Analysis Of The Failure Of HIH Insurance, ABC Learning, And One.Tel Phone Company

Company overview

The process of winding up refers to the liquidation process of the enterprise that is attached with the procedure in which all the affairs of the business operates. The assets and the liabilities distributed and there is settlement of the creditors’ claims completely pr partially that has been warranted. The different companies operate as per the Board of directors, who forms the main element of the management of the company. The board of directors also has the power of taking the various decisions of the company. The decision is taken considering the various interest of the shareholders or the stakeholders of the organization (Clarke and Dean, 2014). It is the process of decision making is a tool that is effective for the determination of the prolonged existence of the enterprise since it is the key essence of survival for the company.

The various effective company operations are in general regarded as the corporate governance. This defines the performance effectiveness that is based on the guidelines, principles and the various provisions of the laws and statue that is being prevailing in the particular nation. In case a company fails in binding the mentioned principles or rules it can reflect that the company is incapable of complying with the various principles that guides the governance procedure. The present discussion deals with the process of determination of the liquidation of the three organisations namely HIH Insurance, ABC Learning and One Tel Phone Company. In the report the focus has also been put on the reason for which the chosen companies have wound up their business. The study also highlights the process of corporate governance and ethical principles.

ABC Learning:

The company ABC learning in its prior years is one of the biggest organization in Australia that serves in the educational areas. The organization was recorded on the Stock Exchange of Australia having a market capitalisation of the around $2.5 billion (Dodo, 2017). However, the organization had to face a downfall due to mortgage crisis in the repayments of debt to revive associations. The assessors were unsuccessful to approve the financial data by referring to the necessity of verifying the prior year’s profits.

The organization located in Queensland was framed in 1988. Since as the initiation of the organization it was effective in building up in excess of nine hundred centres overall New Zealand and Australia by 2006. At the time of 2006 the company declared that it would secure second biggest supplier of childcare situated in United States for a amount of 330 million US dollars together with the obtaining of the company  Busy Bees Group that is the fifth biggest supplier in UK. After this acquirement the organization extended into the market of US and UK with a 1% market share.

Ethical Strain

One Tel Phone:

One Tel is the association of Australian telecommunication broadcast organizations which was set up in 1995 not long after the industry deregulations of the Australian media communications with the greater part of them presently under the external administration by the liquidators chosen by the court (Drury?Grogan, 2017). The fundamental business motive behind the organization was that, that they will give stress on the providing efficient service to meet the needs and wants of the clients. One Tel objected to build up an image that is youth oriented to offer One.Net network access and cell phones. Before the company collapse they turned into the fourth largest media communications organization. The organization significantly put stress on residential market and the common crowd that s quite unlikely of the commercial business. The organization wanted that their buyers to gain the access of the whole range phone items that eventually resulted in high organization promotion.

HIH Insurance:

The Company of HIH Insurance is the huge Australian insurance agency. During that time of 1998 and 1997  HIH Winterthur obtained countless organisation both globally and Australia. It can be identified that in 1992, HIH was recorded on the Stock Exchange ofd Australia and in 1995, the organization sells the stake to the insurer situated in Switzerland and at last changed the name of the organization to HIH Winterthur. This consisted of the Colonial Ltd General Insurance activities in New Zealand and Australia.

The assessment that have been done by the liquidators, that the HIH has total loss amount of $5.3 billion. Examinations concerning the reason for the downfall of the organization have brought about the conviction and imprisonment of huge number of individuals from HIH administration on various fraud related charges. The fall of HIH is viewed as the Australia’s largest company downfall.

HIH Insurance: The stated below incidents have led to the company in to winding up:

• The company of HIH obtained the FAI Insurance business that consists of greater amount of investment that is risky in the insurance business. Due to this reason, the organisation had faced a significant damage amount.
• The other hazardous incident that has led to the collapse of the company of HIH was the entry of the films financing that led ultimately to in a greater loss amount that amounted to hundred million dollar throughout the year (Molyneux, Schaeck and Zhou, 2014).
• The HIH Company faced a large monetary loss when the company had faced a huge natural disaster struck at Florida that  resulted ultimately in a debt of huge amount that  was a great loss for the HIH company.
• The other substantial reason for the collapse of the  HIH was the sudden change in the compensation policy payment that was gave payment to the employees engaged in the industry of California. This contributed ultimately to a large financial loss and a potential loss for the HIH.
• The provisional auditors have made the estimation that the company of HIH has made a loss of $800 million in the time period of six months and this has led to a faster expansion, authorities’ delegation that is unsupervised and reinsurance structure that is complicated.

