Corporate Accounting: Liquidation and Winding Up of Companies Report

This report provides a detailed analysis of corporate liquidation and winding up, exploring the processes and factors that lead to business closure. It begins with an executive summary and an introduction to liquidation, defining the concept and its relationship to winding up. The report then examines real-world case studies of Australian corporations, including ABC Learning, HIH Insurance, and One.Tel, to illustrate the events that led to their liquidation. It delves into the role of ethics and governance, discussing how bad practices can contribute to financial stress and ultimately, liquidation. The report also analyzes the contribution of liabilities to the liquidation process, highlighting how financial obligations can trigger company closures. Finally, the report provides recommendations and a conclusion summarizing the key findings, emphasizing the importance of ethical compliance and effective financial management in preventing liquidation. The analysis draws from various sources, including academic publications and industry reports, to provide a comprehensive understanding of the topic.

RUNNING Head: Liquidation and Winding up of Companies
1
Name of the Student
Topic- Corporate Accounting for the Liquidation
University Name-

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Table of Contents
EXECUTIVE SUMMARY...................................................................................................................3
EVENTS THAT LED TO LIQUIDATION..........................................................................................3
INTRODUCTION.............................................................................................................................3
ABC LEARNING..........................................................................................................................4
HIH INSURANCE........................................................................................................................4
ONE.TEL......................................................................................................................................5
ROLE OF ETHICS AND GOVERNANCE..........................................................................................6
DOES BAD ETHICS AND GOVERNANCE LEAD TO FINANCIAL STRESS?..........................6
Recommendation..................................................................................................................................6
LIBILITIES CONTRIBUTING TO LIQUIDATION...........................................................................7
Conclusion.............................................................................................................................................7
References.............................................................................................................................................9

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EXECUTIVE SUMMARY
This is a concise description regarding the conclusion of a major corporate theory,
liquidation. For the proper understanding of the theory, the real-life examples of big
Australian Corporate participants, ABC Learning; HIH Insurance; One Tel are, on a one-to-
one basis conferred. The starting points of discussion include the events that results into the
liquidation of an entity by taking the references from the incidents of prior mentioned
companies. Further we will discuss about the management practices due to which company’s
existence brought to an end. At the end of the report an interpretation regarding the
contribution of liabilities in the event of wound up is done.
EVENTS THAT LED TO LIQUIDATION
INTRODUCTION
Liquidation could be determined as process which is used by the busienss
organizations to take the company to its end and distribute its assets to discharge its corporate
legal liabilities. It is usually done when the company is insolvent; means it cannot pay it is
unable to pay its legal debts. As company operations end, the remaining assets are distributed
to shareholders and creditors. It is almost similar to the term “winding up”. Liquidation is an
initial stage of ending of a company’s existence and the winding up means to “finish up”.
Liquidation is not a one day process. It is a complete series of several events and procedures.
The business does not continue to process if it the liquidation process is done.
Businesses can liquidate their assets for any number of reasons, but the main two
reasons are the company is failing and restructuring or investors want to leave the business. It
is far more common in bankruptcies and situations where the business is closing because it
can’t support itself with revenues than any other instance. In a bankruptcy, the court generally
takes control of the assets in order to sell them at auction to pay off the outstanding liabilities
(Khan, & Williamson, 2016).
Liquidation does not arise only after when company is unable to pay its debt. In some
many cases, it arises when company. Apart from that the inadequate working capital, weak
financial skills, lack of planning, poor marketing and inflexible business model also some of
the factors which brought the company to an end. Further sometimes the companies are

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liquidated because the business purpose with which company was incorporated was done or
the time for which it was incorporated is completed. The object with which company was
incorporated is considered as illegal now or the company is not able to commence its
business after its incorporation can also be a reason of liquidation.
It would be better to study some prominent cases, to get a clear view regarding the
different events and factors which results into the winding up of company. The cases that we
named in our above discussion are well known corporates, which experienced a good track
record before facing such process of winding up (Parker, 2015). These all three companies
have shown that if company does not comply with the legal and ethical issues then it will
eventually increase the overall outcomes and efficiency of the busienss. It is observed that
these main three companies had to suffer destruction of is business due to failure to manage
the business.
ABC LEARNING
ABC was co-founded in 1988 as a childcare centre. Back then, in Australia children
care centres were non-profit organisations supported by government subsidies. In 1997, the
government of Australia gave the subsidy direct to the families, which created the potential
for evolution in the sector. Over the years, ABC was consistently giving the benefits to
children for their benefits. This company was listed on the Australian Stock Exchange and
had market capitalization of A$25 million, which becomes A$2.5 billion in year 2006
(Butler, & Connelly, 2016).
ABC Learning had become the world’s largest service provider and was well known
for its quality of services and soon attracted core service provider in its area of service. Being
a monopolist, the company started avoiding the child safety policies and litigations for false
behavior filled against it and it was held guilty when the allegations got proved. All these
events marked adverse for the share prices and after that it all went pear-shaped. ABC was
overwhelmed by debt repayments and had to sell 60 per cent of its US subsidiary and its
entire UK subsidiary. It was then delisted from ASX and went into receivership. In 2009, the
company was voluntarily liquidated and bought by Good start Limited in 2009 (Haider,
2016).

