In recent years a number of companies have gone into liquidation (been ‘wound up’) because they have not been able to meet their liabilities when they fell due. In Australia, there are some well-publicised examples such as ABC Learning, HIH Insurance and One.Tel phone company
Discuss all three companies above and find (via electronic journals) the events that led up to the liquidation. Visit the CPA website; discuss APES 110 Code of Ethics for Professional Accountants. Highlight 5 codes of ethics. Visit the ASX website and discuss the Listing Rules ( 8 principles) governing listed companies in terms of corporate governance. Were liabilities a major factor contributing to the liquidation of individual companies?
Analysis of events leading to the liquidation of ABC Learning
The liquidation could be described as process of ending up of the company or eliminating the name of the company from its existence. This process distributes all of the assets and liabilities of the company to its stakeholders in their required proportionate basis deals with the liquidation and winding up. This deals with the debacle of the existence of company from the real world which arise due to its failure to pay off its short term and long term debts within the given time manner. The main reason of liquidation and winding up of the company arise when company becomes not profitable and result to misuse of the existing scarcity of the resources. It will not only hamper the economic but also negatively impact the overall economic growth of the company. Therefore, liquidation and winding up procedure is adopted to eliminate the issues of misuse of the scarcity of the resources and strengthening the overall outcomes of the society. Nonetheless, if company wants to survive in long run then it will have to comply with the ethical code of conduct and applicable Australian stock exchange rules and principles. Furthermore, it is analyzed there are several other reasons which force company to go in liquidation such as poor management, loss of business, inability to pay off its libiliteis, failure to comply with the applicable rules and excessive penalties and penalties which company fails to pay off. There are several events such as merger, amalgamation, strategic alliances and unwanted decisions and destruction of the business due to the inappropriate policies which forced company to go for the voluntary and compulsory winding up procedure.
There are several events and cases which could be used in this assignment to justify how failure to comply with the ethical code of conduct and Australian listing rules may result to liquidation of companies (ASX., 2018).
It is the case study which reflects the failure of ABC learning in complies with the ethical code of conduct and Australian listing rules may result to liquidation. This company was engaged in providing the child care services and mostly focused on the child care and their development in Australia. However, due to the poor management and ineffective legal compliance program, this company fails to create cooperative advantage in market and faced high destruction in its business. This company focused on expanding its business in long run and failed to manage its business in effective manner. The increased cost of capital, high penalties and failure to comply with the ethical code of conduct and Australian listing rules resulted to liquidation of company. In 2001, this company was listed on Australian securities stock exchange and maintained its market capitalization more than AUD $ 30 million. However, the main issue which company had to face was related to its non-effective legal compliance which resulted to high imposition of high penalties and fluctuation in its share price. As a result of this, the financial position of company resulted to negative business outcomes and high financial leverage. All these events made company weak and it failed to pay off its debts. In addition to this, another issue was related to its failure to comply with the ethical code of conduct and Australian listing rules may result to liquidation of companies. This company went for the voluntary winding up and got delisted from the ASX. This was the biggest failure of company which happened due to the non-effective compliance program (ASX. , 2018).
Analysis of events leading to the liquidation of HIH Insurance
There is another case study which had to face the liquidation due to its failure to manage its business and comply with the ethical code of conduct and Australian listing rules may result to liquidation of companies. It is the Australian company which was engaged in business of providing the insurance and banking customer services to clients. At that time, before liquidation, company was bearing total liabilities worth AUD $ 7.2 billion. However, company was doing great at that time but after entering into the strategic alliance with its other organization, it failed to manage its business and faced high destruction in its business process system (CPA Australia., 2018). Company failed to pay off its debts and liabilities due to tis incapability’s and insufficient capital in its business. HIH insurance went into liquidation on the basis of the votes given by shareholders and faced the liquidation process. After liquidation, company distributed all of its assets to its debt holders in their proportionate basis (Elliott, 2010).
This company was the biggest telecommunication Organizaiton which was indulged in offering the telecommunication services to its clients in Australia. This business faced the issues related to high legal penalties due to its failure to comply with the ethical code of conduct and Australian listing rules may result to liquidation of companies. The main ethical code of conduct which was not followed by One Tel Company was based on its integrity, and transparency in its reporting frameworks. The auditors gave in their report that company failed to manage its business and did not showcase the true and fair view of the assets. One Tel company had to face high penalties and paid of the government debt to AUD $ 223 million due to its negligence’s to comply the government rules. This company was listed on the Australian stock exchange but failed to maintain the effective transparency and did not establish the harmonization in its domestic and international reporting frameworks. This resulted to high penalties imposition and company’s failure to maintain the effective governance mechanism in its organization. In the audit report of company, auditors found that accountant and managers manipulated the accounts and data which showcase company’s in default and resulted to compulsory winding up of company (IFAC., 2018).
The code of ethics is the major compliance standards which need to be complied by every listed company to increase their business sustainability. APES 110 codes of ethics are issued the accounting ethical standards board so that listed companies could operate their business without any legal issues and conflicts (Monem, 2016).
Analysis of events leading to the liquidation of One.Tel phone company
There are several codes of ethics and principles which have been given as below. If this code of ethics is not followed by listed companies while preparing and reporting their financial statement then it may result to liquidation and winding up of their business (Babich, Hodyayev, & Uleksin, 2016).
- Integrity: Each and every employee of the Organizaiton need to work with their integrity and honesty. These members are required to deal with their full integrity to handle their work operations. Accounts needs to set up effective compliance program of accounting standards while preparing the financial statements. The integrity and legal compliance program shows the effectiveness of the financial statements (, 2018).
