When any business organisation is winded up, it could be termed as the process of liquidation. In this process, it is mandatory for the concerned organisation to follow a series of steps for shutting down its business operations permanently. The role of the liquidator is significant in this aspect, as the individual would be accountable to identify liabilities as well as business rights for settling the payment of the lenders, creditors and other stakeholders of the organisation. Whenever any organisation is liquidated, there are certain reasons contributing towards its decline. Some instances could be in the form of ineffective business policies, internal control deficiencies and corporate governance failures. Therefore, this report is formulated with the intent of analysing the various factors attributing to the declines of the three popular Australian organisations, which include ABC Learning, HIH Insurance and One Tel.
ABC Learning:
ABC Learning used to operate as a leader in the Australian childcare educational industry. The organisation had market capitalisation of AUD2.5 billion after it was listed in the Australian Securities Exchange (ASX). Due to the significant mortgage crisis, there had been managerial receivership within the organisation and significant debt could be held responsible for its downfall. The organisation was founded in 1988 and in shorter duration, it expanded into Australia with above 900 centres in the nation. It expanded in US and UK as well in 2006, after which the acquisition of Busy Bee was made in lieu of $330 million (Bryce, Ali and Mather, 2015).
HIH Insurance:
HIH Insurance was deemed to be one of the biggest insurance firms, which operated in Australia. It had made considerable progress between 1997 and 1998 due to the successful global expansion, after which it got listed in ASX. This happened mainly due to the reason that a considerable portion of shares of the firm is sold to a Swiss organisation. Before liquidation process, HIH Insurance had suffered $5.3 billion in the form of loss. Moreover, few board members of the organisation were found guilty and they were sentenced to imprisonment, since they were engaged in certain financial frauds and manipulations. The liquidation of the organisation is adjudged as the biggest liquidation in the corporate collapse of Australia (Carnegie and O’Connell, 2014).
One Tel:
One Tel used to be one of the leading telecommunication service providers in Australia and it was established in 1995. The motto of the organisation was to fulfil the needs and demands of its customers and in order to accomplish the same; it had focused on providing greater quality services to the customers. Before it was liquidated, the organisation had found itself positioned in the fourth position in the telecommunication sector of Australia. The organisation had targeted the youth customers to provide internet and mobile phone services in order to develop a favourable brand image in the Australian market (Di Pietr, et al., 2014).
ABC Learning:
There are certain reasons leading to the downfall of ABC Learning in Australia and they include the following:
Certain factors could be attributed to the downfall of HIH Insurance, which are demonstrated briefly as follows:
One Tel:
Certain causes are deemed to be inherent behind the decline of One Tel, which are stated briefly as follows:
“APES 110 Code of Ethics for Professional Accountants”:
This is considered as a significant standard for the accounting specialists, since this standard assists them to comply with the needed ethics and code of conduct. In this standard, five codes of ethics are required to be adhered to by the accounting specialists. The first code of conduct related to ethics is integrity and as per this code, straightforwardness and honesty are expected from the accountants when they are conducting business and professional relationships. The next code of conduct is objectivity and it hinders the accountants to conduct conflict of interest, bias and effect of overriding business and professional judgement. The next code of conduct is related to professional competence and due care and it enforces the obligation on the accounting specialists so that skills and professional knowledge could be maintained for assuring the delivery of effective professional services depending on the current developments in the profession of accounting. The fourth ethical code is confidentiality and it mandates the need for the accountants to emphasise on the confidentiality aspect acquired during the delivery of professional services. The fifth ethical code is related to professional behaviour and it obliges the accountants in making conformance to the pertinent laws and regulations so that unethical actions in the profession could be avoided (Apesb.org.au, 2018).
