Report to Creditors – 25 November 2014 25/11

Transcription

25 November 2014
To creditors as addressed
Dear Sir/Madam
APB Britco Pty Limited
(Administrators Appointed) (“the Company”)
ACN 161 737 766
As you are aware, Will Colwell, Jim Sarantinos and I were appointed Administrators of the
Company on 30 July 2014 pursuant to Section 436A of the Corporations Act 2001 (“the Act”).
We are now in a position to convene the second meeting of creditors of the Company in
order to determine the Company’s future.
Please find enclosed the Administrators’ report to creditors pursuant to Section 439A(4)(a)
of the Act, which includes our opinion, with supporting reasons, on each of the following
matters:


Whether it would be in the creditors' interests for the Company to be wound up.
Whether it would be in the creditors' interests for the administration to end.
The following documents in respect of the second meeting of creditors of the Company are
attached to the report:
Report
annexure
Document
Description

A
Notice of meeting of
creditors
(Form 529)



B
Appointment of proxy
(Form 532)


C
4559724v1
Informal proof of debt
Please note that the meeting is to be held on 4 December
2014 commencing at 10.30am (AEST).
You should arrive for registration at least 30 minutes prior
to the meeting.
Any creditors who wish to attend the meeting by telephone
are requested to contact Alissia Bell of this office.
This form enables you to appoint a person to act on your
behalf at the meeting.
Proxy forms submitted at the first meeting of creditors are
not valid for this meeting.
A person is not entitled to vote at the meeting unless they
provide particulars of the debt or claim to the Administrators
before the meeting.
To creditors as addressed
25 November 2014
Page 2
Report
annexure
Document
Description



D
E
Remuneration Approval
Request Report
Australian Restructuring
Insolvency and
Turnaround Association
(“ARITA”) Creditor
Information Sheet




If you submitted this form for the purposes of the first
meeting of creditors, you do not need to submit another form
for this meeting unless you seek to amend your claim.
All creditors must furnish full details of their claims, indicating
whether they rank as secured, preferential or unsecured,
and whether they claim title to any goods supplied to the
Company or any lien over goods in their possession which
are the property of the Company.
Details of time spent by category of staff at the rates
applicable for such staff.
A summary of the work undertaken by the Administrators
and their staff in the administration.
A summary of the likely tasks and estimated remuneration
of the Liquidators, should creditors resolve that the
Company be wound up.
Contains information regarding offences, recoverable
transactions and insolvent trading, which may be pursued
if the Company is placed into liquidation.
Creditors should review the ARITA information sheet in
conjunction with section 8 of the Administrators’ report.
The proof of debt and proxy forms should be lodged with this office before the meeting, and
in any event, not later than 4.00pm on the day prior to the meeting.
Forms can be sent by facsimile on (07) 3831 3862 marked to the attention of Alissia Bell, or
scanned and emailed to [email protected]. However, Corporations Regulation 5.6.36A
requires lodgement of the original of the proxy form with the Administrators’ office within 72
hours of lodging the faxed/emailed copy.
Should you have any questions regarding the administration or the enclosed report, please
do not hesitate to contact Alissia Bell of this office on (07) 3834 9296.
Yours faithfully
Tim Michael
Administrator
encl
4559724v1
(Administrators Appointed)
ACN 161 737 766
Report by Administrators pursuant to Section
439A(4)(a) of The Corporations Act 2001
25 November 2014
Table of Contents
Section
Page
Statement by Administrators ............................................. 2
1
Executive summary ........................................................... 3
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2
Introduction ....................................................................... 6
2.1
2.2
2.3
2.4
2.5
2.6
3
Summary............................................................................. 19
Explanation for current financial position ............................ 27
Trading by Administrators................................................ 28
6.1
6.2
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Preparation of financial statements ..................................... 13
Profit and loss statement and preliminary analysis ............. 14
Balance sheet and preliminary analysis .............................. 16
Statement by directors .................................................... 19
5.1
5.2
6
Statutory information ........................................................... 10
Company history ................................................................. 12
Decision to appoint Administrators...................................... 13
Historical financial information ......................................... 13
4.1
4.2
4.3
5
Purpose of appointment and this report ................................ 6
Basis of report ....................................................................... 6
First meeting of creditors and committee of creditors ........... 7
Second meeting of creditors ................................................. 8
Remuneration ....................................................................... 8
Declaration of Independence, Relevant Relationships and
Indemnities............................................................................ 8
Company information ...................................................... 10
3.1
3.2
3.3
4
Appointment .......................................................................... 3
Conduct of administration ..................................................... 3
Summary of investigations .................................................... 4
Purpose of report .................................................................. 5
Administrators’ recommendation........................................... 5
Second meeting of creditors ................................................. 5
Return to creditors ................................................................ 6
Overview ............................................................................. 28
Trading matters and realisation of work in progress ........... 29
Report by Administrators pursuant to Section 439A(4)(a) of The Corporations Act 2001
25 November 2014
6.3
Receipts and payments ...................................................... 30
7
Sale of Switchrooms business ......................................... 30
8
Statutory investigations ................................................... 31
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10
9
Nature and scope of review ................................................ 31
The Company's solvency .................................................... 32
Potential liquidator recoveries – Insolvent trading ............... 40
Potential liquidator recoveries – voidable transactions ....... 43
Other potential liquidator recoveries ................................... 45
Possible offences ................................................................ 45
Other matters arising from investigations ............................ 45
Summary of potential liquidator recoveries ......................... 46
Directors’ ability to pay a liquidator’s claims ........................ 46
Report to ASIC .................................................................... 46
Administrators’ opinions, dividend estimates and cost
estimates ......................................................................... 47
9.1
9.2
9.3
No proposal for a DOCA ..................................................... 47
Administration to end .......................................................... 47
Winding up of Company ...................................................... 47
10
Administrators' opinion .................................................... 49
11
Administrators' remuneration report................................. 49
12
Further information .......................................................... 49
13
Additional matters and queries ........................................ 49
Glossary of terms ............................................................ 50
Annexure
A
Notice of meeting of creditors (Form 529)
B
Appointment of proxy (Form 532)
C
Informal proof of debt
D
Remuneration approval request report
E
Australian Restructuring Insolvency & Turnaround
Association Creditor Information Sheet
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25 November 2014
Statement by Administrators
In reviewing this Report, creditors should note:

This Report is based upon our preliminary investigations to date. Any additional material
issues that are identified subsequent to the issue of this Report may be the subject of a
further written report and/or tabled at the second meeting.

