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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?


This report discusses the reasons why three companies in Australia were wound up and will try to look if at all if was the inability to pay its liability that was the main cause for the companies winding up. A further discussion on the APES 110 Code of ethics as well as the principles of governance as set by ASX will help to identify weaknesses in the operation of these three companies for proper conclusion to be formulated (Miglani, 2014).

Liquidation normally arises in the event that a company cannot discharge its responsibilities i.e. cannot pay for its liabilities as when they arise. The company thus in this case will be forced to sell off its assets to pay off its pending liabilities.

In the financial year 2007 and a 2008 a potential liquidity crisis was noted in the company from the ration of current assets and current liabilities that was at 30cents of current assets to 40 cents of current liabilities. This meant that the company could not discharge its current liabilities as and when it could arise. The company was termed insolvent by the administrators in the second half of 2008 and there was an agreement to wound up 39groups which had a total debt of $1.9 billion (Boshyk, 2014).

It was liquidated due to insolvency and liquidity crisis that was indicated by current liabilities which was at 7billion Australian Dollars and current assets at 5 billion Australian Dollars. The company is said to have poor governance as per the review of factors that led to insolvency. The company also is accused of issuing inaccurate financial reports as per its accounts. HIH Insurance also overvalued their assets by stating its value above the current market value. This in return indicated a higher credibility rather than the actual state (Henderson and Hobson, 2010). 

The Company had a debt of $300 million by May 2001 and was not aware of the cash crisis it was in until May 27. This indicates that the company had poor internal structure policies and procedures that could not identify this crucial element in time. The company thus had poor governance and is said to have acted unethically by charging high call rates unlike others in the same industry. Financial reporting also became a flop as the company faced noncompliance claims.

The three companies were faced with high debt level which was directly linked to insolvency and thus liquidation. It should be noted that liquidation was the final result of poor governance and poor internal structure that could not indicate crucial elements like financial crisis as in the case of One Tel Phone as an example. Unethical practices like noncompliance to financial reporting and overstating of assets value also was a contributory factor as the true financial position could indicate a crisis earlier that could be resolved before it could get out of hand. Thus liabilities cannot be set out as the major reason why the three companies went into liquidation but is just the last call that exposed the three companies irresponsible behaviors as far as running the company was concerned (Rolea, 2014).

Causes of Liquidation

APES  is an acronym for Accounting Professional & Ethical Standards. As the name suggests it is a set of rules, principles and guidelines that set the ethical framework within which accountants should operate in order to remain ethical in whatever tasks they engage in. APES specifically emphasize the need for accountants to put public interest before any other interest or party in any dealing. Any accountant who puts public interest first fully complies with APES 110 code of ethics. As a general guideline, APES 110 gives basic principles that guide accountants in working within the limits of this code of ethics (Yoo, 2015).

The code further highlights any significant threat that may be faced in compliance with the set principles or the circumstances that may lead to non-compliance. It helps accountants to judge the materiality of the threats as well as offering guidelines to eliminate the threats or bringing the threats to a manageable level to ensure that compliance is never compromised in whatever situation (Ueno, 2017) 

Some of the threats that may lead to compromise of this code of ethics that is not putting public interest first may include:

  • An interest by the individual accountant to benefit financially or in any other way from dealing with a client. (Self-Interest Threat.)
  • Lack of right knowledge to judge how to deal with a certain ethical issue at hand or to know whether it was done within the acceptable framework. (Self- Review Threat)
  • A threat due to familiarity within parties in a transaction which makes an individual to act in a sympathetic way rather than in an ethical way. (Familiarity Threat)
  • A threat that may arise from external pressures that make an individual not to make ethical but rather forced decisions that will  not be ethical.(Intimidation Threat)

Accountants are offered with a number of safeguards that help them to deal in one way or another with the above threats. This includes:

  • Being offered with proper education and training as well as exposure that give them required experience.
  • Continuous review of accountants or members’ works and decisions to correct and condemn any unethical practice.
  • Clearly set disciplinary measures and mechanisms that discourage noncompliance.
  • Availability of documented rules, policies and procedures that offer direction to be followed in an undertaking.
  • Proper leadership in an organization that emphasizes on the importance of compliance.
  • Proper procedures that help in the identification of noncompliance and identification of the wrong doer to avoid blame transfer.
  • Peer review of ones work by an independent party that was not part of dealing.

The 5 code of ethics are as below.


This code calls for truthfulness and honesty in any business undertaking within their profession.

It calls for members to be honest in their own as well as expose any other member who willingly gives false information aimed at misleading or benefiting them financially or in any other manner.


This code calls for members not to act out of any biasness or any third party pressure that may interfere with their ethics. Situations will always arise that may compromise with objectivity and members can only avoid compromising situations by not engaging in them.

This requires members to apply required skill and knowledge in dealing with clients. Members should continuously be aware of new or developing professional skills to ensure that they are well suited for the market. Members should also ensure that those working under them have the required skills and knowledge to act professionally and are accorded the right

This code of ethics also requires members to act in a manner conforming to the task at hand and deliver within the set period of time (Dicks, 2017).


This code requires members not to expose confidential information attained in the course of their business operation to other parties not in the dealing without proper permission or authority to do so from responsible authority. It also calls for members not to use confidential information obtained for their own personal interest or benefit.

Members are only allowed to expose confidential information in some instances including;

  • If information is required by law for example where a firm is dealing in illegal activity.
  • If disclosure of information will act as evidence in legal proceedings.
  • If disclosure is as a result to response to an enquiry or an investigation.
  • If disclosure has been permitted by relevant authority.

Despite this scenarios described above, members who are required to disclose confidential information without proper authority are normally advised to seek legal advice first (Francis and Francis, 2014).

