The present business world has witnessed the collapse as well as liquidation of many famous business organizations all over the world and the same can be seen in the business industry of Australia. In Australia, the occurrence of the liquidation of many business organizations indicates towards the crucial fact that there are certain major reasons that have contributed towards the collapse of these famous companies (Eidenmuller 2013). Winding up of the businesses and the liquidation of businesses is considered as the same process where the administrators or liquidators have to follow certain processes for the completion of the liquidation process. The objective of this report is to take into consideration the analysis and evaluation of different dimensions of the collapse and liquidation of three major Australian companies in three different sectors; they are Stellar Homes, HIH Insurance and Aluminium Boats Australia. In this process, this report also considers the analysis of the issues or reasons behind the collapse of these three companies.
Stellar House is one of the major Florida-based company and the company has its operation in the real estate development industry. It needs to be mentioned that the company played a crucial part in reshaping Palm Beach, Miami-Dade and Broward countries with healthy as well as environment friendly communities. At the same time, involvement of the company can be seen in the investment of real estate as well as residential sector. Under the business operations of Stellar House, the company takes into account the effects of their operations on the environment as well as community (stellarhomes.ca, 2018).
HIH Insurance was established in the year of 1968 and it was the largest insurance companies in Australia. In the initial stage, the presence of the business operations of HIH Insurance could be seen in the area of Australia. However, the company was successful in their expansion in the foreign market during the years 1997 to 1998. The name of the company could be seen enlisted in the Australian Securities Exchange. During the peak time of their operation, one company from Switzerland acquired one major portion of the business of HIH Insurance (Carnegie and O’Connell, 2014).
Aluminium Boats Australia (ABA) was one of the leading Australian companies and the company was established in the year of 1999. The mission of the company was to deliver quality as well as performance every time to their customers. In Australia, the company was regarded as one of the major companies involves in the delivery of multi-disciplinary shipyard along with providing the services and technical support to their customers. In this context, it requires to be mentioned that the speciality of ABA was the delivery of high performance commercials along with military and luxury vessels in advanced aluminium constructions. At the same time, the company was well known for providing complete solution to their major customers (aba-global.com, 2018).
In the recent years, the case of the liquidation of Stellar House attracted the attention of the business world. The administration process of the liquidation of Stellar House started from October 20, 2014; and PI Macks and IW Burford from Macks Advisory were responsible for the conduction of the whole liquidation process. The inspection of these liquidators indicates towards the fact that the company had to witness large decline in their sales volume and this aspect led to major crisis of cash flow in the company. This aspect affected the long-standing reputation of the company of complete construction of over 500 homes in the last 10 years. According to the analysis of the administrators, South Australia was facing major economic downturn at that time and thus, the company was not able in generating high revenue at that time; and this whole aspect affected the cash flow position of Stellar House. Due to the unexpected collapse, Stellar House was not able in completing huge number of homes as a part of their contract. As per the assessment of the administrators, the number of uncompleted homes were thirty-six. The administrators were involved in the assessment of these victims with the aim to refinance them from the company fund (news.com.au, 2018).
The management of HIH Insurance took some major wrong decisions that led to the collapse of the company. A large amount of investment could be seen by the company for the acquisition of FAI Insurance; and this large investment was not suitable for the company. At the same time, the management of HIH Insurance took the decision to enter into the business of file investment. Due to the failure in this project, there was a loss for the company more than hundreds of dollars. At the same time, it needs to be mentioned that the natural calamity in Florida was one of the reasons that led to the liquidation of the firm. The company had to incur high amount of debt due to the loss from this California natural calamity. The company was unable to handle this large amount of debts. At the same time, it can be seen that the faulty accounting policies of the company was another major reason for the company’s liquidation. For the employees of the California Company, the company introduced wrong accounting policies that was a major failure for the company. Thus, on the overall basis, there was a loss of around $800 million for HIH Insurance due to the issues like quick business expansion, entry in the wrong business industry and others (smh.com.au, 2018).
The liquidation process of ABA started from November 4, 2014 and the prime reason for the liquidation of the company was that the company lost one of their major navy vessels in fire. Kelly-Anne Trenfield and John Park from FTI Consulting were responsible for the liquidation of the company. The assessment report of these liquidators indicates towards a crucial fact that the main incident that contributed towards the collapse of ABA was the fire in HMAS Bundaberg in August. The employees of the company had to suffer massively as they were removed from their position. Due to the fire, the patrol board of Australian Navy worth $45 million that was the prime reason for the liquidation of the company. As a part of the negative impact of this fire, ABA lost their contract to provide maintenance and services to the Australian Navy. To ABA, the collapse of the company was an unexpected event as the management of the company was expecting good performance of the company and thus, they planned for the expansion of their business (couriermail.com.au, 2018).