The statements and opinions given in this Report are given in good faith and in the belief
that such statements and opinions are not false or misleading. We reserve the right to alter
any conclusions reached based on any changed or additional information which may be
provided to us between the date of this Report and the date of the second meeting (except
where otherwise stated).

In considering the options available to creditors and formulating our opinion and
recommendation, we have necessarily made forecasts of asset realisations and total
creditors’ claims based on our best assessment in the circumstances. These forecasts and
estimates may change as asset realisations progress and we receive creditor claims and
consequently the outcome for creditors might differ from the information provided in this
Report.

Creditors should consider seeking their own independent legal advice as to their rights and
the options available to them at the second meeting.
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25 November 2014 | Page 2
1
Executive summary
1.1
Appointment
The directors appointed Tim Michael, Will Colwell and Jim Sarantinos as the Company’s
Administrators on 30 July 2014. The Administrators' appointment was made pursuant to
Section 436A of the Act.
Creditors ratified our appointment as Administrators at the first meeting of creditors held on 11
August 2014.
1.2
Conduct of administration
On appointment, the Administrators assumed control of the Company’s operations. The
Administrators then conducted an urgent financial and commercial review of the Company’s
affairs with the assistance of the senior management team.
The Company operated two distinct divisions, being Modular and Switchrooms, which the
Administrators continued to trade.
Following appointment, the immediate priorities addressed by the Administrators were:




Work in progress assessment and contract analysis;
Customer negotiation as regards to terms of continued trade and payment of debts;
Preparation of trading forecasts; and
Sale of the Switchrooms division.
The Modular division of the business was being wound down prior to the Administrators’
appointment.
Each of the 15 live Modular projects was assessed in conjunction with management to
determine the economic benefit of completing the project, with the following key factors being
weighed up and considered for each project:






Value of WIP;
Value of works to complete;
Value of debtors and bank guarantees to be recovered on completion;
Potential supplier arrears to be paid to continue with the project;
Costs to complete; and
Timing of completion
Following our assessment, we determined the following regarding the live Modular projects:

Four projects would not be completed, either due to the infancy of the project, or the costs
and risks associated with completing the project exceeding the recoverable value of WIP,
debtors and bank guarantees.

Eight projects were to be completed.

Three projects required the Administrators to liaise with the customer regarding
outstanding defect work to facilitate return of bank guarantees and/or final payments.
In order to preserve the value of the Switchroom business and maximise the return to all
creditors, the Administrators completed a similar assessment to that described above with
respect to the Modular business in order to determine which of the 23 live Switchroom projects
should be completed.
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The outcome of the Administrators’ assessment was as follows:

Nineteen projects would be completed.

Four projects were considered viable to be preserved for a purchaser of the Switchroom
business, however were subsequently cancelled by the customer.
Section 6 of this report provides more detailed particulars of the Administrators’ trading.
Where possible, completion of all projects was brought forward to facilitate an earlier exit of
the Switchroom premises.
Despite more than 40 expressions of interest and three parties being shortlisted for final
offers, a going concern sale of the Switchrooms division was not secured. The Administrators
did sell to Parratech the majority of the plant and machinery, business names and intellectual
property, and the transfer of six staff (and their entitlements), was achieved. The sale to
Parratech also includes the novation of a customer contract and issuing a replacement bank
guarantee of $50k. Completion of same is anticipated during the course of the next two
weeks.
Section 7 of this report provides more detailed particulars of the Administrators’ sale of the
Switchroom business and the sale of the assets of the Company.
1.3
Summary of investigations
Our investigations to date are detailed in section 8 of this report. The main issues arising from
these preliminary investigations are:

The Company’s debt to HSBC Australia was at all times guaranteed by its ultimate parent
entity:

The directors held the view at all times that the Company’s ultimate parent entity would
make good the HSBC debt, comprised of both a $25.8m term loan and $7m working
capital facility. This ultimately proved to be the case.

Given the losses that were incurred, there was no reasonable basis to continue carrying
on the balance sheet non-current assets of FITB and intangibles. To remove same would
have a circa $8m negative impact on net asset calculations.

In considering the balance sheet test and adjusting for the above, the Company at all
times maintained a positive net asset position.

It is necessary to consider the cashflow or commercial test of insolvency. Given the
guarantee that had been provided to HSBC Australia by the Company’s ultimate parent
company (and was ultimately paid by it), we have considered the Company’s ability to
meet it current debts from its current assets, by removing the HSBC working capital
current liability of $7m from our calculations.

The result is that the Company at all times maintained a surplus of working capital. That is,
the Company was able to meet its debts as and when they fell due. Given this and the fact
that no other indicators of insolvency exist, we are of the opinion that the Company was
cashflow solvent.

Furthermore the directors advise that at all times they had a reasonable expectation of
ongoing parent entity support.

However, further consideration is required regarding the period 25 June 2014 onwards as
this is from when we understand options to exit the business were being considered.
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
If a decision to enter voluntary administration was made, then the directors ought to have
been aware that further debts incurred during that period would potentially remain unpaid
as the $7m working capital liability to either the ultimate parent entity or HSBC would be
crystallised.

The directors have advised no such decision was made during this time, and only on
30 July 2014 was such a decision made.

In considering further any insolvent trading analysis a liquidator would be without funds to
progress any claim, as all realisations are paid back to the secured creditor.

Furthermore the secured creditor would be entitled to participate in any dividend to
unsecured creditors (in respect of its shortfall on its debt) which would significantly dilute
the return to all other unsecured creditors. It is estimated that 80% of any dividend would
be payable to the secured creditor.

As such, it would be uncommercial for a liquidator to pursue such a claim.

Creditors would need to consider the merits of bringing a claim in their own right pursuant
to Section 588T, however, regard should be had to the various issues set out in section 8.