One Tel: The mentioned below incidents have led to the company in to winding up:

• The company of One Tel constantly has been reporting a large amount of profit and delayed the expenses over a three years time span (Collett, 2015). The various adopted practices in financial reporting were against accounting policies and standards that is generally taken in hand by enterprises all over the globe.
• The rise of the issues started from the period of 2000 when the company of One Tel had informed a loss of $291 million. The incident has led to the share price to fall less than $1.
• The organisation began to run out of cash by April end in the period of 2001 with the director Rodney Adler after selling the amount of 5 million shares for $2.5 million.
• The winding up has led to a report that led to the compensation of $92 million from the director of One Tel as the company did not give its authority with respect to suitable due diligence and care (Veldman and Willmott, 2016).
• The other reason that led to the in the One Tel downfall is that the enterprise charged a price of One seventh from the clients in considerations that the enterprise will in future make progress in the purchase however this did not happen (Schmidt, 2015). Presently the organisation stared to face issues of low cash, that in due course led to the winding up of the company (Cartwright  and Cooper, 2014).

ABC learning: The mentioned below incidents have led to the company in to winding up:

• The company ABC learning has unexpectedly encountered a decrease in profit of 42 per at the time of 2007 that amounted to $37.1 million and its liability of service has resulted to a debt of $1.8 billion that ultimately led to the fall in the company share price (Lohrke, Frownfelter-Lohrke and Ketchen Jr, 2016).
• The collaborated falling effect share price resulted to the fall by 43 per cent to $2.15 after trading with a low of $1.15. By period end of selling the founder of ABC learning had to sell virtually all the $20 million shares and $6 million shares respectively for the amount of 2.7 million (Friedman et al., 2016). This eventually resulted in the trade suspension for the company of ABC learning after the failure of the company to release its earnings for the time period of 2007-08 ( Howson, 2017).
• Irrespective of selling all the company assets led to the downfall of receivership at the time of 2008 that follows a major rise in the in the obligations of debt service and the auditors were unsuccessful to sign the accounts off.
• The organisation followed the inaccurate accounting mode of its assets that is intangible such as Goodwill. The ABC learning made valuation of the goodwill that amounted to $2.4 billion of the licenses and the various other assets that are intangible but only charged amount of $8.4 million as impairment (Bena and Li, 2014). This resulted to future cash flow amount that was considered intangibles valuations were found to be wrong that as a result led to the loss in the profits amounts by 42 %. This can be considered as one of the main reasons of ABC learning downfall.

 According to the APES 110 Code of Ethics for Professional Accountants, the 5 codes of ethics include:

• Integrity: Integrity  refers to the ethical code that deals with being honest and straight forward in the business relationships
• Objectivity: it refers to not being bias, avoid conflict and take undue influence of others
• Professional Competence and Due Care: the accountant of the company must maintain a professional knowledge and skill and work in compliance with the various current developments.
• Confidentiality: the information of the company must be kept confidential  and they must not be disclosed to te various third parties
• Professional Behavior: The relevant laws and regulations must be followed in the company operations.

However, in the current discussion the companies that are chosen has not followed there code of conducts that has led to their bankruptcy.

HIH Insurance:

• The company of HIH insurance had taken the FAI Insurance without getting the approval of the Board of Directors and immediately Winterthur sold off his shares and resigned simultaneously from the enterprise (Bailey, 2014). Therefore, it can be said that the enterprise faced due to inaccurate corporate governance.
• Before winding up, it can be mentioned that the enterprise had faced a decision making that is poor since it entered into the business that included greater risk like film financing, natural disaster and marine (Du Plessis,  Hargovan and Harris, 2018).
• Mr William who was charged for company management that is improper, issue of prospectus that contains material omission and overstatement of the profits in the company accounts for the financial year of 1998-99.

