Financial Liquidation Analysis Report: ABC, HIH, One Tel Companies

This report provides an in-depth analysis of the financial liquidation processes of three prominent Australian companies: ABC Learning, HIH Insurance, and One Tel. The executive summary highlights the key reasons behind their liquidation, focusing on the role of liabilities, ethical considerations, and governance issues. The introduction provides a background on financial accounting and its regulations. Task 1 delves into the events leading to liquidation, defining the process and its various types, including court-ordered, member voluntary, and creditor voluntary liquidations. It also examines the role of ethics and governance in financial stability, referencing examples like Enron and WorldCom. The report then analyzes the specific cases of ABC Learning, HIH Insurance, and One Tel, detailing the factors contributing to their failures, such as falling profits, asset mismanagement, and market challenges. The analysis concludes by addressing whether liabilities were a major factor in the liquidation of these companies, highlighting the importance of financial health, and discussing the implications of insolvency and inadequate funds to cover liabilities. The report utilizes various financial accounting concepts and references relevant literature to support its findings.

Accounting Financial

EXECUTIVE SUMMARY
The project report summaries the process of liquidation through using the various
companies of Australia such as ABC learning, HIH insurance and One Tel. Com. It is done to
find out what were the major reasons that these companies are come in the position of
liquidation. Under this it also explain the ethic and governance those are affecting the company
financial stability and growth in removing financial stress. It also target that was liabilities are
major aspect for these company which can contributed to the winding up of the companies or
there are other reasons for that concern.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1: Associated Events that led up to the liquidation.....................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Financial accounting is the techniques of characterising, measuring and communicating
economics details regarding a business organisation. It is done in order to permit advised
analysis by users of that detail. The main objective of this financial accounting system is to
record those financial transaction which are associated with company daily operations. It is
mostly regulated and a huge deal of rules and regulation changes happen in accounting system to
make an effective decision (Mulford and Comiskey, 2011). The project report consist of three of
well – publicised companies of Australia such as ABC learning, HIH Insurance and One Tel.
phone company. In order to know why they are gone into liquidation are discussed under this
report.
TASK 1
1: Associated Events that led up to the liquidation
Liquidation: It refers to a method that corporate structure of an organisation is
demolished and its property managed for the advantages of the creditors and members. In terms
of finance, liquidation is an activity that mainly occurs when a business is not working properly.
It seems to be making continuous losses from last few years. Under this kind of situation there
operations are brought to an end and its property are divided among creditors, shareholders as
per their right and ratios. This process is initiated through its shareholders or by creditors after
taking prior permission from the concern court.
There are three ways through which they can be liquidated:
 If a solvent company top management have decided to end up trading its members
voluntary liquidation. There are various alternatives available to the company by striking
it off the companies register.
 For an insolvent company, because of creditors voluntary liquidation they can wind up
their business operations (Kew and Watson, 2010).
 If a company is liquidated only because they are insolvent, they need to cooperated with
the liquidator and certain rules and regulations need to be followed by them.
There are various events which are said to be major causes of dissolution and winding up of a
company which are not able to perform well. It is necessary to organise a legal ways through
which are able to manage its operations and pay off its outstanding liabilities. An event which
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allows venture investors in a company to money less. or all of their control shares and is advised
an opening strategy for an illiquid investment. In case of liquidity events those are used in
relation with venture capital or angel investors (Edwards, 2013). Some of the most common
liquidity events are initial public offerings (IPO) and direct acquisitions by some other entities
and corporations or private firms.
 An event that form it irregular to carry on a substantial part of the partnership business.
 A judicial determination.
In case of liquidation preferences, it indicates that during liquidation, sold or bankruptcy
of a company who get how much of the shares or amount. It concluded with a statement that
company liquidator have to analyse secured and unsecured loan contract and share capital that
are mentioned under article of association. After making proper evaluation the liquidator comes
with the solution and make it decision on through ranking of all shareholder and creditors. On
the basis of there ranking funds are distributed among them.
