Discuss about the Accounting Information System for Liquidation of Companies.
This study is based on the subject of accounting. During this particular study, the discussion is done on the liquidation of the Australian companies like, ABC Learning, HIH Insurance and One-Tel. The study evaluates the reasons behind the liquidations of the companies and at the same time, the study also discusses on the ethics and the governance of the financial stress of the three companies. Along with this, the study also evaluates whether the liabilities were the major factors that influenced the liquidation of these companies or not. At the end of the study, the conclusion is derived by considering the overall findings of the study.
In recent past, many companies in Australia have faced corporate collapse and ABC Learning is one of them. ABC Learning was of the largest child care centers in Australia, which was operating in the market of Australia since 1988. However, due to several wrong steps the company collapsed in the year of 2010 (Crikey 2016). Logan, Sumsion and Press (2015) believed that the liquidation or corporate collapse of ABC Learning took place because of weak financial planning of the organization. In support of this, Jokovich (2016) stated that before the collapse took place, the organization started to acquire several child care centers, without taking proper strategy to run the acquired child care centers. The financial performance of the organization was much good at that time and the share price of ABC Learning was in increasing trend (Crikey 2016). The management of the organization decided to apply the tricks of leveraging the reliable stream of income that are used by Macquarie Bank. However, the organization did not diversify its assets base and did not take care of the increasing credit costs.
On the other side, Ahmadi et al. (2015) mentioned that one of the main factors that influenced the corporate collapse of ABC Learning was the high subsidies provided by the government of the country. As per the reports, the government of the country provided the amount of subsidies, which was more than 40% of the total revenue of the company (Crikey 2016). At the same time, the government of the country did not played active role in controlling the activities of the child care center like, ABC Learning. The government of the country did not investigate on the business activities of the company, when the company was earning huge profit in the market (Crikey 2016).
Due to the above-mentioned reasons, the financial position of ABC Learning started to fall down and gradually, the organization moved towards liquidation. However, if the liquidation of ABC Learning is analyzed on the basis of ethics and governance, then it can be said that the operation of ABC Learning was not as per the business ethics. AML et al. (2015) stated that the organization (ABC Learning) was enjoying maximum portion of government subsidies, which was not en ethical business activity.
Betta (2016) added that at the time, when most of the child care centers in Australia were facing trouble in surviving in the market, ABC Learning was earning more than $40 million before paying the tax and interests. On the other side, if the evaluation on the governance, it can be identified that governance of the company was not up to the mark (Damiani, Bourne and Foo 2015). The wrong strategies took by the company indicates that the corporate governance of the company had weak long term vision (Adams 2016). Therefore, it can be understood that the financial stress of ABC Learning was influenced by the unethical practice and wrong corporate governance.
Corporate collapse or liquidation of HIH Insurance was another big business failure in Australia. The company was one of the larger insurance companies in the country. The liquidation of HIH Insurance happened in the year of 2001 (Damiani, Bourne and Foo 2015). Before, the liquidation took place the company was the most reliable business organization in Australia. The company had huge customer base and the company was involve in several acquisitions. However, due to some wrong business decisions, the financial position of the company became very weak. The company faced a loss of more than $5 billion (Aph.gov.au 2016). Miglani, Ahmed and Henry (2015) stated that the main reason behind the liquidation of HIH Insurance was the aggressive business expansion strategy taken by the management of HIH. Until 2001, the business of the company covered maximum insurance business segments, nationally as well as internationally. Betta (2016) argued that HIH Insurance acquired few troubled organizations at much high price. For example, HIH acquired FAI against $300 million but the actual worth of FAI was only $100 million. Adams (2016) mentioned that at the time of acquiring FAI, both the acquiring and acquired companies were commercially insolvent; however, from outside, the financial position of HIH was strong.
According to Miglani, Ahmed and Henry (2015), HIH Insurance had insufficient capital to meet its liabilities. At the same time, the company offered its products at a very low price (Damiani, Bourne and Foo 2015). The corporate governance of the company was so weak that it could not take proper strategy to manage its risk (Aph.gov.au 2016). Moreover, just before the corporate collapse, when the company needed extra capital, it took the decision to bought reinsurance. Apart from these, the company also misstated its financial reports and conducted several financial frauds that influenced the liquidation (Aph.gov.au 2016).
Therefore, from the ethical point of view, the business activities done by HIH Insurance was not up to the mark. The misstatement of financial reports and the corporate frauds were the most unethical business practices done by the company (Damiani, Bourne and Foo 2015). On the other side, the corporate governance team of the company was not that much strong to run a business appropriately. The corporate governance team of the company included inadequate number of non-executive director (Adams 2016). At the same time, the CEO of the company believed in dominating business strategy. The risk management measurements taken by the company was inappropriate. The management of the company set the investment committee for managing the investment risk but the strategies taken by the committee were weakly formed (Ahmadi et al. 2015).
