Causes Of Liquidation Of ABC Learning, HIH Insurance And One.Tel

Events Leading Up to Liquidation of ABC Learning, HIH Insurance, and One.Tel

The process of eliminating the activities of the business and giving up its assets to the interested parties is known as liquidation. Generally, it occurs when a firm become insolvent and is not able to pay off its financial obligations as and when they become due. Usually, the main motive of every business is to operate in long run and grow constantly. In order to achieve such goal, every firm tries its best by hiring skilled and profession staff and applying effective strategies. However, it is a fact that companies operate in an uncertain environment and the circumstances and events may force them to shut their business. This is the situation where liquidation comes into the picture. Once the operations are ended, the remaining assets are distributed to the creditors and shareholders of the firm (Khan and Williamson, 2016).

The reason for a business to shut down is the poor management of available resources brings failure in the payment of liabilities. The imbalance in assets and liabilities results in the poor management and if this continues for long run, the liabilities would pile up and it will force the company to liquidate. Apart from this, the unethical behaviour, practices and loopholes in the government regulations are also the factors which push the company towards liquidation. The other events such as likelihood of mergers, unwanted divisions or departments, inadequate working capital, poor marketing and financial skills and inappropriate business model also bring a firm to an end. Sometimes, the company liquidate because of the completion of the purpose for which it was established. Moreover, the purpose with which the company was formed is illegal and it cannot incorporate its business due legal restrictions. This also brings the situation of liquidation.
Events that led to liquidation

Following section provides the details about the circumstances and situations which led to the liquidation of three Australian companies.

It was an Australia based company founded in 1988 which deals with the business of running child care centres in New Zealand and Australia. In the past years, the company was doing well and has grown rapidly in the childcare and education market of Australia. Prior to its liquidation, the firm expanded its business constantly by taking over the properties in prime locations and purchasing day care centres and small childcare groups. ABC got listed on Australian Stock Exchange (ASX) in 2001 and at that time the market capitalization of the firm was A$25 million. In 2005, the firm acquired Learning Care Group Inc, an American based company engaged in the same line of business and having more than 400 childcare centres across the country. This brought an upsurge in its market cap to A$2.5 billion in year 2006 (Butler and Connelly, 2016). Everything was going according to the plans and ABC had become the largest childcare service provider by offering quality of services. It attracted many core service provider in the market in which it operates. However, being a monopolist the company started avoiding the policies related to child safety and was found guilty when all the allegations proved to be true. Due to such events, the financial position of ABC deteriorated and had an adverse impact on its share prices. The directors declared ABC insolvent and in November 2008, and filed a petition before the court for voluntary wind up which gave a shock to many of its investors (BusinessWire. 2005) 

CPA APES 110 Code of Ethics for Professional Accountants

While the procedure of liquidation was going on, it was found that ABC was heavily burdened by its debt repayments and in order to pay them back, it had to sell its entire UK subsidiary and 60 percent of its US subsidiary. The company was then delisted from ASX and in 2009; it got liquidated and bought by Goodstart Limited during the same year (McRober, 2009).

It was among the second largest insurance companies of Australia, having $8 billion of assets and 17 controlled entities in the group. HIH Insurance as a whole covered a large part of the market and was considered as the largest insurance firm of Australia at a time. However, the company got liquidated in 2001 and its operations came to an end. The balance sheet of HIH for year 2000 reflected company’s assets at $8 billion and liabilities worth $7.1 billion. This in a way depicted a critical situation for the company as its financial position got worse. In addition, it was also observed that back in 1999, HIH acquired FAI Insurance for $300 million and after that the position of the company has worsen day by day. The net profits of the firm reduces by 39% after the acquisition and later on the directors accepted their fault in spending more on FAI than actually required. All such events resulted in the winding up of the company’s operations (Insurance Journal. 2003).

The organization was founded in 1995 and was a telecommunication company operating its business in Australia. The activities of the One.Tel got ceased in 2001 when it got declared insolvent by the auditors. According to the auditors, the firm had shortage of cash and was facing many financial problems since past few years. In its initial years, it started as a reseller of OPTUS services and was focused on targeting young generation. It mainly dealt in offering mobile phones, portable devices and wireless transmission. Before its collapse, the company was ranked as the fourth largest telecommunication company in Australia having operations in almost eight countries. However, year 2000 was a turning point for One.Tel’s financial position. In that year the firm spent a heavy amount of $523 million for purchasing the licenses for operations and after that its position got worsen as the company reported a huge operating loss worth $291 million (Elliott, 2010). Apart from this, the negligence on part of management also contributed to the winding up of One.Tel. The financial accounts were manipulated by the managers for their own personal use and as result OPTUS stopped doing business with One.Tel. This created many problems for the entity and forces it towards liquidation. Thus, it can be said that there was no transparency in the system which ultimately affected the business relationships and wounded up the company’s operations (Monem, 2016).
 

ASIC Listing Rules Governing Corporate Governance of Listed Companies

APES 110 Code of ethics is issued by Accounting Professional and Ethical Standards Board (APESB) for professional accountants. The board was setup by CPA Australia and Charted Accountants in New Zealand and Australia. It is the responsibility of APESB to issue such standards in public standard so that accountants perform their functions ethically and according to the standards. The code is similar to the ethical codes issued by International Ethics Standards Board for Accountants (IESBA) of the International Federation of Accountants (IFAC). Accountants practicing in Australia are required to follow this code unless they are restricted by any sort of law or regulation (CPA Australia 2018).

