Financial Accounting Report: Analysis of Liquidation Events & Ethics

This report investigates the liquidation of Aluminium Boats Australia (ABA), HIH Insurance, and Stellar Homes, analyzing the events leading to their downfall, the role of ethical codes (APES 110) and corporate governance issues, and the types of liquidation involved. It highlights that ABA's liquidation was triggered by the loss of a navy vessel due to fire, HIH Insurance's collapse resulted from poor investment decisions and accounting irregularities, and Stellar Homes faced liquidation due to declining sales and an economic downturn. The report also addresses whether liabilities were a major contributing factor in each company's downfall, noting increased liabilities in Stellar Homes and HIH Insurance due to business decisions. The report concludes by emphasizing the importance of ethical conduct and sound corporate governance in preventing financial distress and liquidation.

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

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Executive Summary
This report aims at the investigation of the events that led to the liquidation of Aluminium
Boats Australia (ABA), HIH insurance and Stellar Homes. This report also evaluates the role
of ethical codes long with corporate governance in the liquidation process of these three
companies. Analysis of the types of liquidation is another aim of the report. Lastly, the report
also shows the role of increased liabilities in the liquidation of these companies.

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Table of Contents
Introduction................................................................................................................................3
About Companies.......................................................................................................................3
Events that Led Up To the Liquidation......................................................................................3
Ethical Codes.............................................................................................................................4
Issues Related to Corporate Governance...................................................................................5
Liquidation Types......................................................................................................................5
Role of Liabilities.......................................................................................................................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
In the recent years, there are many cases of the liquidation of the famous business
organizations; and one can observe that there are certain reasons that are behind the
liquidation of these companies. These reasons can be mad made or they can be natural reason
like the bad economic condition that has nothing to do with the managements of the
companies (Coad, 2014). In the recent years, Australia has witnessed the collapse or
liquidation of certain major companies; and three of them are Aluminium Boats Australia
(ABA), HIH insurance and Stellar Homes. The main aim of this report is to analyse and
evaluate the main events that led up to the collapse or liquidation of these three companies.
At the same time, this report also considers the analysis of the major code of ethics that the
professionals are needed to adhere to at the time of their business operations.
About Companies
Aluminium Boats Australia (ABA)
ABA was established in the year of 1999 and the company was involved in the
delivery of multi-disciplinary large shipyards along with the services like new construction,
repair, maintenance and technical support. The company was renowned for maintaining
international standards, safety, quality and efficiency. At the same time, the involvement of
the company could be seen in the delivery of the competed solutions to some of their key
customers. ABA was considered as the specialist in providing high-performance commercial,
luxury as well as military vessels with the help of advanced composition and aluminium
technology. The company developed a reputation for exceeding specification and
expectations on their each and every projects (aba-global.com, 2019).
HIH Insurance
HIH Insurance was established in the year of 1968 and it was regarded as the second
largest general insurance company in Australia and the company had their business
operations in Australia and many other countries. HIH Insurance was a public listed
company. It needs to be mentioned that the company was successful in the expansion of their
business operations in some major countries during the years 1997 to 1998. HIH Insurance
along with a number of subsidiaries of them were placed into provisional liquidation on 15th
March, 2001 (hih.com.au, 2019).
Stellar Homes
Before the process of liquidation, Stellar Homes was regarded as one of the major real
estate development company and the company was based on Florida. It can be seen from the
year 2009 that Stellar Homes did some major investments at that time in the real estate
development sector. Speciality of the company could be seen in taking into account the
impact of their business operation on the environment and the people of community. Other
business organizations in the same sector used to admire Stellar Homes as the company was
passionate and dedicating to maintain the required environmental standards throughout their
business operations (newhomesource.com, 2019).
Events that Led Up To the Liquidation
Aluminium Boats Australia (ABA)
The liquidation process of ABA started on November 4, 2014 and the considered
main event for the liquidation of this company was losing the navy vessel by the company as
a result of fire. The responsibility to conduct the whole liquidation process was on Kelly-

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Anne Trenfield and John Park; they were from FTI Consulting. The report of these
administrators puts emphasis on the fact that the company had to face some major financial
losses as the fire did demolish the HMAS Bundaberg and this event took place in August.
The company had to face a loss of $45 million due to the fire as it demolished a patrol boar of
Australian Navy. This event created negative impact on the company from different
dimensions such as losing the contract to provide service and maintenance to the Australian
Navy vessels; removal of more than 90 employees from their current positions and many
others. Moreover, the administrators had to remove certain more employees at the time of the
settlement of the dues at the time of liquidation. From the side of liquidation, it was a sudden
liquidation of the company as they had good performance in that specific financial year along
with the plan for expansion (couriermail.com.au, 2019).
HIH Insurance
There are many events that can be held accountable for the liquidation of HIH
Insurance. There was a huge amount of investment by the company at the time of the
acquisition of FAI Insurance and the company was unable to profit from the acquisition and
ended in major business loss. Another major wrong decision of the company was to make
investments in the film industry as the company ended by conceding more than hundreds of
millions dollar business loss (aph.gov.au, 2019). At the same time, the natural disaster in
Florida was another major contributor in the liquidation of HIH Insurance as the company
had to incur huge amount of debts for overcoming the situation. Major issues or problems in
the accounting standards of HIH Insurance were majorly responsible for the collapse of the
company as the company made wrong alteration in the accounting policy related to the
payments of the employees of California; and this change did not work for them in the
positive manner. On the overall basis, HIH Insurance had to incur a loss of more than $800
million within very short-time span due to some major negative business decisions like quick
expansion, selection of wrong industry for investment and others (treasury.gov.au, 2019).
Stellar Homes
Australia witnessed another major business liquidation in the form of Stellar Homes
and the commencement of the liquidation process of the company started from October 20,
2014. The people worked as the administrator in the total liquidation process were PI Macks
and IW Burford; and both of them worked for Macks Advisory. It can be seen from the
investigation results of these administrators that the company had to face sudden and
immsence decline the sales figure and it created major issues related to the cash flows of the
company. Stellar Homes had a reputation of the development of more than 500 homes within
10 years in the various areas of Adelaide (news.com.au, 2019). It can also be seen from the
mentioning of the administrators that the company was going through the immense economic
downturn of South Australia and it was majorly responsible for the decline of the company’s
sales. It needs to be mentioned that the liquidation of Stellar Homes was unexpected and it
left the trajectory of many under-progress homes in Australia which have Stellar Homes as
the contractors. The report of the administrators has mentioned that the number of unfinished
homes by the company was 36 (insolvencynotices.asic.gov.au, 2019).
Ethical Codes
It is needed for the accounting professionals to comply with certain code of ethics at
the time to provide the professional service. To these professionals, APES 110: APES 110
Code of Ethics for Professional Accountants can be considered as a major document as it
provides the professionals with the major five code of ethics that they need to adhere to
(apesb.org.au, 2019). These codes are discussed below.

