ABC Learning

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).

HIH Insurance

ABC Learning:

There are certain reasons leading to the downfall of ABC Learning in Australia and they include the following:

• In the second half of 2007, ABC Learning had experienced a fall in profit of 42% amounting to $37.1 million. During that period, the organisation had a debt burden of $1.8 billion. These two factors could be considered as the primary reason behind the downfall of ABC Learning (Du Plessis, Hargovan and Harris, 2018).
• The significant fall in profit had impact on the share price of the organisation, as it has declined to $2.15 by 43%, which occurred after small trading of $1.15. As a result of these financial issues, the proprietor of the organisation was compelled to sell shares valued $20 million and another $6 million for $2.7 million. As a result, the organisation was placed in a trading halt position. Along with this, the management of the organisation has made delays in disclosing its earnings during the years 2007 and 2008 (Fountain, 2016).
• It is noteworthy to mention that the auditors of the organisation have not investigated the financial statements accurately resulting in business receivership.
• The implementation of unsuitable method for valuing intangible assets could be identified as another significant reason. In accordance with ABC Learning, the overall value of goodwill of the organisation was $2.4 billion, in which impairment charge of $8.4 million was made. Thus, the future cash flows have not been valued accurately leading to drop in profit by 42% (Hay, Stewart and Botica Redmayne, 2017). These are the major reasons resulting in the liquidation of ABC Learning.

Certain factors could be attributed to the downfall of HIH Insurance, which are demonstrated briefly as follows:

• The board members had invested a huge amount for the acquisition of FAI Insurance considered to be risky for the insurance business and the decision of the management was not accurate in this case (Henderson, et al., 2015).
• Moreover, the management of HIH Insurance had undertaken a wrong move by entering into a business where it had provided funds to the film makers. As a result, the organisation had incurred loss of above $100 million.
• The organisation could not survive partly due to the natural calamity that happened in Florida. Due to this reason, the organisation had to obtain bank loans and rise in debt burden have resulted in considerable net loss. Thus, this is a significant reason behind the downfall of HIH Insurance.
• There was an unexpected change in the accounting rules related to payments made by the management of HIH Insurance for the staffs working in California, which had lead to liquidation of the organisation.
• It was observed from the projections of the liquidator that HIH Insurance has suffered a loss valued $800 million within half of a year because of certain reasons such as rapid diversification, changes in accounting treatments and policies (Keay, 2015).  

One Tel:

Certain causes are deemed to be inherent behind the decline of One Tel, which are stated briefly as follows:

• The board members of the organisation followed the policy of showing overstated profit level by deferring the significant business expenses for three years. This policy is deemed to be illegal, since conformance was not ensured in relation to the accounting standards and practices inherent in Australia.
• Due to the implementation of the unethical accounting policy, the organisation had suffered a loss of $291 million in 2000. As a result, the share price of One Tel was affected adversely, since it has declined below $1 (Marley and Pedersen, 2015).
• Along with this, One Tel was suffering from shortage of capital, which is critical to conduct the daily operations and activities of the business. For dealing with that issue, the management of One Tel sold its 5 million shares in exchange of $2.5 million. This was considered as a significant blow for the organisation and as a result, it had to dismiss above 1,400 employees for its insolvent position.
• Since One Tel had not exercised the accountability of due care and diligence, it had to incur compensation amounting to $92 million (Miglani, Ahmed and Henry, 2015).

“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).

One Tel

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].

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