No other voidable transactions or offences have been identified.
1.4
Purpose of report
The Administrators’ report and opinions are expressed as required by Section 439A of the Act
and Regulation 5.3A.02 of the Corporations Regulations to provide creditors with sufficient
information to determine if it is in their interests that:



The Company execute a DOCA;
The Administration of the Company ends; or
The Company is wound up.
1.5
Administrators’ recommendation
On the basis that no DOCA proposal has been received, and ending the Administration is not
a viable option due to the insolvency of the Company, it is the Administrators’ opinion and
recommendation that the Company should be wound up.
1.6
Second meeting of creditors
Details of the second meeting are as follows:
Second meeting
Details
Date
4 December 2014
Registration
From 10.00am (AEST)
Meeting time
10.30am (AEST), 9.30am (AEDST), 8.30am (AWDST)
Location
Katana Room, Level 2, Christie Conference Centre, 320 Adelaide Street, Brisbane
Creditors who wish to participate in the second meeting must complete and submit the
following forms to this office by 4.00pm on 3 December 2014.
Any creditors who wish to attend the meeting by telephone are requested to contact Alissia
Bell of this office ([email protected]).
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1.7
Return to creditors
There will be sufficient realisations to enable a 100 cents in the dollar return to priority
employee creditors.
The return to the secured creditor is estimated to be between $8.1m and $6.7m, with the
secured creditor’s shortfall estimated to be between $22.9m and $24.3m.
There will be insufficient funds available to enable a return to unsecured creditors.
2
Introduction
2.1
Purpose of appointment and this report
The purpose underlying an Administrator’s appointment is to allow for independent control and
investigation of an insolvent company’s affairs. During the administration period, creditors’
claims are put on hold. We are required to provide creditors with information and
recommendations to assist creditors to decide upon the Company’s future.
Section 439A(4) of the Act explains the purpose of an Administrator’s report in providing that
the notice (of second meeting) must be accompanied by a copy of:
a) A report by the Administrator about the company’s business, property, affairs and financial
circumstances; and
b) A statement setting out the Administrator’s opinion about each of the following matters:

Whether it would be in the creditors’ interests for the company to execute a Deed of
Company Arrangement;

Whether it would be in the creditors’ interests for the administration to end;

Whether it would be in the creditors’ interests for the company to be wound up;

His or her reasons for those opinions; and
c) If a Deed of Company Arrangement is proposed – a statement setting out details of the
proposed deed.
In the available time, we have undertaken the investigations detailed in section 8 of this report.
These investigations have enabled the Administrators to form an opinion about the Company’s
future. Our opinion is set out in section 10 of this report.
2.2
Basis of report
This report has been prepared primarily from information received from the directors and
management of the Company, and the Company’s books and records. Although the
Administrators have conducted certain investigations of the affairs of the Company, there may
be matters which we are unaware of as an audit of the Company has not been undertaken.
In order to complete our report we have utilised information from:






Australian Securities and Investments Commission;
Personal Property Securities Register;
The Company’s books and records;
Discussions with, and a questionnaire completed by, the directors of the Company;
Discussions with secured creditor of the Company;
Discussions with unsecured creditors of the Company; and
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
Other public databases.
2.3
First meeting of creditors and committee of creditors
Creditors attended a first meeting of creditors held on 11 August 2014. At that meeting,
creditors ratified the Administrators’ appointment.
Table 1 summarises the creditors elected to a committee of creditors.
Table 1: Committee of creditors
Creditor
Committee Member
Employee – Chief Financial Officer
Mr Steve Morgan
United Equipment Pty Ltd
Mr Garth Grams
Seme Solutions Pty Ltd
Mr Steve Brooker
Employee – Switchrooms
Mr Truong Tran
Gemini HVAC Services Pty Ltd
Mr Victor Petronijevic
Clayton Utz on behalf of 8323364 Canada Inc
Ms Orla McCoy
Mr Garth Grams of United Equipment Pty Ltd and Mr Truong Tran have since resigned as
members of the committee of creditors.
The committee of creditors has been kept appraised of the progress of the administration with
Committee meetings held on 15 August, 25 September, 22 October 2014 and 21 November
2014.
The resolutions passed by the committee of creditors are summarised in Table 2.
Table 2: Resolutions passed by committee of creditors
Meeting date
Resolution passed
15 August 2014
That the Committee of Creditors support the Administrators’ application to
extend the convening period to 28 November 2014.
25 September 2014
That the remuneration of the Administrators, as set out in the Remuneration
Approval Request Report dated 19 September 2014, for the period from
30 July 2014 to 31 August 2014 be fixed in the amount of $882,295.50, plus
any applicable GST, and may be paid.
22 October 2014
Approval Request Report dated 17 October 2014, for the period from
1 September 2014 to 30 September 2014 be fixed in the amount of $591,607
plus any applicable GST, and may be paid.
21 November 2014
Approval Request Report dated 18 November 2014, for the period from
1 October 2014 to 31 October 2014 be fixed in the amount of $346,142.50,
plus any applicable GST, and may be paid.
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2.4
Second meeting of creditors
Based on the statutory timetable of a voluntary administration, the second meeting was
required to be held on 3 September 2014.
Given the trading complexities, the project completion timetable, the large number of
expressions of interest received, and the indicative timetable proposed for the sale process,
the Administrators made an application to the Supreme Court of Queensland for an extension
of the convening period.
The Court made orders on 21 August 2014 that the date by which the Administrators were
required to convene the meeting of creditors of the Company be extended to 28 November
2014.
Pursuant to section 439A of the Act, the second meeting will be held on 4 December 2014 at
Katana Room, Level 2, Christie Conference Centre, 320 Adelaide Street, Brisbane at 10.30am
(AEST), 9.30am (AEST) and 8.30am (AWDST).
The Notice of Meeting of Creditors (Form 529) is attached at Annexure A along with an
appointment of proxy form (Annexure B) and an informal proof of debt or claim form
(Annexure C).
Creditors have the opportunity to adjourn the second meeting for up to a period of 45 business
days.
2.5
Remuneration
At the second meeting, we will be seeking approval of the Administrators’ remuneration as
follows:
Table 3: Remuneration
Amount (excluding GST)
$
Period
Voluntary Administration
1 November 2014 until 3 December 2014
262,000
Liquidation
4 November 2014 to conclusion of the liquidation
200,000
Total
462,000
Please refer to our Remuneration Approval Request Report at Annexure D for details of the
key tasks undertaken throughout the course of the administration, along with a summary of
the receipts and payments to date.
2.6
Declaration of Independence, Relevant Relationships and Indemnities
The Administrators provided a DIRRI to creditors with their first circular to creditors, and also
tabled the declaration at the first meeting of creditors. The assessment identified no real or
potential risks to our independence. We were not aware of any reasons that would prevent us
from accepting the appointment or that would prevent us from continuing the appointment
today.
The Administrators’ DIRRI disclosed a number of pre-appointment meetings/conference calls
with the directors of the Company and parent company(s), and their lawyers.
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The purpose of those meetings and conference calls was to:

Generally explain the various types of insolvency administrations, in particular the
Voluntary Administration process.

Generally explain the nature and consequences of each type of insolvency appointment.

Obtain sufficient information about the financial position of the Company to consider
whether to provide our consent to act.