One Tel:

• The company of One Tel had impacted  the ethics compliance  since they have violated the accounting rules and practices`
• The management of HIH was not successful in monitoring the financial operations of the enterprise since they have ignored the investment areas that consisted of high risk (Angwin, 2015).
• The company has faced a failure in adopting a strong strategy fir pricing by the directors that can be considered as major reason for winding up (Hossari, 2014). Hence, the conclusion can be made that the directors were unsuccessful in acting ethically to its obligations.

ABC Learning:

• In case of the company of ABC Learning the major reason that led to the liquidation is the wrong accounting policies adoption that led to fraudulent practices ultimately. Therefore, the ABC Learning’s ethically displayed a accounting practice that is weak tht can be alerted as per the needs of the business (Green, 2016).
• The other ethical issue that led to the winding up of ABC Learning was its customer service. The government and the customers concerning the unethical and inappropriate service went against the enterprise and its reputation.

As clear from the above discussion, it can be comprehended that poor corporate structures have constrained these organizations to endure losses. Not just only finacial factor added to the liquidation of the organization but also issues related to ethics, for example, inappropriate mangement have added to their destruction. It is to be recommended that there must be a satisfactory practices of management by giving due acknowledgment to the shareholders and stakeholders interest.

Conclusion

To end the discussion with, from the above analysis it can be portrayed that the primary reason for comoany winding up for the above mentioned organisation was poor corporate governance and inaccurate risk identification in extending the operation. These organizations even were unsuccessful to receive reasonable and a genuine practices of accounting to adopt the areas of financial position and risk. From now on, these organizations must focus on the legitimate interest of the various stakeholders and shareholders who impacts the decision making of the management.

List of References

Angwin, D., 2015. Mergers and acquisitions. Wiley Encyclopedia of Management, pp.1-3.

Bailey, M.P., 2014. Mergers and acquisitions. Chemical Engineering, 121(8), pp.71-72.

Bena, J. and Li, K., 2014. Corporate innovations and mergers and acquisitions. The Journal of Finance, 69(5), pp.1923-1960.

Cartwright, S. and Cooper, C.L., 2014. Mergers and acquisitions: The human factor. Butterworth-Heinemann.

Clarke, F. and Dean, G., 2014. Corporate Collapse: Regulatory, Accounting and Ethical Failure. In Accounting and Regulation (pp. 9-29). Springer, New York, NY.

Collett, N., 2015. Mergers and acquisitions. Wiley Encyclopedia of Management, pp.1-7.

Dodo, A.A., 2017. Corporate collapse and the role of audit committees: A case study of Lehman Brothers. World Journal of social sciences, 7(1), pp.19-29.

Drury?Grogan, M.L., 2017. Mergers and Acquisitions. The International Encyclopedia of Organizational Communication, pp.1-11.

Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.

Friedman, Y., Carmeli, A., Tishler, A. and Shimizu, K., 2016. Untangling micro-behavioral sources of failure in mergers and acquisitions: a theoretical integration and extension. The International Journal of Human Resource Management, 27(20), pp.2339-2369.

Green, M.B., 2016. Mergers and acquisitions. International Encyclopedia of Geography: People, the Earth, Environment and Technology: People, the Earth, Environment and Technology, pp.1-8.

Hossari, G., 2014. Multiple classification schemes for signalling corporate collapse. International Journal of Accounting and Information Management, 22(2), pp.146-156.

Howson, P., 2017. Due diligence: The critical stage in mergers and acquisitions. Routledge.

Lohrke, F.T., Frownfelter-Lohrke, C. and Ketchen Jr, D.J., 2016. The role of information technology systems in the performance of mergers and acquisitions. Business Horizons, 59(1), pp.7-12.

Molyneux, P., Schaeck, K. and Zhou, T.M., 2014. ‘Too systemically important to fail’in banking–Evidence from bank mergers and acquisitions. Journal of International Money and Finance, 49, pp.258-282.

Schmidt, B., 2015. Costs and benefits of friendly boards during mergers and acquisitions. Journal of Financial Economics, 117(2), pp.424-447.

Veldman, J. and Willmott, H., 2016. The cultural grammar of governance: The UK Code of Corporate Governance, reflexivity, and the limits of ‘soft’regulation. human relations, 69(3), pp.581-603