ACC701 Financial Accounting: A Liquidation Report on Three Companies

This report provides a critical evaluation of the events leading to the liquidation of Aluminium Boats Australia, HIH Insurance, and Stellar Homes. It discusses the APES 110 Code of Ethics for Professional Accountants and highlights the corporate governance issues that contributed to each company’s collapse. The report also examines the type of liquidation called for each company and evaluates whether liabilities were a major contributing factor in their downfall. The analysis reveals that while liabilities played a role in some cases, poor corporate governance, inadequate risk management, and external factors like economic climate and unforeseen events were significant contributors. The report concludes that adhering to ethical standards, maintaining strong corporate governance, and managing risks effectively are crucial for preventing liquidation.

Accounting Financial ACC701

Table of Contents
Introduction......................................................................................................................................4
Events that led to liquidation...........................................................................................................4
Aluminium Boats Australia.........................................................................................................4
HIH Insurance..............................................................................................................................4
Stellar Homes...............................................................................................................................5
APES 110 Code of Ethics for Professional Accountants................................................................5
Corporate governance issues that have contributed to the collapse of each company....................6
Aluminium Boats Australia.........................................................................................................6
HIH Insurance..............................................................................................................................7
Stellar Homes...............................................................................................................................7
Type of liquidation..........................................................................................................................7
Aluminium Boats Australia.........................................................................................................7
HIH Insurance..............................................................................................................................7
Stellar Homes...............................................................................................................................8
Liabilities as a contributing factor for downfall..............................................................................8
Aluminium Boats Australia.........................................................................................................8
HIH Insurance..............................................................................................................................8
Stellar Homes...............................................................................................................................8
Conclusion.......................................................................................................................................8

References......................................................................................................................................10

INTRODUCTION
Ethics play a significant role in any field of business. The business role in society has been in
debate within the economy for a longer period. Further, the businesses are liable to the society
ethics in a legal and commercial manner. Corporate governance is considered as a serious issue
of international importance, it plays a great role in various internal and external business
members (Müller and et.al, 2016). The present study is based on the critical evaluation of events
that led to liquidation of following companies; Aluminium Boats Australia, HIH Insurance and
Stellar Homes. The study will also discuss about APES 110 Code of Ethics for Professional
Accountants, while highlighting corporate governance issues that contributed to each company’s
collapse. Along with this the study will also cover the type of liquidation, while evaluating
whether liabilities were a major contributing factor that led to their downfall of each company.
EVENTS THAT LED TO LIQUIDATION
Aluminium Boats Australia
The Aluminium Boats Australia is engaged in providing high performance commercial, lavish
and defence vessels. The fire event damaged the company wholly and was the means for the
downfall of the company. The fire devastated $54 million and blame has been put on Australian
Navy patrol boat for the company’s demise (KIRSTEN, R., 2014). Due to this event, the
corporate lost its contract held for the Australian Navy vessels servicing and maintenance, and
aftermath of same they were forced to cut off 90 jobs. In addition, the 15-year-old business has
used 160 staff prior to Fire; however 90 staff members were let go when the navy ship faced the
flames. Along with this, the industry was also experiencing higher pressures, in terms of cheap
exports that challenged the vessels which were made in Australia.
HIH Insurance
The events that led to the liquidation of HIH Insurance were as following; the company had a
poor corporate governance structure, plus the company considered issues different times as per
the provisions of accounts, and it reflected profits in earlier years, while it used to produce more
outflows from the market which thereby reduced its profitability and increased its expenses
(French, Vital and Minot, 2015). The company also conducted inappropriate and insufficient
valuations of assets, which means it reflected the assets at a higher value than their actual value.