It is an important issues that to know whether liquidation is voluntary or compulsory. In case of
compulsory liquidation creditor petition by the court in order to liquidate a company. Because in
the above mentioned company like ABC learning, HIH Insurance and One Tel. phone company.
They think that to be insolvent and unable in paying its liability.
Liquidation can be categorised into three types:
Court: It is a kind of situation under which if any creditor of an organization goes into
court and apply an application that a company should be winding up. After analysing valid
evidence regarding the reason behind winding up of that company (Weil, Schipper and Francis,
2013). They consider that creditor is correct, so it gives decision as a result of an order by the
judge of court. Thus, liquidation process starts afterwards.
Member voluntary liquidation: It is situation in which a company is solvent and able to
paid off its outstanding liabilities, a members voluntary liquidation can be commenced. Under
this process there is no involvement of legal authority like court.
Creditors voluntary: It is done by company itself to follow its liquidation process. It is
instigated by an insolvent company by which the property of the insolvent company are sold. It
also distributed to the creditors of a company.
Role of ethics and governance in financial emphasised companies.
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In an accordance to corporation act 2001, Australia ethic and governance is a key element
of the skills and knowledge associated with financial accountant. It is based on current
professional accountant those are handling financial statements of the company. It means that
those people are having effective knowledge regarding legal regimes related with liquidation of a
company (Chen and et. al., 2010). It also state that how legal bodies are working in relation to
winding up process. It is necessary for an finance official to make sure that they are performing
according to the standard set under ethics and policies. With the combination of moral norms and
social ethics the principles and standards of conducting business are said to be ethical financial
accounting. The benefits of ethics and governance can be explained with an examples of Enron
and world Com companies. As these companies are implementing ethics and governance under
there operations in order to manage its business transactions. The main reason regarding
misconduct of ethics in there financial operations are quit simple. The accountant which was
handling financial aspects of the company are not working according to the company policies.
The trust of employees those are working in that particular organisation are coming down in
respect of that accountant. That makes the company to work on legal code of conduct which are
affecting the company and employees performance.
Fall of ABC learning:
ABC was known as one of the largest public listed child care operator company in
Australia. It has a market capitalisation of $ 4.1 billion. It is a time when its shares were delayed
from trading at 54c, with total company worth was $296 million. An unexpected fall of 42
percent in profit in second half of 2007 and its incapabilities makes the company decline. Its
share prices are also falls with margin call most of the shareholders forces to dump its shares. In
2008 trading in ABC learning shares are comes to an end after failure of continuous earning in
previous years. The creditors of the company are decided to wind-up the company in 2010. after
that it was taken by Good start which is a consortium of mission Australia.
Fall of HIH Insurance:
It was known as one of Australia largest insurance firm with a $8 billion of assets. After
offsetting all it assets with debts and potential insurance benefits claims in relation to the
company. HIH was left, on paper with net assets of 133 million (McConnell, 2010). In 2001, the
board selected a professional liquidator to take control of HIH and other comptroller entities. The
board has decided to give time in order to review its operations and assess its financial position.
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With the information regarding company performance as it has generated a huge loss of $100
million which leads to the failure of this company. After few days, it jumped to 200 million and
so on. It has been found that during six month the HIH Insurance has recorded a losses of $800
million (Garcia-Castro, Ariño and Canela, 2010). It seems to be one of the largest corporate
failure in history of Australia.
Fall of One Tel.:
It is founded in 1995, as one of the effective telecommunication company that lay off
trading in 2001. In coming time the entire focus was transfer towards developing a strong base
of a international business. There are different situation which are reason for the failure of this
company. However, some suggest that as the downfall of the business was not meeting the
obligation of the customers. This is a kind of information which are determine as effective
strategies in accordance to Australian telecom company. The failure of such strategies lead to the
downfall of the company.