Professional behavior states that members should act in a manner that is acceptable in their profession and at no time should their behavior ruin the reputation of their profession.

APES 110 Code of Ethics for Professional Accountants

Members should be truthful in their advertising of their ability and tasks they perform so as to attract tasks they can accomplish confidently and satisfactorily to avoid complain or negative publicity from clients. A member should also not at any time ruin the reputation of another member as a way of using the negative publicity portrayed for his or her own benefit (Clemente, Espinosa and Urra, 2011).

Corporate governance is basically a set of rules that dictates how a company should be operating and tries to ensure that the interests of all stakeholders are met. Corporate governance also makes those in charge of running company operations to be accountable for the decisions they make on behalf of the company (Apreda, 2011).

The eight principles of corporate governance as listed by ASX are as below:

This principle dictates that a clear line should be drawn to bring out the roles and responsibilities of the company’s leadership i.e. the Board and the management of a company. A clear guideline should also exist that assists in evaluating the performance of these governing bodies.

The chosen board of the company should be capable in that all necessary duties and responsibilities are discharged effectively, efficiently and in a timely manner. The procedure for evaluating performance for the board as whole as well as individual directors should also be well known and documented. The principle also dictates that the majority of the board composition should be made up of independent directors (Grove and Clouse, 2017).

A company should make sure that decisions made are ethical and made for the good of the stakeholders. Integrity should be upheld at all times and stakeholders should have confidence in the company’s operations. A company should also lay a framework of individuals responsible for investigating unethical processes in the company as well as the consequences for any unethical issue that may arise (Savitri, 2017).

An independent audit committee should exist in the company that will check on the integrity in financial reporting.

The board should form an audit committee which will have a chair who is not a chair to the board and compromised by at least three members who should be non-executive directors.

Any material information about the company should be disclosed as and when it arises. Clear rules and procedures should be set out to ensure that timely disclosure is adhered to.

Shareholders rights should be exercised effectively by a company. Shareholders should receive timely communications from the company and should be encouraged to participate and air their views in meetings. Companies policies that affect shareholders should also be well known to them (Sharvani, 2011).

Companies should set out mechanisms and clear policies that will enable them to identify and eliminate potential risks that may be faced in the course of operations.

A remuneration committee should be formed by the board. The committee should ensure that fair remuneration is given for the tasks and responsibilities offered to the company (Shipley and Kovacs, 2008).

Recommendation and Conclusion

Apes Code 110 and the 8 principles for corporate governance discussed above should be adhered to by any company that seeks to succeed in its operations. A company should specifically ensure it has strong management teams that are responsible, ethical and knowledgeable (Shen, 2010).

It should be noted that a failure of one element in the organization will apparently affect the whole operation and thus it should be ensured that all the activities in the company do run in harmony for the success of a company (Ueda, 2009)


Apreda, R. (2011). The Statute of Governance: A Pivotal Linkage between Principles of Governance and Corporate Practices. SSRN Electronic Journal.

Boshyk, Y. (2014). ABC of action learning. Action Learning: Research and Practice, 11(2), pp.252-259.

Clemente, M., Espinosa, P. and Urra, J. (2011). Ethical Issues in Psychologists' Professional Practice: Agreement Over Problematic Professional Behaviors Among Spanish Psychologists. Ethics & Behavior, 21(1), pp.13-34.

Dicks, H. (2017). Environmental Ethics and Biomimetic Ethics: Nature as Object of Ethics and Nature as Source of Ethics. Journal of Agricultural and Environmental Ethics, 30(2), pp.255-274.

Francis, J. and Francis, L. (2014). Privacy, Confidentiality, and Justice. Journal of Social Philosophy, 45(3), pp.408-431.

Grove, H. and Clouse, M. (2017). Corporate Governance Principles and Sustainability. Corporate Governance and Sustainability Review, 1(2), pp.13-19.

Henderson, V. and Hobson, D. (2010). Optimal Liquidation of Derivative Portfolios. Mathematical Finance, 21(3), pp.365-382.

Miglani, S. (2014). Voluntary Audit Committee Characteristics In Financially Distressed and Healthy Firms: A Study of The Efficacy of The Asx Corporate Governance Council Recommendations. Corporate Ownership and Control, 12(1).

Rolea, A. (2014). The Company Liquidation - A Path to Avert the Accrual of New Liabilities. Eurasian Journal of Business and Management, pp.11-16.

Savitri, E. (2017). Coorporate governance mechanism and the moderating effect of independency on the integrity of financial reporting. Investment Management and Financial Innovations, 13(4), pp.68-74.

Sharvani, B. (2011). OECD Principles on Shareholder Rights. Indian Journal of Corporate Governance, 4(2), pp.52-59.

Shen, W. (2010). Book Review: Corporate Governance: Principles, Policies, and Practices by Bob Tricker. International Journal of Corporate Governance, 2(1), p.87.

Shipley, R. and Kovacs, J. (2008). Good governance principles for the cultural heritage sector: lessons from international experience. Corporate Governance: The international journal of business in society, 8(2), pp.214-228.

Ueda, J. (2009). Shareholders’ Access to Company’s Information: Towards Ensuring Shareholders’ Monitoring Right and Minority Shareholders’ Protection. Corporate Ownership and Control, 6(4).

Ueno, T. (2017). Disclosure of Insurance Companies adopting IFRS 17 “Insurance Contracts”. Hokengakuzasshi (Journal Of Insurance Science), 2017(638), pp.638_107-638_124.

Yoo, T. (2015). Coexistence of Contrasting Principles in Corporate Governance: Two Tales of Japanese Firms. Corporate Board:role, duties and composition, 11(2).

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