Winding up process of the business organizations is also called as the process of liquidation in which the business entities have to go through different kinds of processes in order to shut down their businesses. The liquidator, responsible for conducting the liquidation process, has to conduct different processes for the liquidation like the recognition of the major assets and inabilities of the businesses along with the business rights, paying the obligation of the creditors and many others. The presence of different factors can be seen behind every liquidation (Dodo, 2017). The main objective of this report is to analyze and evaluate the organizational as well as ethical reasons behind the collapses of three major Australian business organizations; they are HIH Insurance, ABC Learning and One Tel Phone.
HIH Insurance used to be regarded as the largest issuance corporations of Australia. The company was established in the year of 1968 and in the year 1992, the company got their name enlisted in the Australian Securities Exchange (ASX). With the superior quality of insurance products and services, the company was able to expand their business outside Australia during the years 1997 and 1998 (Debbage and Dickinson, 2013). However, the company had to face a business loss of $5.3 billion that is considered as one of the major reason for the collapse of the company.
ABC Learning commenced their business operation in the year 1988 in Queensland, Australia and was considered as one of the major educational organizations in the country. The company got enlisted in ASX with a market capitalization amount of $2.5 billion. However, the negative effects of the world mortgager crisis can be seen on the business operation of ABC Learning that is considered as a major reason for the collapse of the company (Clarke and Dean, 2014). However, it needs to be mentioned that ABC Learning made the acquisition of Busy Bee Group in the year 2006 for $330 million in order to expand their business in both United Kingdom and United States.
One Tel Phone started their business operations in the year of 1995 and was one of the leading telecommunication providers in Australia. Providing quality telecommunication services and products to cater to the needs of the customers was the main business strategy of the company. With the help of this business strategy, One Tel Phone was able to secure their place as the fourth largest telecommunication organization in Australia. The company was a major provider of quality mobile phones and internet related services (Logan, Sumsion and Press, 2015).
The following discussion shows the major events that led to the collapses of these three companies:
HIH Insurance took some of the major wrong business decisions that were responsible for the collapse of the organizations. It can be seen that took the wrong decision to enter into the investment business for the films that was a risky business and the company had to face more than hundred million dollars of loss from this business. In addition, the company took the wrong decision to acquire the business of FAI Insurance with the help a large amount of investment and this large investment was a risky aspect for the business of HIH Insurance (Vucetich, Perry and Dean, 2014). Apart from this, HIH Insurance had to face huge amount of loss as a result of the natural disaster in Florida. This natural disaster was one of the major reasons for the development of huge amount of debt for the company that led to the loss for the company. This is a major reason for the failure of HIH Insurance. For the payment of the compensation of the workers of California, HIH Insurance made a sudden change in the accounting policy by adopting aggressive accounting policy. At the time of the liquidation process, the liquidator estimated that the company lost over $800 million in a period of six months as a result of the undertaking of wring business decisions (Tarr and Mack, 2013). Thus, all these reasons collectively contributed towards the collapse of HIH Insurance.
Same as above, certain major reasons were there behind the liquidation of One Tel Phone. One of the most important reasons for the collapse of One Tel Phone was the adoption of wrong accenting standards that was illegal and contributed towards the violation of the accounting standards. The strategy of the company was to defer the major business expenses for three years so that they can sow increased amount of profit in the financial statements (Williams, Bingham and Shimeld, 2015). Due to this adoption of illegal accounting standards and policies, One Tel Phone had to face a loss of $291 million in the year 2000. Due to this, the share price of the company was due by less than $1. In the year 2001, the management of One Tel Phone was in major shortage in fund for carrying on the business operations and thus, the director of the company sold 5 million shares of the company at just $2.5 million that was a major loss for the business of One Tel Phone (Lewis, 2013). This particular aspect led to the lay off more than 1400 employees by the company for the reduction of business expense. As the company failed to provide the investors with any returns due to their illegal business activities, One Tel Phone had to pay a fine of $92 million that was a major loss of the company. These are the major reasons for the failure of One Tel Phone.
Some major reasons were there for the collapse of ABC Learning. It needs to be mentioned that ABC Learning had to incur a debt of $1.8 billion due to some o their wrong business decisions. For this reason, there was a major fall in the profit margin of the company by 42% and the amount was $37.1millon. This was a prime reason for the collapse of ABC Learning (Fin and McRobert, 2013). This particular aspect hit the share price of the company as there was 43% fall in the share prices to $2.15 after a lowest opening of $1.15. This aspect created pressure on the management of the company and thus they forced to sell the stake of $6 million and $20 million for a sum of $2.7 million. Moreover, ABC learning receiver suspension of their trade activities as they did not disclose the earnings of their business for 2007 and 2008. This aspect led to the managerial receivership of the company in 2008. The auditors of the company also failed to sign off their business accounts. The company had goodwill worth $2.4 billion related license and other intangible assets, but they only charged $8.4 billion as impairment. It shows the wrong accounting for the goodwill of the company. Thus, all these aspects together led to the liquidation of ABC Learning (Lawson, 2017).
Ethics is considered as an important factor in the business organizations as the application of business ethics helps the management of the companies to make correct business judgment about the right and the wrong. Thus, there should be ethics in the organizational cloture as organizational internal culture has major influence in the business judgment. In the presence of ethical business judgments, the management of the entities can ascertain the correct course of action for the success of the whole organization. At the same time, corporate governance also has a major role to play in the companies as it helps the management to monitor all the business activities of the organizations so that there is not any unethical situation. In the presence of effective corporate governance and ethical business practices, the companies can attract large number of customers and investors to their products and services (Crane and Matten, 2016).