Q. Was liabilities a major factor contributing to the liquidation of the company?
In accordance with the above mentioned company those are not able to manage its
operations and liabilities which leads to the failure. Poor signs indicates that a company is not
able to manage its financial health. They are struggling to break even as a business cannot able to
continue itself from internal resources and needs to increase capital at external level. It leads to
company business risk which is shown in case of One Tel and trustiness with its lenders,
suppliers, capitalist and banks are also gets affected. Limiting access to money generally results
in a company weakness. Another factors which affect the company failure are based on bad sales
growth or downfall. It leads to indicates that market is not set perfect to receive a company's
goods that are based on business models.
According to corporation act 2001, it has been stated that the main reason of company
liquidation are arises when company are not able to meet out its outstanding liabilities. In case of
HIH Insurance there assets are comes below to its liabilities which make them to think that from
where they are going to offset its liabilities (liquidity event, 2017.). It has analysed that within six
month of time company has incurred a sever loss of 800million which is as more as they thought.
So they decided to wind up there business.
Likewise, ABC learning are the main reason of liquidation are arises when they are not
able to control its share market prices during the past few years. The shareholders of the
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company are decisioned to withdrew there shares from the market after seeing that changes. So it
has can be different reason of liquidation which can leads to the shut down of the company from
commencing business.
From the above analysis of all three companies it has been found that liabilities can be the
one option of liquidation for ABC learning and HIH insurance. But in case of One Tel
communication it can be other ways. They wants to expand there network in other parts of the
company in order to generated maximum profit. But not able to catch up with the market demand
of that country laws and policies which leads to bear a heavy losses. As it has been observed that
the major aspects of this liquidation is insolvency which arises with its assets, that determine the
outstanding claims. It is mainly associated with the other company positions and capacity to
generate profit in coming future (Badertscher, Burks and Easton, 2011). The risk which is always
there with company that the existing funds are insufficient to covers the liabilities. So that they
can protect them from heavy losses in coming time. It has been always fear for the company that
is they are able to meet out its current liabilities. Because most of the investment decisions are
made by investors on that basis. As liquidation will be directly or indirectly affect profitability of
the company in huge manner. So that would be the prime concern for each organisation to
maintain its current and long term liabilities which are affecting company stability and growth.
CONCLUSION
From the above project report it has been articulated that accounting financial is an
important aspect for each organisation. The major aspect of the companies are to maintain its
growth and stability so that it would meet out its all expenses and debts. The project also
concluded that how companies of Australia like ABC learning, HIH insurance and One Tel are
wound up. Analysis of various liquidation process and the main reason behind the liquidation of
those companies are explained under this project report.
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REFERENCES
Books and Journals:
Badertscher, B.A., Burks, J.J. and Easton, P.D., 2011. A convenient scapegoat: Fair value
accounting by commercial banks during the financial crisis. The Accounting
Review.87(1). pp.59-90.
Chen, H and et. al., 2010. The role of international financial reporting standards in accounting
quality: Evidence from the European Union. Journal of International Financial
Management & Accounting. 21(3). pp.220-278.
Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge.
Garcia-Castro, R., Ariño, M.A. and Canela, M.A., 2010. Does social performance really lead to
financial performance? Accounting for endogeneity. Journal of Business Ethics. 92(1).
pp.107-126.
Kew, J. and Watson, A., 2010. Financial Accounting: An Introduction 3e. OUP Catalogue.
McConnell, P., 2010. Response to ‘Fair value accounting, financial economics and the
transformation of reliability’.
Mulford, C.W. and Comiskey, E.E., 2011. The financial numbers game: detecting creative
accounting practices. John Wiley & Sons.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts,
methods and uses. Cengage Learning.
Online
liquidity event, 2017. [Online]. Available through:
<http://www.investorwords.com/2839/liquidity_event.html> . [Accessed on 8th
September 2017].
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