Apart from ABC Learning and HIH Insurance, there was another company – One.Tel, which failed to sustain in the market because of wrong business strategies (BBC News 2016). One.Tel was one of the largest telecommunication companies in Australia. This company faced liquidation in the year 2001 (BBC News 2016). Miglani, Ahmed and Henry (2015) stated that the company collapsed due to the huge debt burden. Ndzi (2016) noted that just before the liquidation took place, the total debt amount of the company was A$600 million. Jokovich (2016) mentioned that the corporate collapse or liquidation of One.Tel was caused by four factors – inadequate pricing policy, wrong strategies, unbridled growth and inappropriate expectations. The rapid growth strategy taken by the management of One.Tel caused two major business issues – One.Tel came into direct competition with Optus, which was the largest organization in telecommunication sector in Australia and the other issue was the customers of One.Tel were attracted towards the low-priced offers given by Optus (BBC News 2016). Logan, Sumsion and Press (2015) mentioned that in order to compete with Optus, the management of One.Tel took the low pricing policy which affected the financial position of the company to the high extent.
The inadequate business strategies taken by the company contributed a large portion in the liquidation of One.Tel. For example, in 1999, the company made a corporate agreement with Lucent Technologies in order to build a national network in Australia (BBC News 2016). The agreement cost A$1.15 billion. However, after few days, disputes took place between One.Tel and Lucent Technologies and the Lucent Technologies decided to build the national network in Europe against US$20 billion to provide the service of One.Tel to the European customers (BBC News 2016). However, in 2000, One.Tel faced the major loss of A$291 million and it was announced by Merchant bank that the company (One.Tel) is having shortage of liquid cash. The reserve of the company failed to A$35 million and the cash balance of the company was only A$25 million (BBC News 2016).
In the analysis of the liquidation of One.Tel from ethical and governance point of views, it can be identified that the business activities of the company was unethical as it mislead the investors by not disclosing the liquid position on public (Damiani, Bourne and Foo 2015). At the same time, the cash position of the company was also much weak, which was again not unfolded by the company. On the other side, the corporate governance of One.Tel was also not standard. The corporate governance rules and regulations of the company were inadequate to solve the problems of it (Miglani, Ahmed and Henry 2015). The strategy of rapid business growth was one of the largest mistakes done by the company, which caused huge debt to the company.
Therefore, in the above discussion and evaluation of the liquidation cases of three major companies in Australia, it has been identified that the liabilities were the major factors that contributed to the liquidation of the three companies. In case of ABC Learning, the company had inadequate assets base (Ndzi 2016). On the other side, the HIH Insurance had insufficient capital to meet its future liabilities and One.Tel had shortage of case balance to meet the liabilities. Therefore, in these three cases, the companies had huge debt burden but insufficient assets, capital and liquid cash balance to meet the liabilities (Adams 2016). Hence, it is proved that the huge liabilities influenced the corporate collapse or liquidation of the companies.
Conclusion
In this study, it has been identified that inadequate financial position of the three companies – One.Tel, ABC Learning and HIH Insurance pushed the companies in liquidation. The analysis of the study has identified that the aggressive business strategies took by the companies created major problems for running their businesses. In the corporate collapse cases of these three companies, it has been identified that the companies were operating their businesses by conducting unethical practices of business. The study has identified that the company like ABC Learning misstated the financial reports and One.Tel did not disclose the weak liquid cash position. At the same time, the corporate governance policies of the companies were also not appropriate. It was true that he companies achieved high success in the beginning but that success was not the actual success of the companies.
Reference list
Adams, M.A., 2016. Contemporary case studies in corporate governance failures. Governance Directions, 68(6), p.335.
Ahmadi, S., Forouzideh, N., Alizadeh, S. and Papageorgiou, E., 2015. Learning fuzzy cognitive maps using imperialist competitive algorithm.Neural Computing and Applications, 26(6), pp.1333-1354.
AML, A.M.L., Laundering, A.M., Act, C.T.F., due Secteur, C.O. and Competition, A., 2015. ABC analysis, 270 Accounting fraud, 14, 42 Active compliance approach, coherence, 52 basis, 31. benefits, 108, p.109t.
Aph.gov.au. 2016. Home – Parliament of Australia. [online] Available at: https://www.aph.gov.au/ [Accessed 7 Sep. 2016].
BBC News. 2016. Home – BBC News. [online] Available at: https://news.bbc.co.uk/ [Accessed 7 Sep. 2016].
Betta, M., 2016. Three Case Studies: Australian HIH, American Enron, and Global Lehman Brothers. In Ethicmentality-Ethics in Capitalist Economy, Business, and Society (pp. 79-97). Springer Netherlands.
Crikey. 2016. Crikey – On politics, media, business, the environment and life. [online] Available at: https://www.crikey.com.au [Accessed 7 Sep. 2016].
Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic Round-up, (1), p.37.
Jokovich, E., 2016. Vale, John Kaye. Rattler (Sydney), (118), p.11.
Logan, H., Sumsion, J. and Press, F., 2015. The Council of Australian Government Reforms [2007–2013]: a critical juncture in Australian early childhood education and care (ECEC) policy?. International Journal of Child Care and Education Policy, 9(1), pp.1-16.
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.
Ndzi, E., 2016. Executive Remuneration:(What) Can UK Learn from Cameroon.
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