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HIH INSURANCE
HIH Insurance was the second largest insurance companies of Australia (Swart, &
Lombard, 2015). It was an eminent insurance company with $8 billion in assets and it was
considered one of Australia's largest insurance firms. After a time it suffered from an adverse
series of downfall and the management of company was held liable for the same. However,
offsetting of the debts with the potential amounts, HIH was left, on paper, with net assets of
only $133 million. The company was in the state of marginal insolvency which can be
converted into assets deficiency from a small movement in the value of assets. That could
cause the company to become an insolvent. Although the company was still have a stable
financial condition but it was just left with $133 million against the liabilities, even when it
sold its assets off. The proceeds by sale of assets couldn’t help the company to establish and
this lead to bring the company into provisional liquidation. It is well observed that, HIH was
wound up not because of the financial stress but because of the unethical counts on the
management’s part. (Merler, 2018).
ONE.TEL
One Tel is Australian Company which was indulged in telecommunication services.
One Tel initially started as a reseller of OPTUS services. The company had very clear market
strategies and was much focused on the young generation. The company was mainly deals in
the portable devices, cellular phones and wireless transmission. When this company was
collapsed, it was having good amount of clients. This One-Tel’s collapse was collapsed due
to the failure of classic case of failed expectations, strategic mistakes, wrong pricing policy,
and unbridled growth. The company was a severe case of management fraud instead of being
unable to pay off the debts on sale of assets (Chitimira, 2017). For the personal benefits, out
of the company’s management, Jode Rich, who was the co-chief of the company was claimed
to have made manipulations in the books. When OPTUS ended the business with One Tel,
the company started facing more problems. Hence, transparency was lacking in the concern,
which ended its business relationships and even led to company’s ultimate winding up
process (Rana, 2016).

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ROLE OF ETHICS AND GOVERNANCE
DOES BAD ETHICS AND GOVERNANCE LEAD TO FINANCIAL STRESS?
Businesses do not function in segregation, but in immediate social & public
connection. It cannot think for its own profit without considering the social factor. As per the
corporate government policies and social development theory, the management of the
company should perform ethically and in the interest of the society. Any personal benefit
against the cost of the social benefit is unethical. The management of company should always
consider the public factor as well as the profit factor in its code of conduct. A company is
sought to be functioning adequately without any plan of closure, it must think for the long
time operation run in the market. Anything done to gain the benefit at the cost of ethics is
unaccepted and may lead to ruin the whole empire (Mucha, 2018).
In the prior discussed cases, the major factors were manipulation, greediness, avoidance and
carelessness of the management, which brings the company to the end. In case of ABC
Learning, the ignorance and misuse of financial status was the reason of company’s winding
up (Silva, 2016). The provided subsidies by government were being misused, low budgeted
labour was engaged and cheap techniques were used for cost cutting. Therefore, it could be
inferred that each and every company should take proper ethical and legal program to
increase the overall ethical compliance of company. If these companies work ethically then it
will eventually decrease the overall problems and issues of the business. If these problems are
managed effectively or there is not corporate dilemma which could be faced by company then
the ethical compliance will eventually increase the sustainability of the business at large
(Goldschmidt, and Amoateng, 2014).
LIBILITIES CONTRIBUTING TO LIQUIDATION
Every running concern needs the finance to meet its daily requirements and to fulfill
the goal of wealth maximization. Finance is needed to pay the obligation for the easy running
of the business. It is the debt amount which needs to be paid by company. It can be for long
run or for short period of time. When the liability of the company exceeds to its assets and the
company is unable to meet its obligations. It can be the question mark for its financial
strength (Evans, 2016).

