Global Financial Crisis in Retrospect †Free Samples to Samples

Question: Discuss about the Global Financial Crisis in Retrospect. Answer: Introduction: Liquidation can be defined as a situation of winding up of business in which assets are sold to pay off the remaining obligations. Liquidation can take place voluntarily or compulsorily as per the conditions of business (Manganelli, Morano, and Tajani, 2014). The present study is focused on the description of events that led up to liquidation of ABC Learning, HIH Insurance and One.Tel Phone Company. The financial stress of cited companies will be supported by the description of ethics and governance. In liquidation, entity winds up, sold its assets and the profits from sales are given to the creditors or entities having claims on the company. The procedure of liquidations is mandatory if the wind up takes place as the consequence of an order of the court (Lessambo, 2014). Other are considered as voluntary when the owners or shareholders engaged in operating the business choose to end operations. The universal reasons of liquidations are legal problems, insufficient desire, and bankruptcy, between the individuals running the business to be maintaining it as operating. In past few years, several liquidations of multinational firms and strengthen business entities have occurred in Australia. In accordance with the viewpoint of Foreman (2014), court rules stated that liquidations differ all over the world, but these measures classically begun by the business itself on behalf of their creditors or shareholders. The party desires to start the proceeding while making a court filing describing the reason for choosing liquidations and if the request is accepted by the judge, then the firm must end their operations and supervisors and are generally agreed by the court to manage their assets sale (Chow, 2017). Liquidation is not primarily due to financial obligations as it is supported by various other reasons such as breach of ethical and legal aspects, frauds and inappropriate business strategies. Liquidation of ABC Learning Companies suffer from failure primarily because of financial dispensaries. In accordance with the ACCC (Australian competition and consumer commission) representative, ABCs collapse was not because of increasing competition, but it has been due to financial misstatements such as high acquisitions and debts. Also, the failure was the result of financial dispensaries offered by the company (Lewis, 2013). ABC lost its loyalty and reputation among customers and public at the time of financial crisis in 2008. The entire world had evidenced the story behind this collapse. The crises of sub prime lead to self-awareness among various countries regarding the malpractices been used by companies in the market. ABCs financial information gave a severe picture entirely. The balance sheet of company assets side represented intangible assets of 72% to 81%. These intangible assets were inclusive of several operating licenses. Further, it was a big concern for government, and they handled this matter to ASIC by setting up a commission. The commission subjected ASIC failure in this concern to efficiently assess companys operating license (Marks, 2015). ABC asserted a big amount of the licenses which were not even worth in the operating sense of the term. It is because; the high value of operating licence was set in order to draw traders in the marketplace. The committee asked ASIC to make consideration of the real value of the operating license and to determine whether they add any value to the business. The consideration is still in progress, but ASIC announces that the licences were not 'material to the company. The revaluation of operating license was legal in accordance with the accounting standards in June 2005 for the year ended and after that the new standards of accounting will be applied. Under the new standard of AASB 138 "Intangible Assets" enables the intangible assets revaluation only in some situations (Gitman, Juchau and Flanagan, 2015). However, these standards are only applicable when the treatment of accounting creates a materialistic impact. ASIC illustrated that at the point of its investigation, the concerns of financial were not material to the company. The main component in the downfall of ABC was the existence of transactions of related parties. Eddy Grooves was involved in the growth and development of the company. The company was successful in a short term. However, it was stated that Mr Grooves failed to manage the company (Lessons to be learnt from ABC Learning's collapse, 2009). The company didnt follow the framework of business governance rules during the supremacy of Mr Grooves there were various related party transactions. In 2006, a broking firm named Austock consisted significant shares by Grooves while entering in transactions with ABC (Marley and Pedersen, 2015). ABC gave an amount of $27 million to Austock as transactional fees. QMS (Queensland Maintenance Services) was underneath the directorship of Frank Zullo, who was relative (brother-in-law) of Mr Grooves. The company had compensated the loss of $74 million in exchange for their work centre of ABC. Grooves owned the team of Brisbane Bullets Basketball team, and i t was sponsored by ABC. ABC declared that the transactions were not material and related to the company and contained no interest also. However, there was the proof of the weak business measure of the company, and this considerably weakens the confidence of companys investors. Liquidation of HIH insurance The failure of HIH Insurance in March 2001 trembled the Australian business community. HIH was worlds second largest employer and at the hindmost part of a major achievement binge that had observed the companys major purchases of insurance in New Zealand, Argentina. In early 2001, the company was suffering from the unstable financial position and later they suffered the biggest corporate failure in the history of Australia, with a loss of more than $5bn (Damiani, Bourne and Foo, 2015). With the firm ongoing to act purely in order to examine old claims without new business taken to abroad, financial regulators of Australia were placed to identify the clear chain of measures that resulted in HIH collapse. There was a proper collapse in the operational area, and the level of the failure was so high that the charges were taken against the companys key members like Rodney Adler, Ray Williams, William Howard and Geoffrey Cohen (Doyle, 2017). Especially, Rodney Adler was charged