Obtain sufficient information about the financial position, operational and trading affairs of
the Company, including the secured creditors, so as to enable us to prepare for the
proposed appointment.

Receive updates on whether a decision had been made as to the likely timing of any
appointment.
On 11 July 2014 we provided the Company a discussion paper which canvassed:

The proposed strategy for maximising the value of Company assets subject to the extent
of the available funding.

Issues likely to be dealt with in the Voluntary Administration of the Company.

An explanation of what practically occurs during the Voluntary Administration process.

A summary of the Voluntary Administration process.
We received no remuneration for this advice, nor the meetings and telephone calls.
These meetings and calls do not affect our independence for the following reasons:

Ferrier Hodgson’s advice was limited to assessing the Company’s financial position, and
to understand the operational issues to deal with upon acceptance of any appointment, the
consequences of insolvency, explaining the Voluntary Administration process and
preparing for any appointment.

This advice was given to the Company only. We did not advise the directors personally or
Parent entity. These parties were advised separately by solicitors and also another
insolvency firm in relation to any such issues.

The Courts and the Code specifically recognise the need for practitioners to provide
advice on the insolvency process, the Company’s financial position, and the options
available, and do not consider that such advice results in a conflict or an impediment to
accepting the appointment.

The nature of the advice is such that it would not be subject to review and challenge
during the administration.

The pre-appointment advice will not influence our ability to fully comply with the statutory
and fiduciary obligations associated with the administration in an objective and impartial
manner.
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3
Company information
3.1
Statutory information
A search of the ASIC database revealed the following information.
3.1.1 Incorporation date and registered office
The Company’s incorporation date is 20 December 2012. The Company’s registered office is
listed as Suite 12, 37 Bligh Street, Sydney, New South Wales 2000.
3.1.2 Shareholders
The ASIC database disclosed the Company’s 100% shareholder to be BAGP, which holds all
4,501,944 fully paid issued shares on behalf of Britco Australia LP in its capacity as general
partner to the limited partnership.
Figure 1 outlines the corporate structure to which the Company belongs.
Figure 1: Corporate structure
WesternOne Inc
(Toronto Stock Exchange
listed corporation)
Black Diamond Group
Limited
(Canadian entity)
20%
Britco International Inc
(Canadian entity)
79.99999%
100%
Britco Australia GP Pty Ltd
(“BAGP”)
0.00001%
Britco Australia LP
100%
APB Britco Pty Ltd
(“the Company”)
BAGP is the general partner to the Britco Australia Limited Partnership. The limited partners to
the partnership are Britco International Inc and Black Diamond Group Limited and BAGP.
The ultimate parent entity for both the Company and Britco International Inc is WesternOne
Inc.
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3.1.3 Company officers
Table 4 summarises the Company’s officers over the past 12 months.
Table 4: Company officers
Name
Role
Appointment Date
Cessation Date
Geoffrey Gelderd Shorten
Director
20 December 2012
-
Michael Lenard Ridley
Director
14 January 2013
-
Elisabeth Ann Houston
Director and Secretary
15 January 2013
-
The Company’s directors are also directors of BAGP. Michael Ridley is also a director of
Britco International Inc. There are no other common directors.
None of the Company’s directors are directors of WesternOne Inc. Geoffrey Shorten and
Michael Ridley are however part of its management team.
A search of the NPII maintained by AFSA shows that the Company’s directors are not
bankrupt or subject to a Personal Insolvency Agreement under Part X of the Bankruptcy Act
1966.
3.1.4 Registered security interests
Under PPSA legislation which took effect on 30 January 2012, security over property, except
land, must be registered as a security interest on the PPSR.
Briefly, the concept of fixed and floating charges was replaced under the PPSA by "security
interests over non-circulating assets" and "security interests over circulating assets"
respectively. In the case of inventory, valid title to any inventory will require registration as a
PMSI on the PPSR, similar to an ROT.
Unless a supplier (including an ROT supplier) registers a PMSI as a security interest on the
PPSR, the goods may become property of the Company and amount to a windfall to the
Company and its creditors.
The PPSR disclosed that 33 parties held 55 security interests in the Company’s assets.
Of the security interests registered, our preliminary investigations have revealed that 43
registrations were current, and 12 had been discharged.
8323364 Canada Inc took an assignment of the security interest that was previously
registered by HSBC Australia on 16 January 2013. At all times prior to the assignment of its
securities, HSBC Australia held a first ranking security interest over the assets and
undertakings of the Company.
The assignment of securities arose as the debt owed to HSBC was paid out by 8323364
Canada Inc, by way of a new loan facility taken out with HSBC at the parent entity level.
We have obtained an independent legal review of the assignment of HSBC’s securities to
8323364 Canada Inc, which concluded that the securities were assigned to 8323364 Canada
Inc for valuable consideration and remained valid and enforceable as at the Administrators’
appointment.
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There are three additional security interests that the Administrators have determined as not
being perfected prior to appointment, causing the assets the subject of the agreements to vest
in the Company. Our position has been disputed by the parties, who subsequently removed
the relevant items without the consent of the Administrators or the Court. The three matters
remain under review. If the Administrators’ determination is confirmed, the Liquidators have the
powers to realise these assets for the benefit of the Company’s creditors.
3.1.5 Winding up applications
Public searches indicate that there were no winding up orders against the Company at the
date of the Administrators’ appointment.
3.2
Company history
The Company was formed in December 2012 for the purpose of acquiring the business
associated with the design, manufacture and sale of modular buildings (including
Switchrooms) from Australia Portable Buildings Pty Ltd, which had operated since 1979.
Australian Portable Buildings Pty Ltd continues to operate the leasing and hire division.
The sale transaction completed on 18 January 2013. Following the sale, the Company
operated the two manufacturing divisions, known as ‘Modular’ and ‘Switchrooms’, providing
the following services:









Project design and drafting
Engineering
Approvals
Manufacture and fitout
Logistics
Construction
Commissioning
Programmed maintenance
Relocation and upgrades
Prior to the sale transaction, there had been a general contraction in the energy and resources
sector, which had a direct impact on the core business. As a result, turnover had been in
decline, which, when coupled with downward pressure on margins, resulted in operating losses.
In order to mitigate the impact of a continuing downturn in activity, the directors undertook the
following:

Between February and July 2013:
o
o
o

Between August and December 2013:
o
o
o

Appointment of senior modular construction industry executive.
Realignment of the modular division to consist of only two operating centres being
Brisbane and Perth.
Effected 18 employee redundancies.
Cease modular operations in NSW.
Closed Townsville operations.
Effected a further 23 redundancies.
Between January and July 2014:
o
o
Arranged for a $2m drawdown from the HSBC working capital facility to meet forecast
trading expenses
Closed modular operations in Perth.
4345059_11
o
Undertook a strategic review which resulted in:


o
o
Conversion of $10m of debt to equity.
Identification of a further 46 redundancies of which 21 had occurred prior to the
Administrators appointment.
Engaged advisors to sublease vacant premises.
Entered into negotiations to terminate lease commitments of all non-essential assets.
As at the date of the appointment of the Administrators, the Company employed 61
employees and operated from six leased sites situated in Queensland, New South Wales and
Western Australia.
3.3
Decision to appoint Administrators
Following continued deterioration in industry and market conditions, coupled with the reduced
pipeline of future work across the business, and the declining financial performance of the
Company, the directors considered their options which included sale or partial sale of the
Company, a solvent winding down of the operations, creditors’ voluntary liquidation and
voluntary administration.
The directors consulted with us on 25 June 2014 in relation to the matters set out on pages 8
and 9.
Between 25 June and 30 July 2014, we understand that the directors engaged with HSBC
(Australia) (in its capacity as secured creditor) with a view to seeking assurance that it would
not take enforcement action against the Company in the event that the directors appointed
voluntary administrators, or alternatively, accept deferred payment of their secured debt.
We understand that the motivation to seek such arrangements with HSBC (Australia) was to
ensure that any administration of the Company would not be disrupted by a receivership
appointment, with the bank potentially setting off available cash that would normally be
available to voluntary administrators, and receivers potentially having little or no appetite to
trade the business and complete customer contracts, which was considered the best strategy
to maximise the realisable value of the Company’s business and assets, and minimise overall
creditor claims.
HSBC (Australia) refused to enter into a deed of forbearance or standstill.
At the same time, the ultimate holding company was arranging for its group finance facilities
with HSBC (Canada) to be refinanced. Following HSBC Australia’s decision, they were repaid
and its securities were assigned to 8323364 Canada Inc on 29 July 2014.
The directors then resolved on 30 July 2014 that Administrators be appointed to the Company.
Upon appointment, 8323364 Canada Inc. had left cash of circa $3.7m in the Company’s bank
account to providing working capital to the Voluntary Administrators to enable ongoing trading
and implementation of the preferred asset realisation strategy.
4
Historical financial information
4.1
Preparation of financial statements
The Company’s financial year end is 31 December, to align with its reporting obligations to its
ultimate Canadian parent.
A special purpose financial report was prepared for the period 20 December 2012 to
31 December 2013 and reviewed by the Company’s auditor, KPMG. Neither the special
purpose financial report nor the audit report were signed by the Company and KPMG
respectively.
4345059_11
We understand that the accounts were not signed because the Canadian parent did not agree
with the wording of the going concern note proposed by KPMG which included a requirement
that the Company’s ultimate parent entity (WesternOne Inc) provide a letter confirming
financial and operational support to the Company.
WesternOne Inc have advised that this did not mean it was not prepared to provide such
support and did so at all times.
An audited special purpose financial report was also prepared for the period 1 April 2013 to
31 March 2014 for the specific purpose of the Company’s reporting obligations to the
Queensland Building and Construction Commission and the renewal of its Queensland
building licence. These accounts contained a declaration that the Company will be able to pay
its debts as and when they fell due.
The Company prepared monthly and quarterly management accounts for the purpose of
reporting to its Canadian parent entity.
4.2
Profit and loss statement and preliminary analysis
Table 5 summarises the Company’s profit and loss statement from 20 December 2012 to
30 July 2014, derived from:

Unsigned audited special purpose financial reports for the period 20 December 2012 to
31 December 2013.

Signed audited special purpose financial reports for the period 1 April 2013 to 31 March
2014.

Monthly management accounts for April, May, June and July 2014.
The July management accounts have been updated by the Administrators to include all
invoices and claims received following the Administrators’ appointment.
Table 5: Profit and loss
Revenue
Cost of Buildings Sold
Gross Profit / (Loss)
Dec 12 to
Dec 13
Jan 14 to
Mar 14
Apr-14
May-14
Jun-14
Jul-14
Total Apr-14
to Jul-14
$
$
$
$
$
$
$
85,330,044
17,774,400
3,116,051
5,130,500
4,980,436
3,490,177
16,717,165
(52,568,739) (9,034,876)
(1,765,280)
(3,439,069)
(3,038,974)
(1,973,258) (10,216,581)
32,761,305
8,739,524
1,350,771
1,691,431
1,941,462
1,516,919
6,500,584
38%
49%
43%
33%
39%
43%
39%
Manufacturing Overheads
(5,827,294) (1,643,142)
(586,495)
(571,356)
(445,773)
(382,055)
(1,985,679)
Cost of Transport
(2,082,376)
(643,737)
(45,313)
(98,031)
(22,982)
(278,955)
(445,280)
(14,684,874) (4,478,415)
(799,431)
(1,081,875)
(1,133,466)
(450,931)
(3,465,703)
(9,310)
(4,235)
(6,617)
(1,891)
(13)
(12,756)
Selling Costs
(6,125,480) (1,732,223)
(546,617)
(618,738)
(95,180)
(424,589)
(1,685,124)
General and Admin Costs
(8,094,807) (1,693,161)
(770,860)
(580,194)
(693,581)
(554,985)
(2,599,620)
EBITDA
(4,115,124) (1,460,464)
(1,402,179)
(1,265,380)
(451,411)
(574,608)
(3,693,578)
Gross Profit %
Cost of Installation
Cost of Sales - Other
(61,597)
Acquisition Costs
(134,556)
Net Interest Income /
(Expense)
(211,176)
(98,281)
(27,458)
(29,199)
(29,490)
(35,160)
(121,308)
Income Tax Benefit
8,422,816
-
-
-
-
-
-
4345059_11
-
Dec 12 to
Dec 13
Jan 14 to
Mar 14
Apr-14
May-14
Jun-14
Jul-14
Total Apr-14
to Jul-14
$
$
$
$
$
$
$
Depreciation Expense
(1,051,596)
(280,753)
(92,916)
(92,588)
(71,401)
(48,227)
(305,132)
Amortisation Expense
(4,787,369)
(110,482)
(36,827)
(36,827)
(36,827)
(36,827)
(147,310)
Impairment of Goodwill
(8,727,302)
-
-
-
-
-
-
(17,832,027)
-
-
-
-
-
-
55,974
(374,865)
-
12,727
-
1,000
13,727
Fixed Asset Write Down
Modular WA
-
-
-
-
(292,050)
-
(292,050)
Stock Write Off
-
-
-
(495,066)
(132,187)
-
(627,253)
Lease Termination
Charges
-
-
-
-
-
(318,693)
(318,693)
(28,380,360) (2,324,845)
(1,559,380)
(1,906,333)
(1,013,366)
(1,012,517)
(5,491,596)
Impairment of Intangibles
Net Gains / (Losses)
Net Profit/(Loss)
In respect of the above, we make the following comments:

Average monthly revenue for the 12-month period ending December 2013 was circa
$7.11m. This deteriorated by circa $2.18m per month, to circa $4.92m, for the period
January 2014 to July 2014.