- Objectivity:The objectivity of the ethical code of conduct makes accountants to make the effective decisions while preparing the accounts of company without getting affected by internal and external factors. It allows them to be unbiased while preparing the financial statement (Kant, 2017).
- Professional Competence and Due Care: The professional competency and due delegacy of the company reflects how well company has complied with the applicable laws and accounting standards. It helps in establishing the harmonization in the international and domestic accounting standards while preparing the financial statement (CPA Australia. 2018).
- Confidentiality:It is the major part which helps in making company saves from the ill-intentioned persons. Ideally, the main issue arise when the ill-intentioned individuals want to take the benefits of this confidential information by undertaking the insider trading program and playing the cheap trading game. It not only hampers the sustainability of the Organizaiton but also hamper the brand image in long run.
- Professional behavior: Each and every professional employee of the organization should focus on delivering the best possible outcomes in the best interest of the Organizaiton. It is analyzed that accountant, auditors and key managerial persons should undertake their professional behaviour while delivering the best outcomes to society (CPA Australia. 2018).
As per the listing agreements and laws, every listed company needs to follow this listing agreement if it wants to sustain its business in long run: (Kelly, Brien, & Stuart, 2015).
- Changes in the board structure by hiring one independent directors
- Maintaining the transparency by filing consistent financial reporting.
- Performing ethically with full responsibilities
- Safeguarding with the corporate reporting frameworks.
- Comply with the faire remuneration laws
- Recombination of the risk and implement the risk management policies
- Establish harmonization in domestic and international reporting framework.
- Comply with the corporation act laws and regulation ( 2018).
These all the principles reflect that if the company follow these principles then it could easily avoid the case of the insider trading and sudden mischievous acts (Khan, & Williamson, (2016).
The major contributing factor of the business failure of these Organizaiton was based on their inability to pay off its short term and long term liabilities. These all entities were failed as they were not having the proper capital to operate its business. Nonetheless, One Tel Company was had to face issue of manipulating the accounts and books which resulted to compulsory winding up of company. On the other hand, HIH insurance was not having sufficient capital nor it was making profit from its business operation. This sort of acts and events forced these companies either to take voluntary winding up or go for compulsory winding up. The main crux of this research is that these all companies were liquidated due to the two main factors. First was related to failure to pay off their debts and other one is, failure to comply with the applicable rules and excessive penalties and penalties which company fails to pay off (Smith, 2016).
This report has reflected that code of conduct and Australian listing rules and regulation which company needs to comply in order to maintain transparency in business. The major factors to winding up of these three companies were their failure to pay off its debts and non-effective legal compliance program. HIH insurance had to face issue of the poor management and deliberately made the mistake to manipulate the accounting data. On the other hand, One Tel Company also had to dissolve due to its failure to comply with the applicable listing rules. The ABC learning did not pay off its debts due to its inefficient capital to manage the business and manipulation of the accounts. Now in the end, it could be inferred that these all companies could have been saved if the issues like as poor management, loss of business, inability to pay off its libiliteis, failure to comply with the applicable rules and excessive penalties and penalties which company fails to pay off could be managed by company in the given time manner.
ASX. (2018). Corporate Governance Council. [Online]. Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 12th September 2018].
Babich, A. S., Hodyayev, S. G., and Uleksin, V. O. (2016). An increase of efficiency of disinfestation is at liquidation of consequences of emergencies by application of bottle aerosol generators. Construction, materials science, mechanical engineering, (93), 151-156.
CPA Australia. (2018). APES 110 CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS. [Online]. Available at: https://www.cpaaustralia.com.au/professional-resources/accounting-professional-and-ethical-standards/apes-110-code-of-ethics-for-professional-accountants [Accessed 10 September 2018].
Elliott, T. (2010). One.Tel one big debacle. [Online]. Available at: https://www.abc.net.au/news/2009-11-20/28324 [Accessed 10 September 2018].
IFAC. (2018). Revised Code of Ethics – Completed. [Online]. Available at: https://www.ethicsboard.org/projects/revised-code-ethics-completed [Accessed 12th September 2018].
Insurance Journal. (2003). HIH Report Cites Mismanagement as Cause of Collapse. [Online]. Available at: https://www.insurancejournal.com/news/international/2003/04/21/28160.htm [Accessed 12th September 2018].
Kant, R. (2017). Retrospective Effect of Order of the Winding-Up. Journal for Studies in Management and Planning, 3(13), 482-486.
Kelly, R., Brien, E. O., and Stuart, R. (2015). A long-run survival analysis of corporate liquidations in Ireland. Small Business Economics, 44(3), 671-683.
Khan, A., and Williamson, S. (2016). The liquidation of foreign companies in Australia. Australian Restructuring Insolvency & Turnaround Association Journal, 28(2), 38-65.
Monem, R. (2016). The One-Tel Collapse: Lessons for Corporate Governance. [Online]. Available at: https://www98.griffith.edu.au/dspace/bitstream/handle/10072/42673/74746_1.pdf?sequence=1 [Accessed 12th September 2018].
PWC. (2018). Listing a company on the Australian Securities Exchange. [Online]. Available at: https://www.pwc.com.au/legal/assets/listing-company-asx.pdf [Accessed 12th September 2018].
Smith, A. D. (2016). A targeted outsider's right to challenge local winding-up proceedings PricewaterhouseCoopers v Saad Investments Co Ltd 2014 UKPC 35 (10 November 2014), 2014 1 WLR 4482 (PC). Potchefstroom Electronic Law Journal/Potchefstroomse Elektroniese Regsblad, 19(1).44-65