Listing rules of ASIC:
In accordance with ASIC, one of the significant driving factors for analysing the performance of the organisations is corporate governance and this has necessitated the need for ASIC in reviewing the various aspects related to corporate governance (Asic.gov.au, 2018). Therefore, ASIC has developed certain listing rules for all the business organisations, in which they need to adhere to such rules for the formulating of suitable mechanism of corporate governance. The initial rule is related to managing certain organisational conflicts. The next rule is associated with the involvement of the stakeholders. The third rule is associated with director oversight in financial aspects coupled with audit. The fourth rule could be related with the framework for risk management (Petty, et al., 2015). The fifth rule is associated with managing corporate information. Another topic is executive remuneration pertaining to the next listing rule. Another rule is associated with the culture of the organisation. Moreover, the corporate actions pertaining to share capital is another rule listed by ASIC. The final listing rule includes description of the directors in the form of gatekeepers along with procedural as well as introductory guidance (Ratnatunga, 2016).
With the rise in liabilities, the chance of liquidation goes high for any business organisation. The similar was the case with ABC Learning, HIH Insurance and One Tel and detailed enumeration is provided as follows:
ABC Learning:
At the start of 2007, the liability amount was stable in the organisation; however, the procedure of refinancing in the second half of 2007 had contributed towards re-categorising the term loans from the current as well as non-current liabilities valuing AUD1.1 billion. This additional rise in liability between 2007 and 2008 had resulted in 42% decline in profit of the organisation. Along with this, ABC Learning had to pay AUD1.2 billion in order to violate the contract agreement (Louwers, et al., 2015).
HIH Insurance:
Similar issues were encountered by the management of the organisation due to high leverage of the organisation arising from the bank term loans as well as those of other financial institutions. This has resulted in the liquidation of the organisation. Moreover, the debt burden of the organisation had increased heavily after the acquisition of FAI Insurance in exchange of $300 million, which is way higher than the actual price of $100 million (Tricker and Tricker, 2015).
One Tel:
For One Tel, the management of the organisation has adopted unethical strategy of hiding business liabilities because of excessive rise in the business debts. Since it has not cleared its debt payments, the organisation had to incur $92 million in the form of compensation. Due to all these reasons, the organisation had gone into liquidation.
Conclusion:
It could be observed from the above analysis that certain reasons are inherent behind the downfall of ABC Learning, HIH Insurance and One Tel. However, there is presence of one common factor that led to the liquidation of the three above-stated organisations. This factor is the incapability of the management to undertake accurate decisions in various areas like investment decisions, business diversification, enforcement of appropriate accounting policies, errors in the financial statements and others. Moreover, due to the increased burden of debt, the organisations had struggled to conduct their business operations effectively and this had been another reason behind their liquidation. Finally, the absence of appropriate ethics has been another factor behind the decline of the three organisations and thus, it implies that the corporate governance policies of the organisation were not effective. Therefore, by taking into account all these aspects, the three organisations have gone into liquidation over the years.
References:
Apesb.org.au., 2018. APES 110 Code Of Ethics For Professional Accountants. [online] Available at: <https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf> [Accessed 29 August 2018].
Asic.gov.au., 2018. Corporate Governance | ASIC – Australian Securities And Investments Commission. [online] Available at: <https://asic.gov.au/regulatory-resources/corporate-governance/> [Accessed 29 August 2018].
Bryce, M., Ali, M.J. and Mather, P.R., 2015. Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness—Evidence from Australia. Pacific-Basin Finance Journal, 35, pp.163-181.
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.
Di Pietr, A., Ay, M., Art, S. and Ronen, J., 2014. Accounting and regulation. Springer.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.
Fountain, L., 2016. Ethics and the Internal Auditor’s Political Dilemma: Tools and Techniques to Evaluate a Company’s Ethical Culture. Auerbach Publications.
Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting Review, 27(4), pp.457-479.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Keay, A., 2015. Board accountability in corporate governance. Routledge.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.
Marley, S. and Pedersen, J., 2015. Accounting for Business: An Introduction. Pearson Higher Education AU.
Miglani, S., Ahmed, K. and Henry, D., 2015. Voluntary corporate governance structure and financial distress: evidence from Australia. Journal of Contemporary Accounting & Economics, 11(1), pp.18-30.
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M., 2015. Financial management: Principles and applications. Pearson Higher Education AU.
Ratnatunga, J., 2016. The Accounting Delusion: Faith and Trust in IFRS Reports. Journal of Applied Management Accounting Research, 14(1), pp.1-25.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA
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