting the capacity to provide
efficient view in addition to control (Ahmed and Ndayisaba 2016).
4. Liabilities Associated with Company Liquidation
4.1. ABC Learning Company Liquidation with Liabilities
Ineffective liabilities management led to ABC Learning Company liquidation. At the
time, an organization was listed within Australian Stock Exchange; it maintained asset
capitalization of around $25 million. Market capitalization of the company’s enhanced to $2.5
billion within upcoming years. In upcoming years, it was gathered that organization was
pressurized having debt repayments for which this is deemed to sell around 50% of subsidiaries
in UK and US (Tricker and Tricker 2015).
Overall liabilities acquired by ABC Learning Company remained increasingly constant.
Conversely, more than $1.1 billion borrowings remained segmented within current along with
non-current liabilities because of refinancing. There are certain lenders of organization from
which it gained a facility of option of multi-bank. In addition, the company’s profits decreased
by 42% due to certain strategies of one-off charges along with debts convents of approximately
$1.1 billion was breached (Carnegie and O’Connell 2014). This led to maintenance trouble
which is improper for ABC Learning Company that attempted to negotiate a loan agreement with
bankers. This plan of turnaround remained rejected by lenders along with resulting in the failure
of ABC Learning Company.

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4.2. ABC Learning Company Liquidation with Liabilities
Considering major issues which led to HIH Insurance Company liquidation encompass
the intention for attaining low yield business along with not sustaining adequate capital in order
to deal with future liabilities. This problem led to management collapse in order to enforce and
checking for conducts of due diligence. Collapse of HIH Insurance Company as it turned out to
be insolvent which signified it might not have enough funds for dealing with all the claims of
liability. Liabilities of the organization turned out to be $5, 3 bn that made biggest corporate
collapse within Australia (Clarke and Dean 2014).
4.3. ABC Learning Company Liquidation with Liabilities
Inadequate liabilities management resulted in One Tel Phone Company liquidation. The
organization failed for the reason that it had limited cash for dealing with paid cash for dealing
with all the expenses with having an increased debt. Liabilities along with expenses of the
organization enhanced so gradually that the billing system was not capable to manage the same
that led to collapse of One Tel Phone Company.
5. Recommendations
After analyzing the major factors relied on which certain established organizations like ABC
Learning, HIH Insurance and One Tel Phone Company faced liquidation problem, several major
strategies which are recommended to organizations that can result in dealing with several drastic
liquidation situation. These recommendations are elaborated below:
 Use capital and gather finance: Use of increased capital in order to save the
organization from liquidation might be vital strategy that might get employed through
organizations in dealing with a circumstance. In dealing with company’s liquidation it
might deal with security registration on “Personal Property Securities Register” in
assorted time.
 Settlement negotiations or payment plans: The companies are recommended to deal
with settlement account having all its creditors along with developing a payment plan.
Such recommendation might be effective for the organization might have to deal with
less number of creditors.
 Selling or restructuring companies business: For the organizations are not that capable
of paying its creditors, getting involved in an appointment of formal insolvency can be
considered unavoidable. An option which can be deemed by such organizations is to sell
its assets or business to a distinct company that can contribute to a profitable trade in
upcoming years.
 Create turnaround along with strategies of profit increase: Selected organizations
requires considering such key drivers of profitability. A financial advisor might be
appointed by chosen organizations so that thry are able to sustain its financial situation.
6. Conclusion
The recent report focused on elaborating several causes based on which several
companies dealt with liquidation issues. Through attaining examples of renowned companies that
collapsed such as HIH Insurance, ABC Learning and One Tel Phone Company, the report will
elaborate aspects that led to liquidation of three firms along with focusing on ethics and
governance factors explaining such financial concern. It was gathered that profits attained by the

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company drastically increased by means of acquisitions that doubted about ABC Learning
Company’s underlying assets valuation. It was observed that almost around 70% of overall
company’s assets wee intangibles. This inherent risk associated with assets valuation was large
and signified several liquidation risks for company. The government generated a commission in
order to doubt reasons for ASIC failure which might value in a better manner in some operating
licenses of HIH Insurance Company. The government doubted ASIC failure in care of
organization in valuing efficiency its operating licenses. This was claimed by HIH Insurance
Company that enhanced value in certain licenses remained really of decreased value in account
for trading purpose.

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