Discuss all threecompanies aboveand find (via electronic journals) the events that led up to the liquidation. Highlight some of the corporate governance issues that contributed to each company’s collapse. Discuss the type of liquidationthat was called for each. Were liabilities a major contributing factor that led to their downfall?
Discussion regarding the Companies
The main purpose of this assessment is to analyze the factors which led to the liquidation of three companies and whether the major factor which contributed to the liquidation was the excess liability of the business. The companies which are to be analyzed are Aluminum Boats Australia, HIH Insurance and Stella Homes and all the companies have their main operations in Australia. The assessment goes into details on the situations and condition which led to the liquidation of such businesses and also discusses the major causes which was behind such dissolutions (Jackson 2015). In addition to this, the assessment goes into brief on APES 110 Code of Ethics for Professional Accountants and highlight some codes of ethics. The assessment would also be discussing the gap in corporate governance of the three companies.
The companies which are considered in the assessment are engaged in different businesses and the same is engaged in operations in Australia. There are three companies which are considered for this assessment which are Aluminum Boats Australia, HIH Insurance and Stella Homes.
Aluminum Boats Australia
Aluminum Boats Australia was set up in 1999 and the company was established with the intention of producing the best quality of light crafts which would be of finest world class aluminum and would be a high-performance craft. The company effectively met the needs of commercial and private owners with the crafts which was developed by the business. The company mainly provide boats and light crafts for the Queensland Police Service, Royal Australian Navy, Cruise Whitsunday and Mooloolaba Coast Guard (Aba-global.com 2018). The company specializes in luxury, commercial and defense vessels and this formed the main part of the operations of the business. The main reasons which led to the downfall of the company can be attributed to the massive fire which completely destroyed one of the navy vessels HMAS Bundaberg and the same was the major catalyst which led to the downfall of the company. The fire was the biggest which has been seen in the history of Aluminum Boats Australia and the same led the company into voluntary administration (Markowicz 2013). The situation of the company had worsened to such an extent that the management of company had to lay off around 90 employees after the fire and soon afterwards the rest as well. Therefore, the main cause can be attributed to the fire incident which affected the business adversely.
HIH Insurance is regarded as one of the largest general insurance companies which is operating in Australia. The company has the largest number of policy holders in the Australia and was considered to be one of the reputed company in Australia. The company provided government-based insurance policies and included HIH Casualty and General Insurance Limited, FAI General Insurance Company Limited (FAI), CIC Insurance Limited (CIC) and World Marine and General Insurances Limited (WMG). These are some of the insurance policies which was provided by HIH Insurance. The company went into liquidation in 2001 by the order of the NSW Supreme Court and the same was provisional liquidation (Aph.gov.au. 2018). The reason which can be identified for the liquidation of the business is mismanagement practices of the business. At the time of liquidation of the business, the overall loss which was estimated to be suffered by the company was about $ 800 million. The overall due to the creditors of the business is estimated to be significantly high and it is estimated by the provisional liquidator that it would take around 10 years to fully settle the dues of creditors of HIH Insurance. The overall loss was around $ 5.3 billion in the process of liquidation.
Causes for Liquidation
The company was regarded as one of the major real estate development company in the Australia. The company is responsible for developing environment friendly and healthy communities in countries like Miami-Dade, Broward and Palm Beach. The company in order to expand the scale of operations of the business, started investing in both residential and real estate sector. The company was effectively engaged in developing many communities which are situated in Australia. The downfall of the company was mainly due to the stiff competition which the business faced in the region and administrators say over $3.4 million was owed to secured creditors and $1.5 million to unsecured creditors.
Aluminum Boats Australia
The causes which led to the liquidation of the business of Aluminum Boats Australia was the loss of the vessel of the navy. Kelly-Anne Trenfield and John Park from FTI Consulting were appointed the administrators for the purpose of liquidation process. The main reasons which led to the downfall of the company can be attributed to the massive fire which occurred in demolish of HMAS Bundaberg. This fire destroyed Australian navy boat which valued around $ 45 million and is regarded as one of the major losses for the business. The case also led to lay off of around 90 employees. Due to the fire, the administration of the business went out of the hands and also affect the core business activities of the business.
There are various reasons which led to the collapse of HIH Insurance and some of the main reasons are discussed. The management of HIH Insurance invested significantly to acquire the business of FAI insurance which was highly risky. This can be cited as one of the reasons which was responsible for the collapse of HIH Insurance. In addition to this, the company further decided to invest in films which further led to losses of hundred million dollars. Moreover, the region of Florida suffered from a natural calamity and naturally most of the properties and life were damaged. The company had to pay up insurance amounts which contributed to the accumulating debts of the business (The Sydney Morning Herald. 2001). The company further tried to change the accounting policies for the employees engaged in California which did not work out as per the expectation f the company which further is responsible for the downfall of the company. At the time of liquidation, the total accumulated losses of the business amounted to $ 800 million and it is estimated that it would take around 10 years effectively to fully settle what is due to the creditors of the business.