Management has advised that the drop in average monthly revenue in 2014, as against
2013, was a result of the downturn in market conditions which caused the
deferral/termination of large industry projects. The wind down of the Company’s modular
operations also contributed to reduced revenue in 2014.

The cost of buildings sold is predominantly comprised of direct material, labour and
subcontractor costs.

Due to the contractual nature of the Company’s work, monthly gross profit was prone to
fluctuations subject to project/contract milestones at any given time.

Excluding costs to complete the buildings sold, the Company’s largest operating costs
were manufacturing overheads, costs of installation of buildings and general
administration costs.

Manufacturing overheads predominantly comprise property and equipment rent, waste
disposal and utility costs.

EBITDA represents the Company’s cash gain or loss for a given period. The Company’s
trading produced an average monthly cash loss of circa $342k for the 12-month period
ending December 2013. The Company’s average monthly cash loss increased to circa
$486k for the period January 2014 to March 2014, and increased further to an average
monthly cash loss of circa $923k for the period April 2014 to July 2014.

The income tax benefit ($8.4m) as at 31 December 2013 was the expected future tax
receivable as a result of the pre-tax loss of circa $37m (after adding back the tax benefit to
the net loss of circa $28m).

Amortisation of circa $4.8m in December 2013 related to customer relationships (circa
$1.6m), non-compete agreements (circa $200k) and brand names (circa $3m).
4345059_11

The Company recorded asset impairments of circa $26.5m in December 2013. Goodwill
was written down to nil ($8.7m impairment) with the balance allocated to the Company's
other intangible assets, including Customer Relationships, Non-Compete Agreements and
the Company's Brand Name.

The loss of circa $370k recorded in March 2014 related to foreign exchange losses on the
conversion of an intercompany loan to equity.

The write-down of circa $290k in June 2014 related to fixed assets disposed during the
shutdown of WA operations.

The stock write-offs of circa $495k and circa $132k in May and June 2014 respectively
relate to the wind-down of the Company’s Modular operations in Western Australia and
New South Wales.

Lease termination charges of circa $318k in July 2014 related to the termination of the
Company’s forklift hire contracts with United in June 2014.

At both an EBITDA and net profit level, the Company incurred losses since
commencement. The losses have been funded by parent entity support comprising
intercompany loans (later converted to equity) and HSBC debt facilities.
4.3
Balance sheet and preliminary analysis
Table 6 summarises the Company’s balance sheet between 30 December 2013 and 30 July
2014, derived from:

Unsigned special purpose financial reports provided from 20 December 2012 to
31 December 2013.

Signed special purpose financial reports provided from 1 April 2013 to 31 March 2014.

Monthly management accounts for April, May, June and July 2014.
As noted previously, the July 2014 management accounts have been updated by the
Administrators to include all invoices and claims received following the Administrators’
appointment.
Table 6: Balance sheet
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
$
2,529,046
7,123,254
6,166,097
6,550,933
4,715,663
4,084,268
10,835,621
10,545,636
8,781,305
9,490,540
12,131,613
9,957,645
2,330,432
2,113,850
2,265,551
1,917,396
1,836,502
1,321,282
361,714
365,320
113,888
20,094
47,039
(343,456)
1,634,917
1,250,561
955,778
251,726
(269,127)
318,330
17,691,730
21,398,620
18,282,618
18,230,689
18,461,691
15,338,069
Assets
Current Assets
Cash
Accounts Receivable
Inventory
WIP
Prepayments
Total Current Assets
4345059_11
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
$
Fixed Assets
2,366,039
2,089,756
1,998,901
1,908,374
1,205,562
1,157,335
FITB
1,867,757
1,864,291
1,864,291
1,864,291
1,864,291
1,864,291
Intangible Assets
6,187,000
6,076,518
6,039,691
6,002,863
5,966,036
5,929,209
Total Non Current Assets
10,420,797
10,030,565
9,902,883
9,775,528
9,035,889
8,950,835
Total Assets
28,112,527
31,429,185
28,185,501
28,006,217
27,497,581
24,288,903
(12,267,598)
(8,473,943)
(6,735,138)
(8,876,856)
(9,423,358)
(7,712,345)
(1,502,038)
(1,571,883)
(1,605,197)
(1,560,957)
(1,344,458)
(1,184,979)
153,673
(14,495)
(160,578)
73,986
303
182,653
(5,000,000)
(7,000,000)
(7,000,000)
(7,000,000)
(7,000,000)
(7,000,000)
6,239,571
(1,015,895)
(1,015,895)
(1,015,895)
(1,223,842)
(776,284)
(12,376,391)
(18,076,216)
(16,516,808)
(18,379,722)
(18,991,355)
(16,490,954)
Long Service Leave
(117,961)
(112,020)
(116,574)
(120,265)
(151,519)
(170,875)
Intercompany Loan
(Britco International)
(9,548,523)
1,073,287
1,202,737
1,342,292
1,480,450
1,641,630
Total Non Current Liabilities
(9,666,484)
961,267
1,086,163
1,222,027
1,328,931
1,470,756
(22,042,875)
(17,114,949)
(15,430,646)
(17,157,695)
(17,662,424)
(15,020,198)
6,069,651
14,314,235
12,754,855
10,848,522
9,835,157
9,268,705
Non Current Assets
Liabilities
Current Liabilities
Accounts Payable
Other Accrued Liabilities
Taxes Payable
HSBC Working Capital
Facility
Deferred revenue
Total Current Liabilities
Non Current Liabilities
Total Liabilities
Net Assets
In respect of the above, we make the following comments:

The increase in cash from December 2013 to March 2014 is, in part, due to the $2m draw
down from the Company’s HSBC working capital facility.

