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

Company Description

The main process of business becoming defunct is a result of liquidation of the entities associated to a business. The liquidation process has been further considered with the liquidator settling the claim of the creditors partially or completely. It needs to be also noted that various types of the reasons contributing to the business entities are depicted with the adherence of aggressive accounting policies, unethical practices and governance. The important aim of the company has been further seen with the evaluation and analysis of the different reasons and pertaining to the liquidation of three significant companies namely One Tel Phone, HIH Insurance and ABC Learning (Muhammad et al., 2015).

ABC Learning: This company was seen as one of the main entities for the Australian educational sector. The company has been seen with a total market capitalization of $ 2.5 Billion and also listed under ASX. Despite of this, the effect pertaining to the mortgage crisis has led the company to bear managerial receivership along with a gigantic amount of debt. This firm was established in 1988 in Queensland with more than 900 centers located in Australia. In 2006, the expansion of the company was seen in the markets of US and UK and also Busy Bees Group for an amount of USD $ 330 million (Nummela, Saarenketo and Loane 2016).

One Tel Phone: OneTelPhone is recognized as an Australian Telecommunications based company which was established in 1995. The important nature of the business strategy for the company will be identified with consideration of better products and services. The company has possessed this position as the fourth largest telecommunications operator in Australia prior to its liquidation. The main aim of OneTelPhone has been focused by forming a young image for the selling of the One Net services and phones (Purves, Niblock and Sloan 2015). 

HIH Insurance: HIH Insurance is identified as the largest insurance company in the country. In 1998 and 1997 HIH Insurance was responsible for major acquisitions internationally and Australia. The company was listed under ASX in 1992. In 1995, HIH Insurance sold the stakes in Switzerland for name reformation. During its liquidation and the total amount loss of HIH insurance has been seen with $ 5.3 billion. This is the main cause of the liquidation of HIH. This was considered as one of the major corporate failures of Australia in 1995 (Ahmad, Ng and McManus 2014).

Cause for Liquidation

 Some of the well-known cause of the liquidation of HIH insurance, OneTel Phone and ABC Learning is stated as follows:

HIH Insurance: The rationale for failure of the company is stated as follows:

• The main reason for the failure of this company needs to be depicted with the large amount of investment, which was harmful for the business. In addition to this, it needs to be also discerned that the company faced major issues for the damages as a result of this incidence (Kim and Partington 2015).
• The decision of HIH Insurance to enter the financing business associated to filmography was also seen to be major disadvantage which led to loss of millions of money for the company.
• It is also worth mentioning that the insurance firm faced considerable amount loss pertaining to the natural disaster which happened in Florida. This is considered as a major event which has led to considerable amount of loss for the company and major reason for the liquidation.
• The unexpected and sudden change in the accounting policy of the company has been depicted as another important reason for the various types of the changes pertaining to the policy of payment and employee remuneration in California.
• It is also estimated by the liquidator that the company’s insurance service lost more than $ 800 million in six months. This was a result of unsupervised delegation of authorities, fastening of the expansion and intricate structure for reinsurance (Lucas, 2017).

One Tel Phone: The main reasons for the failure of OneTel Phone is stated as follows:

• The main strategy of the company shows that a higher amount of profit has deferred the significant business expenses in three years. This is further seen with the adoption of the accounting policy of One Tel Phone which was illegal as per the Australian accounting standards.
• In 2000, the company has been reported with a loss of $ 291 million pertaining to the following of illegal policy of accounting. This affected the share price of the company which led to fall in the share price of the company as low as $ 1.
• In 2001, there had been considerable shortage in the fund for running the business. Following this the director of the company was seen to sell $ 5 million for 50%. The report published by the administrator have stated that as the company became insolvent it laid off 1400 employees. The increase in the process of liquidation has further led to compensation of $ 92 million and company did not exercise any due diligence (French, Vital and Minot, 2015). 

