Governance Challenges in Australian Companies

In general when a company is not able to meet its short term and other liabilities and became insolvent, the best way to get over it is winding up or liquidation. Through the liquidation disposing the assets of the company for the purpose of paying the liabilities. Using this procedure creditors of such company get some portion of their debts.

Australia is considered as one of the fastest growing countries on behalf of financial status, though in recent years the Australian corporate sector has observed the failure of many industries. The main reason behind such collapse or liquidation is the insolvencies and which is due to unfavorable market conditions, low profit ratios or high debt-equity ratios that resulted the company is unable to meeting their liabilities for creditors. Some of those companies are like ABC learning corporations, HIH insurance and OneTel phone Company etc.

This report is presenting the reason behind the collapse of Australian Companies ABC Learning, HIH Insurance and One.Tel Phone Company, next to the report will include the discussion on business ethics and governance with respect to the company’s financial possession. Ethical issues are most significant factors for the organizations because it make impacts on the overall business activities to maintain the sustainable growth (Crane, 2019).

Discussions:

ABC Learning Company:

ABC Learning Corporation was founded by Eddy Groves and his wife Le Neve in the year 1988 in Australia. Earlier years it had almost 697 centers and nominated as the largest childcare operator in the year 2005. The company earned in the year 2004-2005 almost 2.7 million as revenue and up to .3 million as net profit, however this company went to liquidation in the year 2008 (Splash, 2019).

Liquidation events:

According to the reports, the company went on liquidation in the year 2008 after sold off around 60% of its business to Morgan Stanley for the purpose of repay the accumulated debt around rdaddphp.5 million. In the year 2007 the organization confront a fall of 42% in its profit and in due course failed to meet the obligations of amounted to rdaddphp.8 billion and that resulted a huge decline in market share price. Due to the reason of failure in make payment to the creditors and inability to incur sufficient profits in the financial year 2007-2008 the share price of this company was restricted.

HIH Insurance Company:

This company was found in the year 1968 by Ray Williams, which was nominated as the second largest insurance company in Australia and it was operated in several geographical territory like United States, Asia, United Kingdom and several other regions with total assets amounted to almost 27 in 2000. But because of some obvious reasons the company went to liquidation in the year 2001 under scheme of arrangement (Splash, 2019).

Liquidation events:

This company move to provisional liquidation procedure accompanying its group companies and subsidiaries in the year 2001. That was contemplated as one of the largest collapse in Australia with almost loss of .3 billion. According to the report the company net was charged with several fraudulent manner and some of its members are also charged with imprisonment. In the year 2000-2001 the company faced a huge decrease in its net assets valued from billion to 3 million. It was also found that a slight changes of 1.7% in the assets might results the deficiencies in financial position of the company. As per the report of official liquidator the loss faced by the company in the year 2000 around 0 million and it was the main reason behind the collapse of this company.

One.Tel Phone Company:

It is a Telecommunication company that based in Australia and formed in the year 1995. It was notified as the fourth largest company in the industry of telecommunication that using 3GSM 1800 networking system for their operations. The company had strong customer base around 2.2 million and the revenue almost 3 million between the periods of 1998-2000 (Splash, 2019).

Liquidation events:

Due to the reason of huge amount of losses around 1 million this telecommunication company went to collapse in the year 2001 and its share price dropped to below rdaddphp. The company also faced some circumstances issues at the moment when it is in a situation of huge financial losses. Consequently the company sold its shares only for file=php/clean_code.php.5 million and went into liquidation procedure in the year 2001 because of huge amount of losses and insolvency.

There are various reasons for the winding up of a company but the most obvious reason is inability to pay off to the creditors. Sometime many organization may collapse after completion of their main goals. The main reason behind the winding up of those above mentioned three companies was the financial distress and that resulted they faced a huge amount of losses and decreased in market price of shares.

Ethics and Governance of companies’ financial stress:

Ethics and Governance is considered as the most important and core factors to run a organizations function smoothly and safely. Ethics and morality are the value that need to exercise by the organization to function smoothly and for decisions regarding profit maximization and sustainable growth. Whereas the governance is used to set rules and procedure to le the business policies and activities along with legal norms. To perform the business function safely, properly and along with ethical manner several governing bodies and committees are formed. Those ethics and governance plays an important role in case of maintain the financial information that related to revenues, liabilities, expenses and capital employed.

For ABC Learning:

In the year 2008 the company faced a huge financial loss and not able to make payment to its creditors and thus resulted to the winding up situation for the company. The company had face a loss in the profit at 42% in the financial year 2007 due to poor management and governing issues in business activities. Its share price declined to rdaddphp.15 since the year 2008. The one of the main reason behind such collapse was failed to build strong and effective business model as required for financial activities. The company should maintain the accounting standard and principles by disclosing companies tangible and intangible assets as per valued even the auditors of the company presented an opinion of unqualified report on financial statement that had many accounting issues.