Table 7 summarises the ageing of the Company’s accounts receivable, before allowance
for doubtful debts.
Table 7: Accounts Receivable Ageing
Dec-13
$
Mar-14
Apr-14
May-14
Jun-14
Jul-14
%
$
%
$
%
$
%
$
%
$
%
Current
5,235,827
50.15
3,326,847
43.69
5,350,636
70.27
4,200,696
74.06
4,303,663
55.06
3,299,676
59.02
30 Days
3,320,354
31.81
3,432,300
45.07
1,525,350
20.03
977,754
17.24
3,085,052
39.47
649,521
11.62
60 Days
1,285,418
12.31
454,571
5.97
186,468
2.45
159,366
2.81
11,451
0.15
1,361,218
24.35
597,725
5.73
400,993
5.27
551,419
7.24
334,404
5.90
416,058
5.32
280,330
5.01
10,439,325
100.00
7,614,711
100.00
7,613,874
100.00
5,672,220
100.00
7,816,225
100.00
5,590,745
100.00
90 Days +
Total
4345059_11

The Company had an adequate debtors ageing profile noting that at all times (except July
2014) in excess of 80% of the sales ledger was either current or 30 days. Average trading
terms were typically 30 days end of month for modular customers and 45 days end of
month for Switchrooms (pending contractual terms). The Company therefore
demonstrated adequate credit control and collection processes.

Accounts receivable includes revenue recognised by the Company that had not been
invoiced. Revenue was recognised by the Company as work was completed on a project
however same can only be invoiced in line with the terms of the respective contract.
Accordingly, the Company’s revenue recognised but not invoiced balance will fluctuate
subject to the progress of the projects and the contractual terms of same at any given
time. Table 8 summarises revenue that has been recognised but not invoiced.
Table 8: Revenue recognised, not invoiced
Revenue recognised, not invoiced
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
$
442,661
2,930,925
1,167,432
3,818,320
4,393,028
4,422,686

Inventory includes raw materials, stock of bathroom pods and a small number of
completed buildings held as stock and were not for re-sale.

As a result of the adjustments to the balance sheet as at 30 July 2014, in updating the
creditors position as discussed above, this has resulted in a negative closing WIP balance.

In section 8.2.3.5, we consider whether it was appropriate for FITB to be recognised as a
non-current asset in view of the continuing losses being incurred.

Intangible assets represent the book value of the Company's customer relationships, noncompete agreements and brand name. As at 31 December 2013, the value of the
Company's non-compete agreement and brand name had been fully written off, with the
circa $6m on the balance sheet representing customer relationships. In section 8.2.3.6 we
consider whether it was appropriate for same to be recognised as a non-current asset in
view of the continuing losses being incurred.

Accounts payable includes goods that have been received but not invoiced by the
supplier.

'Deferred revenue' represents invoices raised on a project where the revenue is yet to be
recognised. The Company’s deferred revenue balance at any given time is dependent on
the progress of the respective projects and the actual contractual terms. For example,
should the Company issue an invoice for a deposit on a new project, this will be accounted
for in deferred revenue and progressively unwound to revenue as the project progresses.

The circa $10m reduction in the inter-company loan with Britco International Inc between
December 2013 and March 2014 relates to the conversion of debt to equity completed in
March 2014. The effect of this was a circa $10m improvement in net assets.

The Company's balance sheet does not include circa $25m owed to the secured creditor
which it was a co-borrower and co-guarantor of. We consider this further in section 8.2.3.7.