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Integrity: It is considered as the first principles and this principle puts the commitment on the
professionals to be honest as well as straightforward while providing the professional services
to the clients.
Objectivity: Objectivity is the next ethical code in APES 110 which puts emphasis on the fact
that it is not expected from the professionals to be bias in the professional relationships due to
the fact that it can contribute to conflict of interest in the profession (apesb.org.au, 2019).
Professional Services and Due Care: It is regarded as one of the major codes under APES
110 as it puts focus on the need of the auditors to possess the required skill, knowledge and
experience for providing the professional services to the clients.
Confidentiality: It is considered as another major code of ethics under APES 110 and code
indicates towards the responsibility of the professionals not to disclose any confidential
business information of the clients in the absence of the required agreement from the clients.
Professional Behaviour: This is the last code of ethics under APES 110 and this code puts
the commitment on the professionals to adhere to the standards and regulations of the
profession at the time of providing the professional services (apesb.org.au, 2019).
Issues Related to Corporate Governance
Issues in corporate governance mechanism can lead to the downfall of a company and
the same can be seen in case of HIH Insurance. It is needed for the managements of the
companies to obtain the needed permission before any major business acquisition and the
absence of this needed permission can be seen in case of HIH Insurance as there was not any
permission or approval from the Board of Directors of HIH Insurance at the time of the
acquisition of FAI Insurance which was a loss-making deal for the company (Tricker and
Tricker, 2015). In addition, the management of HIH Insurance tool a very poor decision to
enter into the business to invest the films. Moreover, the management of the company was
not ethical in their business operations as they did not comply with the needed due diligence.
In addition, the financial statements of the company was missing the material financial
aspects of their business (Peters and Bagshaw, 2014). All these aspects indicates that HIH
Insurance lacked effective corporate governance that led to these so many intentional errors
in the business of the company. At the same time, the absence of ineffective corporate
governance can be seen in the liquidations of both Stellar Homes and ABA as some other
reasons were responsible for the liquidation of these two companies.
Liquidation Types
The liquidation of both Stellar Homes and ABA was voluntary in nature as both of
these companies decided to liquidate their business in the presence of the sufficient reserves
for paying off the obligations of creditors and other parties (Realdon, 2013). The liquidation
of these companies was carried out as per Paragraph 446A(1)(a) special resolution as per
s491.
Different situation can be seen in case of the liquidation of HIH Insurance as the court
passed the order of the liquidation and the liquidation process took place on August 27, 2001.
The review of the financial statements and position of HIH Insurance by KPMG had certain
major influence on the decision of the court. For this reason, the liquidation of HIH Insurance
was court liquidation in nature (Crhová, Fišerová and Paseková, 2016).
Role of Liabilities
The burden of debts or liabilities can be considered as one major reason for the
liquidation of the companies. It can be seen in case of Stellar Homes that the company left the

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work of unfinished homes and it created as liability of $1.5 million for the company. The
assessment of the administrators states that the company as both secured and unsecured debts
of $3.4 million and $1.5 million. In addition, the company did not finalize the dues of the
employees.
Same situation can be seen in the case of HIH Insurance as the company had to
witness increased amount of liabilities due to their wrong business decisions and other wrong
business moves. More specifically, the company had to incur huge liability when they acquire
FAI Insurance for $300 million and the market price of the deal was $100 million
(companydirectors.com.au, 2019). However, increased liability did not have any role in the
liquidation of ABA.
Conclusion
To infer, it can be seen from the above discussion that all of these three companies
liquidated in the presence of certain events. Incorrect business decisions like wrong business
acquisition, entrance in the wrong business industry along with certain corporate governance
issues led to the liquidation of HIH Insurance. Reduction in sales as a result of economic
downturn was the reason for the liquidation of Stellar Homes. Lose of Navy vessel due to fire
was the main reason for the liquidation of ABA. The study also states that the liquidation of
Stellar Homes and ABA was voluntary in nature where court liquidation can be seen for HIH
Insurance. It can also be seen that the companies are needed to comply with the ethical codes
to avoid business declines.

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