It was the management to maintain the proper principles and regulations in case of maintaining the financial statement. All the financial transactions and reports should properly disclosed in the financial statement however ABC Learning omitted to maintain this disclosure principle. The organizations does not disclosed its fair value of assets and amount of net profits properly in the other words the company not disclose transparency in case of maintaining the financial statement. The company disclose in its financial statement the goodwill valued to 7 million for 2007-2008 although it shows having an impairment charges amounted to file=php/clean_code.php million only. So it can be conclude that the company did not maintain the ethical manner while preparing the accounting data for the related parties. Governance is one of the important factor that make a strong impact while it regarding to companies growth. It is required for every company to maintain governance policies while performing business functions. However the ABC learning did not maintain such policies in case of their business performance even they classified current liabilities as non-current liabilities (Splash, 2019).

For HIH insurance:

Lack of ethical manner and governance in business resulting a huge deficiencies in company’s profitability. Due to the amount of .3 billion loss in the financial statement in the financial year 2000-2001 the company went to liquidation procedure. The main reason behind such loss is the lack of following primary governance and ethical policies. The company even faced a lot of trouble in a competitive market situation while performing their operations. As per the governance policies business activities should disclosed in fair value but the company was unable to maintain such policies. In the same manner the company also fails to maintain ethical standard through performing the fair accounting practices. The company also shows some unethical practices through disclose its value of assets at a lower value and also by providing false information to the stakeholders some malpractices regarding investment and dividend policies etc. Those are considered as one of the main reason behind collapse of the organizations (Splash, 2019).

For One.Tel Phone Company:

There were certain ethical issues relating to company One Tel Phone. The ethical issues was related to unethical practices used by the company in case of creative accounting, insider trading. The company had conflict of interest between EY and one Tel phone company and between its own interests with its personal ego creating issues. It could also be found that there was no personal as well as professional quality of integrity as well as independence in the organization. The company was suffering through ethical issues as it had provision for doubtful debt near about to be 38%. It also understated bad debt. The company created ethical issues in terms of returning  back of money from overseas in order to conceal own financial information. In case of the company’s corporate governance it can be seen that one Tel phone company had very poor board structure. Maximum of the investors had failed to have interest in the management of the company. There was also a very poor reward system as well as poor management of the customers. The company failed to use principle based approach. There was also lack of framework and rules and regulations of the company which led to poor governance of one Tel company (Splash, 2019).

Impacts of liabilities in case of companies’ liquidation:

While performing the accounting Transactions Company should followed the ethical as well as governance policies properly. Normally an organization went into liquidation while it is not able to pay its creditors liability and some other short term liabilities accurately and it considered as an insolvent. As an ultimate solution regarding the payment to creditors solve through the companies liquidation procedures. Therefore the liabilities having great impact on liquidations.

For ABC Learning: The company in the year 2008 went into liquidation because it was unable to paid the due amount to the creditors because lack of profit in that financial year. Even companies share market price also declined in that particular year. Thus for the non-payment of liability amount create a strong impact on liquidation of ABC Learning.

For HIH Insurance: This company went to liquidation procedures in the year 2001 when it was revealed that company was involve in many unethical manner that relating to the financial and also in maintain governance policies. The company not make all the payment that relevant for its continuation. Thus the non-payment of liability amount made a great impact on companies’ liquidation.

For One.Tel Phone Company: Due to the reason of huge amount of losses around 1 million this company went to collapse in the year 2001. The company also faced some circumstances issues at the moment when it is in a situation of huge financial losses. Thus the company into liquidation procedure in the year 2001 because of huge amount of losses and insolvency, for such reason company was unable to make liabilities payment and those push up the company into the edge of liquidation.

Conclusion:

The report can be conclude that liquidation of a company arises not only due to non-payment of the liabilities amount but also because of not followed some ethical manner and governance policies that relevant for business operations. In case the organization was unable to follow ethical manner and honesty in performing its operation it will not be able to survive in the long run. For every organization it is an essential factors to follow the proper accounting principle and regulations while performing its operation otherwise it will went to the point of liquidation because of unethical issues.

In the above report selected three companies faced the situation of liquidation because of non-payment of liabilities and also because of lack of profit. Thus resulted to fall in share price in the market. Along with this lack of profit matter another important factor that influenced the liquidation of the company is unethical issues like non-disclosure of true and fair view of financial statements. More over because of such reasons company faced financial collapse and turn into liquidation.

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