ACC701 Financial Accounting Report: Liquidation of Australian Firms

This report provides a detailed analysis of the liquidation of three major Australian companies: Aluminium Boats Australia, HIH Insurance, and Stellar Homes. It examines the events that led to their downfall, including specific incidents like the fire on the HMAS Bubdaberg for Aluminium Boats Australia, financial mismanagement and acquisitions for HIH Insurance, and declining sales for Stellar Homes. The report also discusses the APES 110 Code of Ethics for Professional Accountants, highlighting key ethical principles. Furthermore, it explores corporate governance issues that contributed to each company's collapse, particularly focusing on HIH Insurance's ineffective governance practices. The types of liquidation (voluntary vs. court-ordered) are identified for each company. Finally, the report assesses the role of liabilities as a contributing factor to the liquidations, revealing their significant impact on Stellar Homes and HIH Insurance, but not on Aluminium Boats Australia. The analysis is supported by relevant sources and follows the specified report structure.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Executive Summary:
The report intends to review and investigate the events that resulted in the liquidation of three
big Australian organisations, which include Aluminium Boats Australia, HIH Insurance and
Stellar House. Moreover, another objective of the paper is to analyse the issues related to
corporate governance in the context of the three above-mentioned organisations. Finally, the
report has shed light on the nature of liquidation of these organisations along with the role of
liabilities.

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Table of Contents
Introduction:...............................................................................................................................3
Overview of the chosen organisations:......................................................................................3
Events that led up to the liquidation:..........................................................................................3
Codes of ethics:..........................................................................................................................4
Corporate governance issues:.....................................................................................................5
Types of liquidation:..................................................................................................................5
Role of the liabilities:.................................................................................................................5
Conclusion:................................................................................................................................6
References:.................................................................................................................................7

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Introduction:
Various events or reasons are evident behind the bankruptcy of global companies
from which the other organisations need to learn so that they could avoid unexpected
liquidation or closure of their businesses (Carnegie and O’Connell, 2014). The report focuses
on reviewing and inspecting the events that resulted in the closure of three big Australian
organisations comprising of Aluminium Boats Australia, HIH Insurance and Stellar House.
Moreover, certain other aspects would be examined in this paper as well including liquidation
of the three above-stated organisations, nature of liquidation, corporate governance issues,
role played by liabilities and others.
Overview of the chosen organisations:
Aluminium Boats Australia:
It was an Australian-based organisation founded in 1999 having involvement in
repair, maintenance and technical support of military, commercial and luxury vehicles and
boats. It was considered as a firm having greater performance and they had the brand image
of going beyond expectations as well as project specifications to meet the needs of its
customers (Aba-global.com, 2019).
HIH Insurance:
HIH Insurance started its business operations in 1968 and they used to be the second
largest insurance provider in Australia before it went to insolvency (Hih.com.au, 2019). The
organisation has its business operations spread across the different regions of the nation and it
used to operate in foreign countries as well. It was even listed in “Australian Securities
Exchange (ASX)” due to its remarkable financial growth. Hence, the downfall of the
organisation is seen as one of the biggest collapses in the corporate sector of Australia. The
most significant business diversification of the organisation could be witnessed between 1997
and 1998.
Stellar Homes:
Stellar Homes was a reputed organisation based on Florida and it had significant
business operations in the sector of real estate development in Australia. Besides, the
organisation had made considerable amount of investments in the Australian real estate
sector. This is because it was popular, as it took into account the impact of its business
operations on the community and environment (Stellarhomes.ca, 2019).
Events that led up to the liquidation:
Aluminium Boats Australia:
The primary reason identified behind the collapse of Aluminium Boats Australia has
been the unexpected fire in the navy vessel of Australia. The commenced liquidation date of
the organisation initiated from 4th November 2014 and the individuals administering the
process include Kelly-Anne Trenfield and John Park. After careful evaluation of the report
provided by the two administrators, it is apparent that the fire had fully demolished HMAS
Bubdaberg, which was an Armidatle boat of class patrol of the Royal Australian Navy. This
specific incident had affected the organisation negatively, due to which it had to undertake
the liquidation decision. Moreover, such incident caused the organisation to lose the boat