However, the code contains three parts out of which part A deals with providing a conceptual framework and fundamental principles of professional ethics. Part B and Part C involves the application of the framework in different situations. It provides examples of the safeguards that may help in addressing the threats and also defines situations where safeguards are not able to address the threats (APESB. 2010).

According to the IESB revised code of ethics and APES 110, there are five fundamental ethics which are to be followed by each professional accountant. The modified code establishes a framework which allows the accountants to align with the standards and follows the five fundamental ethics. They are as follows:
 

Integrity

This principle requires the accountant to be straight forward and honest in all the business and professional relationships. It imposes a responsibility on the members to conduct deals in true and fair manner and should establish integrity in each of the business transaction conducted. Moreover, as per the principle the accountant is not allowed to be associated or related with any sort of the reports or accounts that contain false and misleading information. They have to prepare the final accounts of the company with due diligence and full integrity (IFAC. 2018).

Objectivity

It obliges the members and accountants for not being biased and should not change or comprise their judgements related to the business and their profession because of any conflicts or under the influence of others. Also, according to the objectivity principle the accountant is not allowed to perform a professional practice in which its judgement can be affected by others or can be changed by the factor of biasness (IFAC. 2018).

Professional Competence and Due Care

It is very important for the accountants to maintain professional knowledge at the level which is required to provide proficient professional services to the clients and customers. The services provided should be based on the current developments, techniques and legislations. In addition, the professional accountants are also required to act in a diligent manner and within the legal framework and standards (APESB. 2010).

Confidentiality

It is very necessary for the accountant to keep the confidentiality in his work and should respect the same in his course of action. The members are obliged not to disclose any type of professional and business related information to third party without getting any proper authorization to do the same. Furthermore, the confidential data derived should not be used for the personal purposes of the accountant (APESB. 2010).

Professional Behavior

According to the principle, it should be in the behaviour of the accountant to properly follow all the rules and regulations provided in the legal framework and should avoid such activities which are against the law and profession (IFAC. 2018).Listing rules by ASIC

All the Australian companies that are publically listed on ASX are required to follow some listing rules that are issued by Australian Securities & Investment Commission. In terms of corporate governance, the listed companies are required to follow the Listing Rule 4.10.3 in which they have to benchmark their corporate governance against the recommendations given by CG Council (ASX. 2018). As per the rule, the entities are obliged to adopt the recommendations to make their governance flexible. There should be a board of independent directors, a risk management committee, an audit committee and the remuneration committee. In addition, a nomination committee should also be there. All such recommendations are required to be followed by the listed firms as per the rule (PWC. 2018).
 

Liabilities – a major factor contributing to liquidation

Every company requires finance to fund its operations and meet its daily requirements. Such finance can be raised through internal and external sources. When the funds are borrowed from outside, it creates liability for the firm. It is treated as the financial obligation and when it exceeds the assets of the company, it hampers its financial health. When this situation arises, the stakeholders want to take their money back from the business and it lead to the liquidation of the company. The firm could not handle the burden of debt and fails to repay the amount which led to the winding up of its operations.

Conclusion

The above report concludes that poor management of resources, violation of laws and unethical behaviour on the part of company’s managers takes a company toward liquidation. However, if proper legal compliance programs are implemented and all the ethics are followed, the efficiency and profitability of the company can be increase. Moreover, it can overcome the issues easily and handle the business in an effective manner.
 

References

APESB., 2010. APES 110 Code of Ethics for Professional Accountants. [online]. Available at: <https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf > [Accessed 23 August 2018].

ASX., 2018. Corporate Governance Council. [online]. Available at: <https://www.asx.com.au/regulation/corporate-governance-council.htm> [Accessed 23 August 2018].

BusinessWire., 2005. Learning Care Group, Inc. Announces Proposed Acquisition by A.B.C. Learning Centres Limited. [online]. Available at: <https://www.businesswire.com/news/home/20051115006409/en/Learning-Care-Group-Announces-Proposed-Acquisition-A.B.C> [Accessed 23 August 2018].

Butler, D. and Connelly, A., 2016. Practicalities of winding up trusts and realizing trust assets. Australian Restructuring Insolvency & Turnaround Association Journal, 28(3), p. 24.

CPA Australia., 2018. APES 110 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS. [online]. Available at: <https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-standards/apes-110-code-of-ethics-for-professional-accountants> [Accessed 23 August 2018].

Elliott, T., 2010. One.Tel one big debacle. [online]. Available at: <https://www.abc.net.au/news/2009-11-20/28324> [Accessed 23 August 2018].

IFAC., 2018. Revised Code of Ethics – Completed. [online]. Available at: <https://www.ethicsboard.org/projects/revised-code-ethics-completed> [Accessed 23 August 2018].

Insurance Journal., 2003. HIH Report Cites Mismanagement as Cause of Collapse. [online]. Available at: <https://www.insurancejournal.com/news/international/2003/04/21/28160.htm> [Accessed 23 August 2018].

Khan, A. and Williamson, S.. 2016. The liquidation of foreign companies in Australia. Australian Restructuring Insolvency & Turnaround Association Journal, 28(2), p.38.

McRober, A. 2009. ABC Learning Centres Limited – did the annual reports give enough warning? The FINSIA Journal of Applied Finance, 1(2009), pp.12-15.

Monem, R., 2016. The One-Tel Collapse: Lessons for Corporate Governance. [online]. Available at: <https://www98.griffith.edu.au/dspace/bitstream/handle/10072/42673/74746_1.pdf?sequence=1> [Accessed 23 August 2018].

PWC., 2018. Listing a company on the Australian Securities Exchange. [online]. Available at: <https://www.pwc.com.au/legal/assets/listing-company-asx.pdf> [Accessed 23 August 2018].