Use thecompanies aboveand find (via electronic journals) the events that led up to the liquidation. Discuss the ethics and governance in explaining the company’s financial stress.Were liabilities a major factor contributing to the liquidation of the company?
There are several companies that have faced issue of the liquidation due to the non-effective strategic and financial program. It is the procedure or accompanied with the steps which takes company into liquidation. It is ideally followed when company has been facing high amount of loss and cannot continue with the same business. Government also intervene to push the liquidation of the company as it does not want corporation to misuse the scarce resources when they cannot add value to society. In this report, governance and ethical program and negative impact on the society of the liquidation have been taken into consideration. The ABC learning, One Tel Company and other organizations had faced issues due to the non-effective strategic and financial program. The liquidation procedure is also called up winding up procedure. It is analysed that when the business is closed all the liabilities of the company and required payment will be made to creditors or lenders. After that if any amount remained then the rest amount is given to shareholders on their shareholding proportionate basis (Jones, 2016).
Therefore in simple words, it could be defined as complete set of multiple days which requires several approvals and work program. However, the liquidation is undertaken when business owners or directors thinks that company can no longer work effectively and it’s better to end up the operation of the business.
There are several other reasons which might result to liquidation of the companies such as non-efficient business, less effective strategic program and increased business loss. It is also analysed that some time liquidation process is undertaken when company meets its main and ancillary objectives. In addition to this, company also goes in liquidation when it enters into the strategic alliance with other organization such as merger, amalgamation and acquisition.
In order to get the proper idea about the liquidation process, it is required to evaluate the different companies which had gone under the liquidation and ended up their business. All the companies which have faced the liquidation are ABC learning, One Tel company and HIH insurance. The main reason of failure of these all companies was based on the loss of its business, high financial leverage and increased cost of capital (Jones, 2016).
The ABC learning company was having highest market capitalization ($ 2.5billion) on the Australian stock exchange. It had been the biggest the service provider in the early childhood education for the children. Company had the strong brand image and followed the product differentiation strategic program to win over the market. Over the years, company was doing well in market but due to the high solvency risk and less effective financial leverage, company had to face loss in its cost of capital and business at large. It was observed that the financial situation of ABC learning company was not effective and due to the increased charges on the profit, it failed to pay off its fixed interest payment. In context with the strategic program, company followed the clients based business program with its employee’s development program (Løkka, 2014). This level of strategic program increased the business costing and resulted to less return on capital employed. This less effective strategic program of ABC learning company was the main reason of failure of its business. IT failed to pay off its external factors liabilities which eventually reduced the capital outcomes. All these events led to the destruction of the business and resulted to the loss. Soon to that, ABC learning company had to face drastic downfall in its share price. It damages the business functioning of ABC learning company and resulted to the winding up of company at the will of its creditors and owners. It was observed that the soon company had to face high trading loss in its share price and capital value of company negatively impacted the operating functioning.
The company had to face volunteer winding up procedure due to the negative impact on the business. It is observed that volunteer winding up procedure was the last resort which was followed by the management of the ABC learning to pay off its long term and short term debts (Maloka, and Muthugulu-Ugoda, 2016).
After analyzing the case, it could be inferred that ABC learning had to face liquidation due to its high financial leverage and less effective strategic functioning. The liquidation of volunteer winding up procedure resulted to the drastic loss to the promoters and key stakeholders of the company (Marateo, 2017).
HIH Insurance was multination company which indulged in providing the financial and insurance services. This company was the second largest insurance company in Australia which was providing insurance benefits to people for the long run. However, due to its non-effective strategic program and high employee turnover, company had to face drastic loss in its business. It increased its cost of services and company had to run its operating program at Break-Even Point in long run. At that time, HIH Insurance was having good financial position but due to its non-effective strategies and financial structure program it had to face high solvency risk. In spite of the strong financial position, company had to pay $ 133 million to its external liabilities (Schultz, 2016). It resulted to the destruction of the business and HIH Insurance had to sell its assets to pay off the debts. Nonetheless, the sales of the assets and existing capital were not enough to pay off the required debt of the HIH Insurance. When HIH Insurance failed to pay off its debts then it had to go into the volunteer winding up procedure to save it from the negative business functioning (Kratz, and Schöneborn, 2015). At that time, there were several managers who were indulged in the business management functioning of the HIH insurance such as Ray Williams; Brad Cooper, a Sydney businessman; and former chairman Geoffrey Cohen were allocated with criminal charges and provided with imprisonment. Rodney Adler had to go on trial due to the non-payment of company’s liabilities and ultimately punished with the 4 year imprisonment. It is observed that the HIH insurance had to face the volunteer winding up procedure due to the non-effective strategic program, high solvency risk and increased cost of capital. Company failed to discharge its external liabilities which resulted to the volunteer winding up procedure to end up the business process for the ultimate benefits of the creditors and shareholders (Parker, 2015).
With the increased complexity of the One Tel Company, it had to face destruction of the business as management of the company failed to infuse strong strategic management program. One Tel Company was incorporated in 1995 with an objective to provide telecommunications services to clients. It was the fourth largest telecommunication and transmission company. The market capitalization of the company was also 1.2 billion which was the 12th highest Market capitalization on the Australian stock exchange (Pinder, 2017).