Additionally, the debt leverage of company and insurance liabilities were extremely higher than
demonstrated larger insolvency risk (Moustaira, 2019). This demise created a dramatic impact on
all involved people, and claims were also left unpaid for professional indemnity, public liability,
home warranty, accident and disability and travel. Most of the business complexities of HIH,
were primarily because of the aggressive strategies of business expansion, in the time period of
10 years, the companies formed over 200 subsidiaries, and covered all business segments of
insurance on local and international basis.
Stellar Homes
Stellar Homes which is a home-builder failed in November that left out most of the South
Australian owners of a home with partially built homes. Further, this collapse was charged on a
complex economic climate meant for the builder based in South Australia and fierce competition
in the built-up construction industry. Darryn Peter set up the Stellar Homes in the year and
constructed over 500 houses throughout Adelaide in the last 10 years. In addition, the administer
state more than $3.4 million is owed to secured creditors, and unsecured creditors were owned
with $1.5 million (CARA, 2014). The company faced falling in sales which thereby led to the
huge crises in cash flow, approx 58 houses were in the construction stage, and 73 traders have
been left out in the pitch by the demise. The website of Stellar Homes has been shut down with
merely a holding site present it its place. The corporation suffered from a big cash flow crises,
due to the stoppage of work.
APES 110 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS
APES 110 Code of Ethics is a code issued by the Accounting Professional and Ethical Standards
Board (APESB). This Code established basic principles of ethics meant for Members, stating the
recognition of the profession for the responsibility towards public interest. Further, these
principles set out the behavioural standard expected from a member. The basic principles are
inclusive of integrity, professional behaviour, objectivity, confidentiality and professional
competence and due care (CPA Australia, 2019). The Code offers a conceptual structure that is
required to be applied by members for identifying, evaluating and dealing with compliance
threats and issues with the basic principles. Moreover, the Code creates applicability and
requirement materials on different themes to assist Members in applying the conceptual structure

to the same topics (Payne, Corey and Raiborn, 2018). In terms of Audits, Reviews and other
related assurance involvements, this Code established Independence Standards, set up by the
applicability of the conceptual structure to the threats and issues to Independence related with the
same involvements. The five Codes of Ethics are described as below:
 Integrity: to act in an honest and straightforward manner in all relationship related to
profession and business.
 Objective: not sacrificing the judgements based on profession and business due to biases,
undue influence by others or interest conflicts.
 Professional Competence and Due Care: To accomplish and keep up the professional
knowledge and competencies needed to assure that an employed firm or client gains
competent Professional Activities, on the basis of existing technical, reliable legislation
and professional standards. This Code of Ethics also requires acting diligently under the
applicable professional standards (APESB, 2018).
 Confidentiality: For respecting the information and data confidentiality obtained for the
professional and business relationships.
 Professional Behaviour: Act in compliance with the viable rules and laws while avoiding
any behaviour that the Member is aware of or shall be aware of that might disgrace the
profession.
CORPORATE GOVERNANCE ISSUES THAT HAVE CONTRIBUTED TO THE
COLLAPSE OF EACH COMPANY
Aluminium Boats Australia
The corporate governance issues faced by the Aluminium Boats Australia were of inadequate
risk management that led to the massive fire. The company failed to manage the risk by
involving Board and management to report risk concerns and communicate and interact
information effectively so that the risk could be addressed by the suitable parties before its
occurrence (Paige, C., 2014). The corporate governance issues were inclusive of unsuitable risk
management, non-compliance, weak internal controls and audits these all contributed to the
collapse of this cited company. There was also the absence of successive planning, control and

accountability, these insufficiencies pillared collapse and the same impacted the company,
stakeholder as a whole , thereby cutting off 90 jobs.
HIH Insurance
In the situation of HIH, not aligned with the corporate governance model, there were many flaws
in corporate governance practices. The insufficiency in the practices of the corporate governance
implied with the inborn risk of the company at a big scale and led to corporate excesses. It has
been noticed that the directors of HIH Insurance has been paying themselves the higher amount
of bonus and were in pursuit of receiving global competitive emoluments while their share prices
were plunging and their cash flows were turning out to be more critical(Chopra, 2015). There
was no integration of regulation or law that can abolish hedonism, it was the corporate
governance issue of regulatory failure that they had offered warnings 12 months prior, but they
were overlooked (Damiani, Bourne and Foo, 2015).
Stellar Homes
For the Stellar Homes, the collapse took place due to the economic climate, but it was not the
only reason, it owed approximately $100,000 from creditors and did not maintain effective
corporate governance and ethical standards. In addition, the company did not follow a balanced
capital structure and did not integrated its core corporate governance principles and practices
(ArAs, 2016). The risk management of the company was also low as it did not set fundamental
principles and not segregated duties and responsibilities appropriately in the internal
management. Along with this, the company faced the issue of over debt and liabilities and owed
a large amount that it is to be repaid to the other parties.
TYPE OF LIQUIDATION
Aluminium Boats Australia
The Aluminium Boats Australia declared that it had been called up into the voluntary
administration aftermath of the devastation of HMAS Bundaberg at the same time has gone
through maintenance in August at its Hemmant shipyard (ASIC, 2019). Aluminium Boats
Australia, a shipbuilding company based in Brisbane distorted in voluntary administration
subsequent to the loss held in its navy vessels in an enormous fire earlier this year.

