ACC701 Financial Accounting
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?
Monetary management is the priority of any company operating for profit purpose. Financials lead to both the up rise and downfall of the firm. It can be stated that due to the use of effective management system companies manage their financial in order to ensure that there are no financial failures that cause problems in the operations activities of the firm. Although there are some instance when the liabilities of a company grows at rapid pace due to which the company cannot meet the liabilities causing there liquidation. In the current assessment, there will be discussion over the liquidation of the company its causes and what are principles set by some governing bodies to prevent sudden liquidation of company.
Discussion of events which lead to liquidation of companies
Liquidation is the process of ending up a business or closing down of a company by ending the assets. It can also be referred to a process of closing down an insolvent company due to various reasons. The main reason for this liquidation is insolvency as when a company cannot pay its due it becomes a bankrupt and it has to close down. In financial terms, liquidation is also termed with winding up of assets or selling them simply and the aftermath is the closing of a company. Liquidation can be voluntary as well as compulsory (Robson et al. 2017). A voluntary liquidation occurs when there happens a joint decision by the members of shareholders and a compulsory liquidation happens when the court’s order is given.
Too begin with we have the ABC Learning which was an Australian based company which was founded in 1988 in Queensland, Australia And it used to provide all sorts of educational services especially childhood educational services. It made huge profit initially and the market capitalization reached A$2.5 billion in 2006. But soon after this it was placed in the administrative receivership and it took voluntary liquidation. During the initial stage the net profit was $52.3 million and the revenues were as high as $292.7 million. But soon after it started becoming insolvent and in 2005 it sold some of its shares and finally it had taken into receivership and the investors fled and the company had to take voluntary liquidation (Beatty and Liao, 2014).
HIH insurance was another company which was the second largest insurance company in Australia which was set up in 1968. It was placed in the provisional liquidation in 2001. This company started gaining profit after it merged with the Swiss owned CIC insurance company. This company soon became insolvent because of many reasons, the first being the fraudulent cases of many employees starting from stock market manipulation to dissemination of false information to a journalist which was a major controversy (Lev, 2018). Liquidation of this company occurred because of several other problems such as under-pricing and reserve problems. The company had acquired many customers as they offered insurance at a low price but failed to keep enough profit to keep its future liabilities intact and enough fund to prevent itself from getting liquidated in future. The company also failed to keep in mind the risk analysis warning and kept running behind profit. For preventing liquidation a proper management committee is also required which was present in this HIH insurance company, but according to reports the management was a reckless one which disobeyed orders and curtailed all the capital