The following discussion shows the major ethical as well as corporate governance related issues that contributed onwards the fall of these three companies:
As per the rules of effective corporate governance, it is required to get the approval from the board of directors before any major business acquisitions. However, in the case of HIH Insurance, the company did not take the approval of the board for the acquisition of FAI Insurance that is one of the major reasons for the collapse of the company (Jones and Bowrey, 2013). Thus, failure of corporate governance is evident here. The wrong decision to enter into the film business was also taken in the absence of the approval of the board and it indicates towards the unethical business practice by the company. Apart from this, lack of responsibility of the management of HIH Insurance can be seen in delivering the duties related to due are and diligence. Lastly, the presence of material omission in the prospectus of the business was another major reason for the failure of the business that shows lack of ethical business practice (Jones and Bowrey, 2013).
One Tel Phone was majorly involved in the violation of the accounting standards and principles that shows the lack of ethics and corporate governance in the business operations of One Tel Phone. At the same time, due to the absence of strong corporate governance strategies, the management of One Tel Phone failed in monitoring the financial performance that led to major financial fraud. In addition, the management of the company did not consider the risky business aspects that led to the collapse of the company. Moreover, the failure of the company in the adoption of strong pricing strategy showed the lack of corporate governance for the company (Tricker and Tricker, 2015). The company had to face major business loss due to all these ethical as well as corporate governance related issues.
Some major ethical and corporate governance related issues can be seen in the collapse of ABC Learning. In case of ABC Learning, the main ethical failure was related to the adoption of wrong accounting policies and standards and it contributed to the occurrence of some of some of the crucial accounting frauds (Salim, Arjomandi and Seufert, 2016). Apart from this, the management of ABC Learning was also involved in the unethical bookkeeping practices. It is also required to mention that the company was failed in ethically rendering the services to their customers and all these aspects together majorly contributed towards the collapse of ABC Learning.
Apart from the above reason, the increasing amount of liabilities was another major reason for the collapses of these companies. It was the acquisition on the management of One Tel Phone that they did hide a major portion of their liabilities for showing more profits. As per the earlier discussion, the payment of $92 million of fine by One Tel Phone was a major contributor to increase the liability of the business that was a prime reason for the collapse of One Tel Phone (Lewis, 2013).
In the year 2007, ABC Learning had a stable liability position, but the company had to do the reclassification of the current and non-current liabilities worth non-current liabilities worth $1.1 billion that contributed towards refinancing for the company. Thus, the company had to face a 42% fall in the profit for the increase in liabilities (Fin and McRobert, 2013).
It needs to be mentioned that the capital structure of HIH Insurance was highly leveraged with long-term debts and thus, the company had to record huge amount of liabilities in their financial statements. The company had to face a loss of $200 million due to the acquisition of FAI for $300 million as the actual value of the deal was $100 million (Vucetich, Perry and Dean, 2014).
Conclusion
From the above discussion, it can be observed that the business organizations are required to consider all the relevant aspects at the time of their business operations. As per the above discussion, the major factors confronted towards the corporate failure of these three companies are wrong decision making, non-compliance with the required accounting standards, absence of required approval from the board for major business acquisitions and others. At the same time, in the absence of ethics and corporate governance strategies, the companies had to face corporate failure. Lastly, increasing amount of liabilities was another crucial reason for the collapses of these corporations.
References
Clarke, F. and Dean, G., 2014. Corporate Collapse: Regulatory, Accounting and Ethical Failure. In Accounting and Regulation (pp. 9-29). Springer, New York, NY.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
Debbage, S. and Dickinson, S., 2013. The rationale for the prudential regulation and supervision of insurers.
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), p.19.
Fin, A.M.S. and McRobert, A., 2013. Hastie Group Limited: Did the annual reports provide any warning signals?. JASSA, (3), p.7.
Jones, G. and Bowrey, G., 2013. Local council governance and audit committees-the missing link?. The Journal of New Business Ideas & Trends, 11(2), p.58.
Lawson, D., 2017. Leading the way. Rattler (Sydney), (122), p.6.
Lewis, G., 2013. Australia’s regulatory panopticon. AQ-Australian Quarterly, 84(4), p.26.
Logan, H., Sumsion, J. and Press, F., 2015. The Council of Australian Government Reforms [2007–2013]: a critical juncture in Australian early childhood education and care (ECEC) policy?. International Journal of Child Care and Education Policy, 9(1), p.8.
Salim, R., Arjomandi, A. and Seufert, J.H., 2016. Does corporate governance affect Australian banks’ performance?. Journal of International Financial Markets, Institutions and Money, 43, pp.113-125.
Tarr, J.A. and Mack, J., 2013. Auditor obligations in an evolving legal landscape. Accounting, Auditing & Accountability Journal, 26(6), pp.1009-1026.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Vucetich, A., Perry, R. and Dean, R., 2014. The insurance sector and economic stability. Life, 16, p.9.
Williams, B.R., Bingham, S. and Shimeld, S., 2015. Corporate governance, the GFC and independent directors. Managerial Auditing Journal, 30(4/5), pp.324-346.
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