HIH Insurance
The liquidation type called for HIH Insurance was provisional liquidation considered as a
temporary administration form that provided HIH the time for the liquidators of provisions to
analyse and review the operations of HIH while considering its financial position. In addition,
the HIH Insurance presently is in the run-off, which states that it is conducting the management
of its due claims and not writing any new business.
Stellar Homes
The Company Stellar Homes is taken into account by considering the paragraph 446A (1) (a),
which passed a special resolution according to the s491 that the Company is to be wound up
voluntarily (ASIC, 2019). The secured creditor of company inclusive of financier Westpac is
also expected to recover the $3.2 million their owed and 20 employees those are owned approx
$100,000.
LIABILITIES AS A CONTRIBUTING FACTOR FOR DOWNFALL
Aluminium Boats Australia
It can be stated that liabilities was not the contributing factor for the downfall of this company,
the sole factors that contributed to its collapse were poor corporate governance and ethical
issues. Also, the company faced stiff pressure from the side of industry and fire was the factor
that led to the devastating loss.
HIH Insurance
It can be asserted that HIH Insurance faced downfall due to the mixture of inadequate practices,
liability was not the sole factor that led to the collapse, but an earlier statement of profits,
improper valuation of assets, poor corporate governance and higher market outflows resulted in
the demise.
Stellar Homes
In the case of Stellar Home, complex economic climate conditions, cash flow crises, ineffective
corporate governance and ethical issues were the factors that gave fire to this destructive event. It
is considered that liability was also the contributing factor in this particular event; it is because it

owed a total amount of $100,000. Liability and debt were the crucial contributing factor for this
concerned company; it did not balance its debts and suffered from a big loss at the end.
CONCLUSION
On the basis of above analysis, it can be concluded that corporate governance and ethics play a
significant role in any form of business, and if not maintained properly they can come up with a
huge collapse. It is essential that each company must comply with all relevant laws and
regulation and must conduct its operations ethically, with better corporate governance and must
engage the principles of integrity, professional behaviour, objectivity, confidentiality and
professional competence and due care (Tricker and Tricker, 2015). It is recommended that
companies must follow the conceptual framework and establish optimal corporate governance
that is supported by technical and professional standards. The companies must also act in public
interest and set out a precise and documented distribution among the roles and responsibilities of
managerial authority, shareholders and Board of Directors (Board). Companies are also required
to solve all transparency issues and involve communication and interaction with its related
stakeholders and investor’s timely (Davies, 2016). In addition, companies must also assess the
remuneration of management, with proper disclosures, risk management, audits and financial
reporting. Better corporate governance must be integrated that offer an optimal valuation of
assets and should propel reinforced internal risk management and control structure while helping
the company in meeting required regulatory compliances.

REFERENCES
Books and Journals
ArAs, G., 2016. A handbook of corporate governance and social responsibility. Routledge.
Chopra, M., 2015. Corporate Governance Disclosure Practices By Banking Sector. Sage.
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up, (1), p.37.
Davies, A., 2016. Best practice in corporate governance: Building reputation and sustainable
success. Routledge.
French, A., Vital, M. and Minot, D., 2015. Insurance and financial stability. Sage.
Moustaira, E., 2019. Insolvency: International Insolvency. In International Insolvency Law (pp.
9-25). Springer, Cham.
Müller, R., Turner, J.R., Andersen, E.S., Shao, J. and Kvalnes, Ø., 2016. Governance and ethics
in temporary organizations: the mediating role of corporate governance. Project Management
Journal, 47(6), pp.7-23.
Payne, D.M., Corey, C.M. and Raiborn, C., 2018. A MODEL CODE OF ETHICS FOR
DECISION MAKING IN ACCOUNTING PROFESSIONS. 2017-2018 OFFICERS President
President-Elect, p.195.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
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ASIC, 2019. NOTICE OF DEEMED SPECIAL RESOLUTION TO WIND UP A COMPANY
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details/STELLAR-HOMES-PTY-LTD-107791453/00b614e4-780a-4df8-b958-f3f48e4ee9f1>.
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