The Company had to face destruction in its business due to the two main reasons that company failed to align its business with the demand of the advance technologies and less effective strategic program. The debt structure of company was also more than 40% which reflected the highest financial leverage in the business. Company was indulged in providing the services such as portable devices, cellular phones and wireless transmission. In addition to this, company also notified the several cases of the fraud and insider trading program which destructed the business output of the organization in long run. The high financial leverage and less effective profitability of the business reflected that company had to face destruction. At that time, Company was not having the transparent business and faced the destruction of its business. The main reason was high debt portion, less transparent business and less effective strategic program implemented by the organization (Feinstein, & El-Masri, 2017).
Now in the end, it could be inferred that One Tel Company accepted the last resort to discharge its liabilities by accepting the volunteer winding up procedure due to the non-effective strategic program, high solvency risk and increased cost of capital (Puranam, and Vanneste, 2016).
Does Bad Ethics And Governance Lead To Financial Stress?
The ethics and governance program put emphasis upon the strategic work functions and effective business functions which company should undertake to increase the sustainability of business. It asks company to comply with the legal and ethical compliance with a view to render the best possible benefits to society. It is evaluated that if company could use proper methods and work programs then it will increase the overall outcomes to the society at large.
It is observed that every organization needs to think for making the sustainable growth in its business if it wants to win over the market. However, due to the negative impact on the society, each and every organization needs to follow proper corporate governance program if it wants to pay back what it has taken from the society. This kind of practice is covered under the ethical work practice which could increase the overall outcomes and efficiency of the business at large (Rana, 2016).
Every company needs to avoid manipulations, manifestations, greed, ignorance and carelessness on part of the top management if it wants to increase the ethical corporate work practice (Feinstein, 2017).
ABC learning had to face loss due to its less effective transparent business practice (Saravanan, and Thakkar, 2018).
HIH insurance company had to face destruction in its business due to the falsification of the corporate data which company had to face due to the negative business functioning.
One Tel company had to face this loss due to the “profoundly misled” by the company’s management and destruction of the business (Parker,2015).
Each and every company has objective to increase the overall return on capital employed and increase the wealth maximization of the stakeholders at large. However, there should be proper or optimum capital structure which depends upon the nature of business, risk associated with the market and Beta determined of the company. If company fails to pay off its short term and long term then it will result to liquidation of their own company (Temesgen, and Ababa, 2017).
After liquidation of the company, company needs to pay back to its contributors such as lenders, borrowers and other person who have debt to be paid by company to them. The right of getting payment from the company is highly based on the basis of the pre-emptive rights. These rights are given to each and every contributors on the basis of allocated rank. After that, in the end, shareholders will be paid remaining amount on the proportionate basis (Stoll, 2016).
Conclusion
After analyzing all the details and case study of the different companies which have faced liquidation or winding up in their business, it could be inferred that these all companies have faced destruction in their business due to high debt portion, less transparent business and less effective strategic program implemented by the organization. If these companies would have taken effective work program and less solvency risk in their business then they would have saved themselves from the winding up or liquidation.
References
Feinstein, Z., 2017. Financial contagion and asset liquidation strategies. Operations Research Letters, 45(2), pp.109-114.
Feinstein, Z., and El-Masri, F. (2017). The effects of leverage requirements and fire sales on financial contagion via asset liquidation strategies in financial networks. Statistics & Risk Modeling, 34(3-4), 113-139.
Jones, S. 2016. A Cash Flow Based Model of Corporate Bankruptcy in Australia. Journal of Applied Management Accounting Research, 14(1), 23.
Kratz, P. and Schöneborn, T., 2015. Portfolio liquidation in dark pools in continuous time. Mathematical Finance, 25(3), pp.496-544.
Løkka, A., 2014. Optimal Liquidation in a Limit Order Book for a Risk?Averse Investor. Mathematical Finance, 24(4), pp.696-727.
Maloka, T.C. and Muthugulu-Ugoda, S., 2016. The Deadlock Principle as a Ground for the Just and Equitable Winding Up of a Solvent Company: Thunder Cats Investments 92 (Pty) Ltd
Marateo, D., 2017. An Effective Priority for the Commissioner of Taxation in Liquidation: Bell Group NV (In Liq) v. Western Australia (2016) 331 ALR 408. Adel. L. Rev., 38, p.223.
Parker, M. 2015. Division 7A and winding up structures. Taxation in Australia, 50(6), 312.
Pinder, J. 2017 Causes and kinds of industrial policy. In National Industrial Strategies and the World Economy (pp. 41-52). Routledge.
Puranam, P., and Vanneste, B. 2016. Corporate strategy: Tools for analysis and decision-making. Cambridge University Press.
Rana, S. 2016. Compulsory winding up of companies a study of legislature and judicial aspects.
Saravanan, J., and Thakkar, J. J. 2018. An integrated approach for lead time reduction of military aircraft major overhaul: A case of ABC Company. International Journal of Quality and Reliability Management, 35(1), 2-33.
Schultz, A. 2016. Finding the Right Remedy in Minority Shareholder Oppression Law: A Transnational Analysis of Solutions in Closely Held Corporations. Transnat’l L. and Contemp. Probs., 26, 499
Stoll, V. M. 2016. The Kanak Awakening: The Rise of Nationalism in New Caledonia by David A. Chappell, and: Winding Up the British Empire in the Pacific Islands by W. David McIntyre. Journal of World History, 26(2), 387-394.
Temesgen, H., and Ababa, A. 2017. DISSOLUTION AND WINDING UP OF PLCs UNDER THE ETHIOPIAN LAW.
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