on the basis of four particular claim which is fraudulence in the liberty of his duties and purposely distribution of fake information and data. Adler was found guilty of deliberately distributing financial data. However, separate calls were made regarding the queries that the corporate governance systems of HIH were unsuccessful because Adler misuses his powers and position. In a separate claim, Adler was blamed for influencing HIH to make an investment of a $2m loan in Business Thinking Systems (BTS). In this transaction, Adler had an interest in the cited company. Another main weak point that resulted in the failure of HIH was the lack to offer future claim in a proper manner, and other problem raised from this single issue. Covering of future claim is considered to the most significant aspect of any insurance company. However, by the end of the survival of HIH was in a situation in which just a negative shift of 1.7%will be sufficient in leading the company into insolvency.Themost importantreason for this collapse wasmisstatements in changing conditions of the market, which extremely enlarged the liabilities of HIH. These aspects were not compensated by viable strategic planning due to which changingconditions of markets lead to serious damage in the insurance companies, but companies are known about these risks, and they do planning in order to reduce the risks. Furthermore, HIH radically coverage itself was the part to be concerned with the extreme expansion of the company. HIH got holding of several companies in their ending year and was building a chief drive for the global expansion. These expansions was a strong move for business, as it brings increased liabilities and HIH acted on the basis of its belief that liabilities will be compensated to the expansion. The Company appear to have primarily misinterpreted the level by which extra provisions were required to be considered as per changing market conditions. This was the primary mistake made by the company, as if it deals with at the same time it could have been resolved. Namely, HIH board went evident while practising this strategy; it demonstrated that there was downfall of corporate governance at HIH, without real omission applicable to check either the strategy implemented was appropriate or financial sustainable With the collapse of HIH insurance, there were significant changes in regulations made by Australian Securities and Investments Commission (ASIC) for prevention of similar issues (Kehl, 2001). For this aspect, a new set of corporate governance rules has been designed regarding expansion. The company could prevent liquidation if management were more cautious about liabilities while expansion (Betta, 2016). They were in a position to introduce cost cutting programs and ignoring decision taken by Rodney Adler of securing investment on the basis of false statements. Further, they provided a lesson to have effective market research prior to entering any new market to prevent issues related to mismanagement. Liquidation of One.Tel Phone Company The collapse of One-Tel is considered to significant liquidation case in Australia in 2001 as it was fourth largest telecommunication company with a customer base of two million in eight countries. The collision of the company was due to wrong pricing policy, strategic mistakes and unbridled growth. The primary issue with the company was an inappropriate corporate structure which causes ineffective communication (Adams, 2014). Their centralization strategy of promoting Yes man by humiliating managers who were showcasing problems had increased employee turnover. Management of company was too autocratic, and opinions of employees were ignored which had raised the issue of understaffing and consequently customers satisfaction was affected. These issues had wasted technology and created financial issues for business. By considering financial figures of commendable company growth in sales and customers based can be noticed, but same has not been translated into increased profitability. All financial issues primarily arise due to corporate governance issues such as inappropriate managerial authorities; unclear allocation of responsibilities, ineffective internal control and increasing work issues (Debbage and Dickinson, 2013). In One-Tel there was a major breach of corporate governance such as non-compliance of law related to fiduciary duties of directors. For example, Adler contravened directorial duties sec 181, 182 and 183 as loans were raised without considering the interest of shareholders as it was not in good faith. Mark Silberman fail to supervise business activities and misled the board in terms of actual cash flow (Avison and Wilson, 2002). Liquidation of the company shows that it is not sufficient for companies to attain large scale customers until they made a contribution towards profitability of the firm. Further, implementation of highly competitive price strategy merely to gain market share can cause disastrous consequences, and sales revenues must be supported by cash collection strategies else there will be a liquidity crisis. Conclusion By considering the present study, it can be concluded that primary reason of liquidation is not financial liabilities as it is supported by various other reasons such as breach of ethical and legal aspects, frauds and inappropriate business strategies. It is because, financial obligations are a consequence of inappropriate business strategies, contravention of ethical aspect and laws and ineffective corporate governance. To prevent this, laws of Australia has been stricken to ensure corporate governance and protect the interest of stakeholders. Further, companies have mandatory obligations to comply with developed laws else they have to face severe adverse consequences such as penalties and compulsory liquidation. However, the interest of stakeholders and economy will be cushioned by imposing a penalty on individual who is liable for misconduct. The study also shows that for sustainable growth and success it is essential to have effective corporate governance and internal control sys tem to prevent frauds in business. In addition to this, managerial authorities should focus on long term sustainability instead of having short term profits. References Adams, M.A., 2014. Faulty lines in corporate law: issues for insurance policies.Governance Directions,66(8), p.504. Betta, M., 2016. Three Case Studies: Australian HIH, American Enron, and Global Lehman Brothers. 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