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valued $45 million and it lost the contract of providing maintenance services to the Australian
Navy, which was a significant revenue generation source for the organisation. Moreover, the
loss incurred due to fire compelled the management of Aluminium Boats Australia to cease
numerous employees, who lost their jobs eventually. All these incidents have attributed
significantly to the liquidation of the business operations of the organisation (SmartCompany,
2014).
HIH Insurance:
There are various reasons leading to the liquidation of HIH Insurance. It has been
identified that the management of the organisation had introduced inaccurate financial
standard associated with the remuneration of the Californian staffs; however, this standard
did not last for a long time. Moreover, the organisation encountered considerable amount of
loss owing to a natural disaster in Florida, due to which its debt level had increased
massively. Along with this, the acquisition of FAI Insurance resulted in huge drainage of
money and the amount is considered to be extremely high for an insurance organisation
(Bryce, Ali and Mather, 2015). Thus, it had to suffer significant damage because of the
investment decision. Finally, another reason that could be held liable for the collapse of HIH
Insurance was its decision to invest in the film industry, as it did not work in favour of the
organisation. As a result, it had suffered loss amounting to millions of dollars over a year.
These events jointly contributed to the decline of HIH Insurance (The Sydney Morning
Herald, 2019).
Stellar Homes:
The primary reason or event resulting in the liquidation of Stellar Homes was
significant downfall in sales revenue of the organisation, which, in turn, had adverse impact
on its cash flow position. The liquidation process of the organisation could be observed from
20th October 2014 and the individuals administering the liquidation process include PI Macks
and IW BurfordMacks. The organisation had a favourable brand image in order to develop
above 500 homes within ten years. From the analysis report of the administrators, it has been
found that economic issues confronted South Australia, which had minimised the ability of
Stellar Homes in earning increased sales revenue. Due to the sudden liquidation decision,
certain houses had been left uncompleted by the organisation. Thus, it is evident from the
assessment report that above 36 hours were not completed, as Stellar Homes went into
liquidation (SmartCompany, 2014).
Codes of ethics:
According to “APES 110 Code of Ethics for Professional Accountants”, five codes
of ethics are inherent, which are described briefly as follows:
Objectivity:
The professionals should not be biased and they need to be free from any conflict of
interest, which could have adverse impact on professional services.
Confidentiality:
The professionals are obliged of not sharing private business information at the time
they do not have the required consents from the clients (Cpaaustralia.com.au, 2019).
Integrity:

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The accounting professionals have to maintain honesty and straightforwardness when
they provide professional services to the clients.
Professional behaviour:
The professionals are needed to adhere to the needed guidelines and regulations at the
time of providing professional services to the clients.
Corporate governance issues:
HIH Insurance has been liquidated, as corporate governance issues played a
significant role in its collapse. Ineffective corporate governance policies of the organisation
could be observed when it undertook the decision of acquiring FAI Insurance without
obtaining adequate consent from its Board of Directors. Thus, this acquisition decision was
found to be ineffective for the organisation for entering into business venture resulting in
significant business losses. Moreover, the organisation had not paid adequate attention in
relation to due diligence and constant variations in its managerial positions, which denote
poor mechanism of corporate governance. Finally, the management of HIH Insurance had
overstated profit and there were various material omissions. All these factors prove that the
corporate governance framework of the organisation was poor (Iyer and Samociuk, 2016).
However, no corporate governance issues could be found behind the downfalls of
Aluminium Boats Australia and Stellar Homes.
Types of liquidation:
It is apparent from the collapse of HIH Insurance that the liquidation order arrived
from the court on 27th August 2001 after KPMG had reviewed the financial statements of the
organisation. Since the court had passed the liquidation of order, the collapse of the
organisation could be termed as court liquidation. However, this was not similar in case of
Aluminium Boats Australia and Stellar Homes, since these organisations had liquidated
voluntarily. For these organisations, the liquidation orders passed in accordance with the
regulation mentioned under “446A(1)(a) Special Resolution under Section 491”. Under
voluntary liquidation, the directors of the business organisations are obliged to maintain
adequate reserves in order to meet the obligations of the creditors and other stakeholders
(Miglani, Ahmed and Henry, 2015). Due to the presence of all these reasons, the liquidation
of the two organisations could be termed as voluntary liquidation.
Role of the liabilities:
Due to the presence of major liabilities, the business operations of Stellar Homes and
HIH Insurance had been affected significantly. In case of HIH Insurance, it could be observed
that the organisation had incurred huge debt amounts owing to incorrect business decisions
and other reasons such as acquiring FAI Insurance, entry into the film entertainment business
and others. For Stellar Homes, the organisation had both secured loans and unsecured loans
amounting to $3.4 million and $1.5 million respectively. The main reason behind the
formation of such massive liabilities was due to the uncompleted house contracts of the
organisation (Tricker and Tricker, 2015). All these liabilities had significant contributions
towards the liquidation of these organisations. However, liabilities were not the factor behind
the collapse of Aluminium Boats Australia.

