The present report is developed for undertaking analysis of some well-renowned companies that have undergone liquidations as they were not able to meet their liabilities as they become due. This means that a company would have to sell its assets in order to meet its obligations and this can result in marking the end of a company. As such, liquidation can be described as a situation that a company faces when it becomes insolvent depicting its inability to meet its obligations. The overall analysis in the report is carried out on the companies such as Aluminium Boats Australia, HIH Insurance and Stellar Homes. The analysis will be conducted in relation to the corporate governance issues that were responsible for the collapse of these companies. In addition to this, the role of APES code of ethics developed for professional accountants are discussed in detail in the report for explaining their importance in relation to developing strong corporate governance structure within a company.
Aluminium Boats Australia (ABA) is the famous Australian entity which was founded in year 1999 with the aim to produce world class aluminum and ultra performance crafts. The water vehicles produced by the Aluminium Boats Australia (ABA) are produced through using the highest quality materials and best in class technology available in the market. Apart from commercial ferries and leisure crafts, Aluminium Boats Australia (ABA) has been engaged in providing the tailored solutions to commercial and private owners. Australia based company in Brisbane was specialized in shipbuilding has collapsed and gone under voluntary administration due to the loss of one of its navy ship vessels due to massive fire in year 2014 (ABA History, 2014). The FTI Consulting Group’s John Park and Kelly Trenfield have been appointed as the administrator to administrate the liquidation of Aluminium Boats Australia (ABA).
The statement by the officials of Aluminium Boats Australia (ABA) said voluntary liquidation would help them to meet the financial challenges that have occurred due to major loss within the company. The statement by Roy Whitewood has clearly reflected that through going under the voluntary liquidation company definitely return to the business back on track and will gain the financial health. In this regard administrators and officials have worked to solve all the disputes of various liabilities and will use assets to pay such liabilities. The major reason that has caused the company to undergo voluntary liquidation was due to fire in company’s HMAS Bundaberg that has caused destruction of one of major naval ship. It has been found by the administrator that major contractors that have deal with the Aluminium Boats Australia (ABA) were the Queensland Police service, Cruise Whitsunday, Mooloolaba Coast Guard and Royal Australian Navy. It has been found that before voluntary liquidation company employs 160 employees but due to fire of the navy ship, company had been forced to remove 90 employees as company has left with less business process to employees this much amount of workers. So it can be said that voluntary liquidation has major impact on employees and they are granted with voluntary retirement (Robb, 2014).
Overall it can be said that liabilities that has aroused due to fire breakout in one of the major naval ship is the major reason that cause the voluntary liquidation of Aluminium Boats Australia. The liquidation was called upon by the shareholders of the company as leader has no option left to continue the working of the company with huge liabilities to be paid. This type of liquidation is known as voluntary liquidation and it is self imposed wind up and dissolution of company. There are various corporate governance issues that have contributed to the voluntary liquidation of Aluminium Boats Australia. In Aluminium Boats Australia there was inconsistency of proper board management as no reserves have been made to meet the situations like fire of such a big ship and other similar event. There was lack of proper management that has caused the situation of inadequate resources, excessive expenditure and failure to meet the commitments to the clients due to fast development of business. All these factors clearly indicate that there was major corporate governance failure with regards to normal business procedure of Aluminium Boats Australia (Robb, 2014).
The company was recognized as one of the largest insurance company within Australia that has undergone liquidation in the year 2001. The collapse of the insurance company is stated one of the biggest corporate downfall within Australia having the overall loss of about A$5.3 billion. The company has been liquidated due to its inability for managing the liabilities and thus its shareholders have faced significant losses on their investment. The major reason responsible for causing the downfall of the company is lack of monitoring and inadequate management of its operations. The directors of the company were not able to carry out their duties as per the corporation act responsible for the failure of the company as investigated by the Royal Commission. It has been identified by the investigation that weak corporate culture has resulted in the downfall of the HIH. The Board of the company did not have any independent directors and also does not adequate information about the financial position of a company. This leads to non-identification of the weak cash position of the company which led to its downfall as it was not able to meet its liabilities on becoming due (Carson, 2010).
It can be stated from analyzing the case of corporate collapse of HIH that agency cost problem is main corporate governance issue that is responsible for the company failure. The lack of independence of the non-executive directors as some of them was partners in the Arthur Andersen which is the auditor of the HIH Company. The auditing company realizes revenue of $8 million during its auditing and as such the non-executive director has financial interest in the operations of the company (Clarke, 2017). This resulted in causing the lack of attention towards the reserves of the company for meeting the future insurance claims. This highlighted the weak corporate governance structure of the company which is characterized by lack of accountability for performance and flawed internal processes and systems as identified by the investigation of Royal Commission. It has identified the negligence of duties on the part of its board members due to occurrence of conflict with their duties and protecting the interests of the company (Muenjohn, 2018).