The liquidation of Stellar homes can be regarded as one of the major liquidations which took place in the country. In 2014, the company was placed under administration under PI Macks and IW Burford of Macks Advisory. The main cause for the collapse of the company was mainly because of the fall in the sales of the business which resulted in decline in the cash flows of the business. The company has a brilliant record for construction of new houses which numbered above 500 houses in Adelaide. In addition to this, the economic conditions in Australia was very competitive in nature which led to fall in the sales revenue of the business (Insolvencynotices.asic.gov.au. 2018). At the time of liquidation, it is estimated that there were 36 homes which were left in an incomplete state. The main cause which can be attributed to the downfall of the company was the fall in the sales of the business and highly competitive economy.
Ethics and Code of Conduct
The ethics and code of conduct which is stated by APES 110 is considered to be an important guideline which is to be followed by all professionals in conducting day to day business operations. The code of conducted specified by APES 110 needs to be complied by all accounting professionals during the course of the business. As per APES 110, there are five ethical code of conducts to which every professional should adhere. Integrity is the first principle which requires the professionals to be honest and straightforward in all their businesses and professional relationship (Apesb.org.au. 2018). Objectivity is the second principle which puts an obligation on accounting professionals to be unbiased and ensure that there is no conflict of interest which can influence the professional judgement in a business. Another principle is Professional Competence and Due care which requires accounting professionals to exercise due knowledge and skills which carrying out any operations and ensure that highest level of service is provided. Confidentiality is the forth principle which requires the accounting professionals to maintain secrecy relating to the business of the client and do not disclose any vital information to the third parties. The last principle is Professional behavior which is expected out of every accounting professionals which is to abide by the rules and regulations of the economy and avoid being charged with professional misconduct.
The corporate governance of all the three companies have been weak which has led to the collapse of the three companies. In the case of both Stellar homes and Aluminum Boats Australia, the collapses were mainly due to natural reasons. The fire in a ship vessel of the navy led to the fall of Aluminum Boats Australia while tough economic conditions and fall in the sales revenue which is generated by the business of Stellar Homes led to the collapse of the same.
The case of HIH Insurance is a bit different and the liquidation can be charged on mismanagement and weak corporate governance of the business. When the business of HIH Insurance obtained the FAI Insurance, the management did not take prior approval for the same which shows a gap in the governance principles followed by the business (Tricker and Tricker 2015). Then, there was the decision to invest in films which caused the business significant amount of losses. In additional to this, the senior management of the business was involved in unethical practices which involved issue of improper business prospectus that involved material omissions and there was also material misstatement of profitability of the business.
In the case of HIH Insurance, the supreme court ordered the business to go into official liquidations and the same can stated as a court dissolution. The auditors statement was review by the court before taking appropriate decisions.
In the case of Stellar Homes and ABA, the type of liquidation was voluntary in nature and the liquidation permission was passed according to the paragraph 446A(1)(a) special resolution under s491. In such a liquidation, the creditors were required to be paid in full and the balance funds was to be transferred to the directors.
In most of the cases, the liabilities of the business are regarded as the main factor which is responsible for liquidation of a business. In the case of HIH Insurance, the management had to face, significant amount of debts which had accumulated. In addition to this, the acquisition of FAI insurance also resulted in higher debts of the business. Thus, it can be said that the amount of debts played a vital role in the liquidation of the business.
In the case of Stellar homes as well the management had unfinished homes which owed around $ 1.5 million from the company to the clients of the business. Therefore, it can be said that there was some role of debts in the downfall of the company of Stellar Homes. The liquidation of Aluminum Boats Australia was not because of any liabilities of the business but because of some natural situation.
The above discussion effectively highlights the circumstances in which the three companies were liquidated. In the case of HIH Insurance, there were several factors which led to liquidation and the main reason was the mismanagement practices which led to the downfall of the business. However, in the case of Stellar homes and Aluminum Boats Australia, the causes which led to the liquidation of the businesses were mostly due to natural causes. In addition to this, the above discussion also points out issues in governance of all three companies which also contributed to the downfall of the company. In case of liabilities both Stellar Homes and HIH Insurances had huge liabilities, which was also a factor in down fall of the companies.
Aluminium Boats Australia | Shipbuilders Brisbane, Australia. 2018. Aluminium Boats Australia | Shipbuilders Brisbane, Australia. [online] Available at: https://www.aba-global.com/ [Accessed 30 Dec. 2018].
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 30 Dec. 2018].
Aph.gov.au. (2018). HIH Insurance Group collapse – Parliament of Australia . [online] Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/archive/hihinsurance [Accessed 30 Dec. 2018].
Insolvencynotices.asic.gov.au. (2018). STELLAR HOMES PTY LTD 107 791 453 | Creditors' Voluntary Liquidation | Appointment | | Published : 12/03/2015 | ASIC Notice Details . [online] Available at: https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/STELLAR-HOMES-PTY-LTD-107791453/00b614e4-780a-4df8-b958-f3f48e4ee9f1 [Accessed 30 Dec. 2018].
Jackson, T.H., 2015. Building on Bankruptcy: A Revised Chapter 14 Proposal for the Recapitalization, Reorganization, or Liquidation of Large Financial Institutions. Making Failure Feasible.
Markowicz, I., 2013. Hazard function as a tool to diagnose business liquidation. Folia Oeconomica Stetinensia, 13(2), pp.23-36.
The Sydney Morning Herald. (2001). HIH Insurance in liquidation. [online] Available at: https://www.smh.com.au/business/hih-insurance-in-liquidation-20010316-gdfdte.html [Accessed 30 Dec. 2018].
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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