ABC Learning: Some of the main reason for the failure of ABC learning are stated as follows:

• In the second half of 2007, the company faced a fall of as low as 42% which led to a loss of $ 37.1 million. During this course, the total liability incurred by the company was seen with $ 1.8 billion. This is regarded as the two main reason for the fall of the company.
• The share price for ABC Learning was low by 43% to $ 2.15. This was result of low trading with $ 1.15. in the end of the period of the company it was evident that there has been considerable amount of the focus as per the various types of the consideration for selling the stakes at a lower price and trade suspension (Damiani, Bourne and Foo 2015).
• In 2008, ABC Learning led to receivership with huge amount of liability and failure to write off the auditors to sign off.
• The company further adopted incorrect method of valuation of the intangible assets of the accounting. As per the main predictions of the goodwill of the company it needs to be identified that there has been considerable amount of loss pertaining to the wrong valuation of the cash flows. This led to company lose more than 42% of the profit amount. This is also regarded as the main rationale for ABC company becoming defunct (Kaserer and Klein, 2017).

The conceptualization of ethics among the business organizations is seen with the main concern pertaining to the judgement of what is right and what is wrong. The various types of the consideration for the business decisions needs to be further associated to the consideration of the factors influencing the culture. At times the act of being ethical may be considered with the route of rejection which may lead to a higher amount of short-term profit. It needs to be also seen that the implementation of the effective CG is responsible for becoming the business entities to become more legal in nature. This will allow the business entities to attract more number of customers along with the product and services which contribute to the profitability and sales. The ethical aspect of the company needs to eb also focused with the minimizing of turnover in the employees and foster the productivity. This will be also conducive for the business to reduce the employee turnover which will lead to increased productivity. It needs to be also discerned that goodwill increase will also attract more number of employees (Vucetich, Perry and Dean, 2014). 

Some of the main discussions for the CG and ethical behavior pertaining to the failure of the three corporations are explained below as follows:

HIH Insurance: The rationale for the ethical failure is stated as follows:

• HIH Insurance was seen with the acquisition of FAI Insurance for receiving the approval of the approval of the Board of Directors. This has also led to the director resigning from the dispose of the shares. This situation has contributed towards the poor growth of CG aspects in the company.
• In addition to this, the insurance service provider was involved in poor decision making to enter into the film business which led to risky ventures. This decision by the company is associated to poor CG behavior.
• The company was further involved in malpractice associated to not paying heed to the due diligence and also involved in the lack of ethics in the operational aspects of the business.    
• Williams has been considered with improper management of the activities as per the prospectus of the omission of the materials and overstating of the profits (Adams, 2016).

One Tel Phone: The main reasons for the failure of OneTel Phone for ethical failures is stated as follows:

• It is evident that the company dis not follows the relevant code of conduct and there were also violation accounting principles.
• The main failures areas of the company need to be considered in the administration team with the monitoring of the financial performance of the company. The management of the company has been also seen to be involved with the lack of CG aspects of the company.
• One Tel has failed to adhere to the strong strategy for pricing which had contributed to the liquidation and major loss in the loss of income. This shows lack of the ethical consideration from the directors (Doyle, 2017).

ABC Learning: Some of the main reason for the ethical failure of ABC learning are stated as follows:

• The failure to adopt the relevant accounting policy is considered as the key reason for the downfall of the company which catalyzed the repressions of the fraudulent activities. Moreover, some of the other aspect of the company needs to be identified as per the unethical bookkeeping.
• The inappropriate service offered to the government and customers is another area of unethical issue which has led to the company being insolvent (Davison et al., 2016). 