Stellar Homes is a high-end luxury home builder providing quality homes within Australia. The company was established in the year 2004 and went into liquidation in the year 2014 owing debts of more than $ 5 million. The cash-flow crisis of the company has left about 38 unfinished homes across Adelaide. The company owns $3.4 million to the creditors and $1.5 million to the unsecured creditors. The continuing decrease in the home prices within the real estate market of Australia can be attributed to be the main reason for the downfall of the company (Waters, 2014). The drop in demand of homes combined with higher mortgage rates has caused the decline of the real estate companies. The cash-flow crisis of the company has incurred mainly due to difficulty faced by the builders to run their operational activities due to struggling economy. As such, it can be said that it succumbed into pressure that the construction companies are facing within the Australia real estate market (Evans, 2014).
The liquidation of the company has highlighted the weak corporate governance model of the company. The company has not out into place proper risk management policies for identifying the operational risks in advance that it can face and thus developing strategies for overcoming them. The lack of attention on the part of the directors of the company regarding the insufficient cash flows in future to meet its operations leads to its liquidation. As such, it can be said that construction companies need to have a proper risk management policy to identify any kind of operational or financial risk in advance so that they can be mitigated. This would help in protecting the interests of the investors who had to face ultimate loss as that occurred in the case of Stellar Homes (Tauriello, 2014).
According to the information gained from issues that have caused liquidation within all three companies it can be said that there is requirement by professional to follow code of ethics as provided in APES 110. The accountancy profession requires professional to act in the public interest and also safeguards the interest of stakeholders so that company will remain going concern and must follow all the corporate governance. There are five major codes of ethics that every professional accountant must follow are as follows:
Recommendation and Conclusion
It is recommended to the business firms on the basis of overall analysis that they need to develop and implement a sound corporate governance model for protecting the interest of their investors. The presence of a strong corporate governance model indicates that a company has maintained strong internal process and systems for identifying any type of fraudulent or business risk in advance. This helps in their early detection and thus developing consecutive strategies for overcoming any type of weakness in its internal processes or systems. It has been analyzed from the corporate governance practices of the companies such as Aluminum Boats, Stellar Homes and HIH Insurance that they were having flawed corporate governance practices.
This resulted in increasing the internal risk of the companies that subsequently lead to their downfall. The development of strong corporate governance model requires compliance with all the APES code of ethics that are integrity, objectivity, professional competence, confidentiality and professional behavior on the part of the professional accountants. These code of ethics need to be strongly complied by the board of directors of a company in developing a strong corporate culture. The compliance of the accountants with this code of ethics would helps in minimizing the chances of corporate collapse by enhancing the transparency and integrity within company operations.
References
ABA History. 2014. Aluminium Boats Australia. [Online]. Available at: https://www.aba-global.com/home-abas-mission-history [Accessed on: 18 January 2019].
APESB. 2017. Compiled APES 110 Code of Ethics for Professional Accountants. [Online]. Available at: https://www.apesb.org.au/uploads/standards/apesb_standards/20092017153656_Compiled_APES_110_Sept17.pdf [Accessed on: 18 January 2019].
Carson, V. 2010. Brad Cooper, last of the HIH three, free today. [Online]. Available at: https://www.smh.com.au/business/brad-cooper-last-of-the-hih-three-free-today-20101029-177m2.html [Accessed on: 18 January 2019].
Clarke, T. 2017. International Corporate Governance: A Comparative Approach. Taylor & Francis.
Evans, S. 2014. Rivals flock to half-built homes after Stellar fails. [Online]. Available at: https://www.afr.com/business/construction/rivals-flock-to-half-built-homes-after-stellar-fails-20141105-11h54t [Accessed on: 18 January 2019].
Muenjohn, N. 2018. Leadership. Cambridge University Press.
Robb, K. 2014. Shipbuilder collapses into administration after fire. [Online]. Available at: https://www.smartcompany.com.au/finance/shipbuilder-collapses-into-administration-after-fire/ [Accessed on: 18 January 2019].
Tauriello, G. 2014. Custom home builder Stellar Homes has gone into administration. [Online]. Available at: https://www.adelaidenow.com.au/business/sa-business-journal/custom-home-builder-stellar-homes-has-gone-into-administration/news-story/a8903cbc8762cae1a67d6f43e4d27fa8 [Accessed on: 18 January 2019].
Waters, C. 2014. Construction company collapses owing $5 million. [Online]. Available at: https://www.smartcompany.com.au/finance/construction-company-collapses-owing-5-million/ [Accessed on: 18 January 2019].
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