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Conclusion:
Based on the above discussion, it is clear that there were certain major incidents or
events, which resulted in the liquidation of the three above-mentioned organisations. It could
be observed that liabilities played a crucial role behind the collapse of Stellar Homes and
HIH Insurance. Moreover, it is analysed from the above discussion, that voluntary liquidation
led to the collapse of Aluminium Boats Australia and Stellar Homes, while HIH Insurance
had been liquidated in accordance with the court order. Finally, corporate governance issues
in HIH Insurance had played a crucial role behind its collapse as well. However, it has been
analysed that no corporate governance issues could be found attributing to the liquidation of
Stellar Homes and Aluminium Boats Australia.

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References:
Aba-global.com., 2019. Aluminium Boats Australia | Shipbuilders Brisbane, Australia.
[online] Available at: https://www.aba-global.com/ [Accessed 7 Jan. 2019].
Bryce, M., Ali, M.J. and Mather, P.R., 2015. Accounting quality in the pre-/post-IFRS
adoption periods and the impact on audit committee effectiveness—Evidence from
Australia. Pacific-Basin Finance Journal, 35, pp.163-181.
Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate
collapse, accounting failure and governance change in Australia: Early 1890s to early
2000s. Critical Perspectives on Accounting, 25(6), pp.446-468.
Cpaaustralia.com.au., 2019. APES 110. [online] Available at:
https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-
standards/apes-110-code-of-ethics-for-professional-accountants [Accessed 7 Jan. 2019].
Hih.com.au., 2019. HIH Insurance. [online] Available at: http://www.hih.com.au/ [Accessed
7 Jan. 2019].
Iyer, N. and Samociuk, M., 2016. Fraud and corruption: Prevention and detection.
Routledge.
Miglani, S., Ahmed, K. and Henry, D., 2015. Voluntary corporate governance structure and
financial distress: evidence from Australia. Journal of Contemporary Accounting &
Economics, 11(1), pp.18-30.
SmartCompany., 2014. Construction company collapses owing $5 million - SmartCompany.
[online] Available at: https://www.smartcompany.com.au/finance/construction-company-
collapses-owing-5-million/ [Accessed 7 Jan. 2019].
SmartCompany., 2014. Shipbuilder collapses into administration after fire - SmartCompany.
[online] Available at: https://www.smartcompany.com.au/finance/shipbuilder-collapses-into-
administration-after-fire/ [Accessed 7 Jan. 2019].
Stellarhomes.ca., 2019. Stellar Homes - General Contractors, Residential Home Builder,
Edmonton, Spruce Grove, Stony Plain, Acreage, High-End Luxury Homes. [online] Available
at: https://www.stellarhomes.ca/ [Accessed 7 Jan. 2019].
The Sydney Morning Herald., 2019. HIH : The Inside Story Of Australia's Biggest Corporate
Collapse. [online] Available at: https://www.smh.com.au/entertainment/books/hih-the-inside-
story-of-australias-biggest-corporate-collapse-20030315-gdgff3.html [Accessed 7 Jan. 2019].
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.

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