The aforementioned discussions in the previous sections of the study has been able to state that there is a breach of ethical standard in the company which has led to governance issues. In the case of ABC Learning the total amount of the liability was seen to be stable in 2007, however there had been a reclassification of AUD 1.1 Billion pertaining to the borrowing of current and non-current liabilities. In 2007-08 the profit of the company fell to as low as 42%. Moreover, due to the increasing in the debt it had to pay $ 1.2 Billion for the breach in the debt covenant. The similar nature of the implications is applicable to the case of HIH Insurance and the company was covered in high amount of debt leverage along with insurance liability which led to insolvency. It is also worth mentioning that the acquisition of the FAI for an amount of $ 300 million was worth 100 million (Yahanpath and Islam, 2016). This led to increased amount of liability for the company. In the situation of One Tel Phone, the management of the company was majorly being considered to hide the liabilities. The previous discussions of the study have stated on the various types of the important discussions on the payment of $ 92 million as the amount for compensation which considerably increased the overall debt of the company which acted as a catalyst to the failure of the company. All the three companies mentioned is associated to be a victim of high debt covenant. The increasing amount of the liabilities of the companies has been seen as the main factors for the collapse (Carnegie and O’Connell, 2014).

Corporate Governance and Ethics

Conclusion 

The discussions in the above discourse relates to the significant nature of the contribution towards the fall of OneTel Phone, HIH insurance and ABC Learning. In the case of the aforementioned three companies the wrong decision by the senior management has led to the adaptation of the wrong accounting policies and financial accounting among other. Moreover, it needs to be understood that the lack of effective CG practices and ethics in the business is mainly responsible for the liquidation in the companies. In addition to these, there has been significant increase in terms of the debt of the companies which has been seen as the main reason for the failure of the companies.    

References

Adams, M.A., 2016. Contemporary case studies in corporate governance failures. Governance Directions, 68(6), p.335.

Ahmad, S., Ng, C. and McManus, L.A., 2014. Enterprise risk management (ERM) implementation: Some empirical evidence from large Australian companies. Procedia-Social and Behavioral Sciences, 164, pp.541-547.

Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting, 25(6), pp.446-468.

Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic Round-up, (1), p.37.

Davison, M., Leadbetter, D., Lu, B. and Voll, J., 2016. Are counterparty arrangements in reinsurance a threat to financial stability? (No. 2016-39). Bank of Canada Staff Working Paper.

Doyle, M., 2017. Market-based indirect causation after HIH. Australian Resources and Energy Law Journal, 35(3), p.205.

French, A., Vital, M. and Minot, D., 2015. Insurance and financial stability.

Kaserer, C. and Klein, C., 2017. Systemic Risk in Financial Markets: How Systemically Important Are Insurers?. Journal of Risk and Insurance.

Kim, M.H. and Partington, G., 2015. Dynamic forecasts of financial distress of Australian firms. Australian Journal of Management, 40(1), pp.135-160.

Lucas, A., 2017. Confected conflict in the wake of the South Australian blackout: Diversionary strategies and policy failure in Australia’s energy sector. Energy research & social science, 29, pp.149-159.

Muhammad, N., Scrimgeour, F., Reddy, K. and Abidin, S., 2015. The relationship between environmental performance and financial performance in periods of growth and contraction: evidence from Australian publicly listed companies. Journal of Cleaner Production, 102, pp.324-332.

Nummela, N., Saarenketo, S. and Loane, S., 2016. The dynamics of failure in international new ventures: A case study of Finnish and Irish software companies. International Small Business Journal, 34(1), pp.51-69.

Purves, N., Niblock, S.J. and Sloan, K., 2015. On the relationship between financial and non-financial factors: A case study analysis of financial failure predictors of agribusiness firms in Australia. Agricultural Finance Review, 75(2), pp.282-300.

Vucetich, A., Perry, R. and Dean, R., 2014. The insurance sector and economic stability. Life, 16, p.9.

Yahanpath, N. and Islam, S., 2016. AN ATTEMPT TO RE-BALANCE THE BALANCED SCORECARD TOWARDS A SUSTAINABLE PERFORMANCE MEASUREMENT SYSTEM. Asia-Pacific Management Accounting Journal, 11(2)