APES 110: APES 110 Code of Ethics for Professional Accountants is an important document for the accounting professionals as it deliver the professional with the needed code of ethics that need to be adhered to by the accounting professionals. APES 110 states that the accounting professionals are needed to adhere to five major codes of ethics (apesb.org.au, 2018).
The first code of ethic is Integrity and this code states that the accounting professionals need to be honest and straightforward in their professional and business relationship. The next code of conduct is Objectivity and this code of conduct states that that the accounting professionals should not be bias and there needs not be any influence and conflict of interest in the professional judgment. The next code of conduct as per APES 110 is Professional Competence and Due Care and this code of conduct states that there is a need for the accounting professionals for the maintenance of needed skills and professional knowledge with the aim to ensure effective delivery of the professional services. As per APES 110, the next code of ethics is Confidentiality and this code of ethics shows that it is the restriction on the accounting professionals for not disclosing the confidential business information of their clients to any third party. According to APES 110, the last code of ethics is Professional Behaviour and this code of ethics tells that it is the top requirement for the accounting professionals to comply with all the needed laws and regulations (Athanasiou, 2014).
It needs to be mentioned that there are certain corporate governance issues that contributed towards the liquidation of these companies. For the liquidation of HIH Insurance, there was not any approval from the Board of Directors of the company at the time of the acquisition of FAI Insurance. Thus, lack of governance can be seen in this aspect (Velnampy, 2013). After that, the decision of the company to enter into the film business did not work for the company and it was due to the lack of governance. As a part of the unethical business practices, the management of HIH Insurance did not provide enough attention to main the required due diligence. Apart from this, the management of HIH Insurance issued wrong business prospectus without including the material issues of the company. Lastly, the involvement of the company could be seen in the process of profit overstatement. The lack of effective corporate governance led to the occurrence of these unethical business practices. However, in case of both ABA and Stellar Homes, lack of corporate governance did not have any part to play in the liquidation or collapse of these companies as certain different reasons were there behind the collapse (Bushee, Carter and Gerakos, 2013).
On August 27, 2001, the court passed the order to HIH Insurance to go into the process of liquidation after taking into account the review and assessment of the company’s financial statements by KPMG. For this reason, it can be said that the nature of the liquidation of HIH Insurance is Court Liquidation (Castro 2015). However, the situation is different in case of Stellar Homes and ABA as both of these companies went into Voluntary Liquidation. It can be seen in the case of these companies that the liquidation order was placed as per the regulation of paragraph 446A(1)(a) under the special resolution of s491. In this context, it needs to be mentioned that voluntary liquidation involves in the closure of the business by the management in the presence of accrued reserves. It involves the full payment to the creditors (insolvencynotices.asic.gov.au, 2018).
Many companies have been liquidated due to the increased amount of business liabilities. In case of HIH Insurance, the balance sheet of the company shoed the presence of high amount of debt due to the highly leveraged nature of the business as the main finances of the company came from term loans from banks and other institutes (Haldane, 2015). At the same time, due to the acquisition of FAI Insurance, the company had to take massive debts to afford the acquisition that is $300 million, but the original market value of the deal was $100 million. There is not any exception of this fact in case of Stellar Homes due to the fact that the owners of the incomplete homes owed more than $1.5 million from the company. More specifically, Stellar Homes owed $1.5 million and $3.5 million from the unsecured and secured creditors respectively. In addition, the company did not finalize the entitlement of the staffs (Edward Pickering, 2015). However, the absence of any role of liabilities can be seen in case of the liquidation of ABA.
Conclusion
It can be seen from the above discussion that different incidents led to the collapse and liquidation of the above-discussed companies. For example, wrong decision of the management along with ineffective corporate governance mechanism was the reason for the collapse of HIH Insurance where natural reasons like economic downturn and fire were the reasons for the collapse of Stellar Homes and ABA respectively. The above discussion also shows that the increased amount of debts for HIH Insurance as well as Stellar Homes was crucial factors for the collapse of these companies. At the same time, it can also be seen that HIH Insurance liquidated under the order of the court where other two companies liquidated on the voluntary basis.
References
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