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When the financial stability of a company comes in question, all stakeholders who have any
interest in the company want their money back out of the falling business. This results into
the liquidation of the company. The end of the liquidation process is called winding up. After
paying off all the interested parties the company results into the winding up and the existence
of the company ends here. From all the discussion we get to know that the liabilities are a
major factor that contributing in the liquidation. In many companies that go into liquidation,
liabilities play a significant role. It has shown that all the companies firstly responsible
towards the creditors and then the rest of the liquidated amount will be distributed to
shareholders (McIntyre, 2014).
Recommendation
HIH Insurance was led to winding up due to the unethical behavior of its
management. Its top management was in fault as they performed for their personal gain and
presents the false information knowing it to be false to mislead the investors. IF they would
have followed the proper legal compliance and kept their business transparent then it would
have saved company from the destruction (Calabretta, and May, 2016).
One.Tel’s liquidation was a non-expected event for the whole management of the company.
It was also caused because of the management fraud. The major part of shareholders of the
company was misled by the management of the company. However, the company claimed to
have maintained transparency and fairness in all its operations, but no one was aware of the
real situation.
Each and every company should endeavor toward compliance with the legal and ethical
program if they want to keep their business sustainable in long run (Evans, McGarry, and
Smith, 2015).
If these given companies have used proper strategic program and effective busienss plans
then they would have ignored the possible issues and winding up in effective manner.
Conclusion
After analysis all the data of the liquidated company and case study of these all
companies, it could be inferred that if company implement proper legal compliance program
then it will eventually increase the overall outcomes and efficiency of the business. In
addition to this, it also helps company to overcome the issues and problems in determined

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approach. Now in the end, it could be inferred that if these programs are handled in effective
manner then it will increase the brand image and will save the company from the possible
destruction at large. The liquidation and winding up happened due to the negative business
output and failure to manage the business in determined approach.

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References
Butler, D., & Connelly, A. 2016. Practicalities of winding up trusts and realising trust
assets. Australian Restructuring Insolvency & Turnaround Association Journal, 28(3), 24.
Calabretta, S. and May, B., 2016. Winding-up companies in a partnership. Australian
Restructuring Insolvency & Turnaround Association Journal, 28(4), p.30.
Chitimira, H., 2017. Some thoughts on the meaning and application of commercial
insolvency in winding-up proceedings involving contingent creditors–Absa Bank v
Hammerle Group 2015 (5) SA 215 (SCA). Obiter, 38(2), pp.446-456.
Evans, A., 2016. Legal Infrastructure of the DIFC Courts. In Global Insolvency and
Bankruptcy Practice for Sustainable Economic Development (pp. 233-242). Palgrave
Macmillan, London.
Evans, J., McGarry, K. and Smith, P., 2015. Investigating the rate of company compulsory
liquidation in the UK via Bayesian inference and frequentist statistical methods. Journal of
Business & Economic Policy, 2(1).
Goldschmidt, A. and Amoateng, M., 2014. Reading (in) between the lines: winding up close
corporations: company law. Without Prejudice, 14(2), pp.24-25.
Haider, N. A. 2016. Winding up of Companies on Just and Equitable Grounds.
Khan, A., & Williamson, S. (2016). The liquidation of foreign companies in
Australia. Australian Restructuring Insolvency & Turnaround Association Journal, 28(2), 38.
McIntyre, W.D., 2014. Winding Up the British Empire in the Pacific Islands. OUP Oxford.
Merler, S., 2018. Bank liquidation in the European Union: clarification needed. Bruegel
Policy Contribution Issue n˚ 01| January 2018.
Mucha, A., 2018. Corporate mobility in Europe: new hand in corporate shopping after the
judgment of the Court of Justice in Polbud-Wykonastwo (C-106/16).
Parker, M. (2015). Division 7A and winding up structures. Taxation in Australia, 50(6), 312.
Rana, S., 2016. Compulsory winding up of companies a study of legislature and judicial
aspects.
Silva, A.R.E., 2016. Interpretation of ‘liquidation proceedings’ in terms of Section 131 (6) of
the Companies Act: a case analysis of Richter v ABSA Bank Limited (Doctoral dissertation,
University of Johannesburg).
Swart, C. W., & Lombard, M. (2015). Winding Up of Companies–Back to Basics:
Boschpoort Ondernemings (Pty) Ltd v. ABSA Bank Ltd.