Notwithstanding our comments in section 8 regarding the Company’s recognition of FITB
and intangibles (customer relationships) as non-current assets, the Company always
maintained a positive net asset position.
4345059_11
5
Statement by directors
5.1
Summary
Section 438B of the Act requires the directors to give an administrator a statement about the
Company’s business, property, affairs and financial circumstances.
We received the Directors’ Statement on 1 September 2014.
In the Statement, the Directors detailed the Company’s assets and liabilities at their book
value and their ERV as at 30 July 2014.
Table 9 summarises the assets and liabilities described in the Directors’ Statement, together
with the Administrators’ High and Low ERV (subject to costs of realisation and professional
fees).
Table 9: Assets and liabilities as per directors' Statement as at 30 July 2013
Report
Reference
Cost or Net
Book Value
Directors’ ERV
Administrators’
High ERV
Low ERV
$
$
$
$
5,948,669
3,902,015
4,000,000
3,900,000
750
750
Nil
Nil
Assets
Pre-appointment debtors
5.1.1
Cash on hand
Cash at bank
5.1.2
3,731,936
3,731,936
3,703,396
3,703,396
Stock on hand
5.1.3
1,330,724
333,170
475,958
475,958
Work in progress
5.1.4
4,101,202
3,227,000
2,774,572
2,579,117
Plant and equipment
5.1.5
1,205,562
161,071
599,591
599,591
Prepayments
5.1.6
346,750
110,842
100,000
80,000
Intercompany Receivables
5.1.7
1,641,630
91,926
91,926
91,926
18,307,223
11,558,710
11,745,443
11,429,988
148,182
148,182
Nil
Nil
(148,182)
(148,182)
18,307,223
11,558,710
11,745,443
11,429,988
Subtotal
Assets subject to specific charges
5.1.8
Less amounts owing under specific charges
Total available assets
Liabilities
Employee entitlements payable in advance
of unsecured creditors
5.1.9
(834,546)
(2,300,000)
(1,867,000)
(1,867,000)
Amounts owing and secured by debenture
or floating charge over assets
5.1.10
(25,874,072)
(25,874,072)
(25,874,072)
(25,874,072)
(8,401,395)
(16,615,362)
(15,995,629)
(16,311,084)
Estimated shortfall to secured creditor
Ordinary unsecured creditor claims
5.1.11
(20,188,258)
(20,188,258)
(15,528,103)
(16,410,986)
Contingent liabilities
5.1.12
(5,245,603)
(5,245,603)
See Section
5.1.12
See Section
5.1.12
(33,835,256)
(42,049,223)
(31,523,732)
(32,722,070)
Estimated surplus/(deficiency)
The Administrators have not audited the Company’s records or the book values.
We comment on the directors’ Statement as follows:
4345059_11
5.1.1 Pre-appointment debtors
The Company’s debtors’ ledger as at 30 July 2014 totalled $5,961,755. Table 10 summarises
the ageing of the Company’s debtors.
Table 10: Company debtors' ledger
Total ($)
Percentage of total (%)
Current
30 Days
60 Days
90+ Days
Total
3,300,484
656,937
1,361,218
643,114
5,961,754
55.36
11.02
22.83
10.79
100
We undertook an assessment of the debtors immediately following our appointment.
There were a number of customers/debtors where the Company was continuing to progress
projects subject to contract and, as such, amounts owed as at the date of appointment were
subject to performance by the Company of those projects.
We contacted each of these customers separately to agree completion of the contracts and in
so far as reasonably practicable, agreement terms for repayment of monies owed.
There were a number of debtors where all project work had been concluded and, as such, we
wrote to them requesting payment of monies owed.
We have continued to work through the ledger and address customer queries as they arise.
Given the contractual nature of the business, the collection process is not straightforward and
in many cases, remains ongoing.
Table 11 summarises the position of debtors as at 21 November 2014.
Table 11: Debtors position
$
Opening balance
5,961,754
Collections
(3,935,277)
Adjustments/write-offs
(307,743)
Balance outstanding
1,718,734
The remaining balance is subject to ongoing correspondence, dispute, or we are in the
process of seeking legal advice as to the merits of recovery action.
The Administrators’ ERVs of $4m (high) and $3.9m (low) are estimates only and are subject to
change.
5.1.2 Cash at bank
The directors reported cash at bank totalling $3,731,936. This represented the funds left in the
account by 8323364 Canada Inc. to provide working capital for the Administrators.
The Company operated bank accounts with HSBC and Westpac. Immediately on
appointment, we froze these accounts and requested the account balances be deposited into
a separate bank account under the control of the Administrators.
Funds totalling $3,703,396 were deposited into the administration account.
There was a difference of circa $27k between the credit proceeds in the bank account to that
transferred to the administration bank account. This relates to monies offset for bank
guarantee charges and credit card balances as at the date of appointment.
4345059_11
5.1.3 Stock on hand
We arranged a stocktake immediately following our appointment.
The main stores warehouse was located at the Staplyton premises, however each of the three
trading premises had a small supply of consumables on hand.
The book value of stock as at appointment totalled $1,289,194 and consisted of 81 bathroom
PODs, various building materials and consumables used in the manufacture of the portable
buildings.
The Administrators were contacted by a number of suppliers claiming to have a legal or
beneficial ownership in the goods supplied to the Company prior to our appointment.
The operation of such claims is required to be considered in light of the PPSA. The PPSA
establishes a national system for the registration of security interests in personal property,
together with new rules for the creation, priority and enforcement of such interests.
The Administrators received 24 claims from suppliers owed $985,802. The current position in
respect of these claims is summarised in Table 12.
Table 12: Supplier claims
Number of Claims
Claim Amount
$
Accepted
7
256,924
Rejected
17
728,878
Total
24
985,802
In relation to accepted claims, stock totalling $26,719 was returned to the suppliers, and
$107,147 paid to the relevant creditors in respect of stock used by the Administrators. The
residual amount of $123,058 represents an unsecured claim against the Company.
We instructed Grays Online to realise the Company’s stock.
Table 13 summarises the valuation and realisation of the Company’s stock.
Table 13: Grays Online stock valuation
Market Value for
Existing Use
Estimated
Auction Value
Gross sale
proceeds
$
$
$
Stock
1,035,700
211,000
530,690
Total (excluding GST)
1,035,700
211,000
530,690
Net proceeds of $475,958 have been received and deposited into the Administration bank
account.
5.1.4 Work in progress
The directors reported the book value of work in progress totalling $4,101,202, with an ERV of
$3,227,000.
As at the date of our appointment, the Company had in excess of 40 live projects in progress.
4345059_11
We undertook an immediate assessment of all of these projects, which involved detailed
analysis and investigation of the current project status, extent of progress claims made, and
value of future works to be completed, together with the position of suppliers and contractors
to enable an accurate assessment to be made of project profitability.
Three modular projects were abandoned based on the cash and guarantee recovery being
less than the costs to complete the project.
The remaining work in progress was completed in so far as reasonably practicable (subject to
agreement of terms with customers) by the Administrators.
The Administrators’ ERV represents the value of gross invoicing less the costs to complete the
projects.
Table 14 sets out the total invoicing, total costs to complete the projects and the net
realisations of both Modular and Switchrooms projects.
Table 14: Net WIP realisations (excluding GST)
High
Low
$
$
3,808,165
3,808,165
(1,642,426)
(1,740,154)
2,165,739
2,068,012
2,185,279
2,185,279
(1,576,446)
(1,674,174)
608,833
511,105
5,993,445
5,993,445
(3,218,873)
(3,414,327)
2,774,572
2,579,117
WIP - Modular
Total Modular invoicing
Less: Costs to Complete
Net Modular WIP
WIP - Switchrooms
Total Switchrooms invoicing
Less: Costs to Complete
Net Switchrooms WIP
Total Invoicing
Total Costs to Complete
Total Net WIP
5.1.5 Plant and equipment
We engaged Grays Online, independent auctioneers and valuers, to value the Company’s
plant and equipment.
Assets not included in the Switchrooms sale were realised by public online auctions.
Table 15 summarises the valuation and realisation of the Company’s plant and equipment.
Table 15: Plant and equipment valuation summary
Market Value for
Existing Use
Estimated
Auction Value
Gross
proceeds
$
$
$
Plant and equipment (incl. motor vehicles)
724,690
371,055
553,986
Total (excluding GST)
724,690
371,055
553,986
4345059_11
The net proceeds of $499,591 from all auctions have been received and deposited into the
administration bank account.
In addition a further $100k was realised from the sale of assets to Parratech, as discussed in
Section 7.
There will be no further material realisations of plant and equipment, and the Administrators’
ERV represents actual results.
5.1.6 Prepayments
Table 16 summarises the book value of prepayments.
Table 16: Prepayments
$
Prepaid insurance
194,417
Deposits paid
152,333
Total
346,750
The deposits paid predominately relate to monies paid to a Chinese supplier for bathroom
pods manufactured pre appointment that remained in China. The deposits are unable to be
recovered because the residual balance owing to the supplier exceeded the likely realisable
values of the bathroom pods and shipping and transport costs.
Regarding prepaid insurance, we are uncertain as to the quantum of any refund available, as
certain policies are continuing to be utilised by the Administrators. For present purposes,
however, the Administrators’ ERV is between $80k (low) and $100k (high).
5.1.7 Intercompany receivables
Table 17 summarises the book value of intercompany receivables.
Table 17: Intercompany receivables
$
Loan due from Britco Australia LP
Loan due from Britco International Inc
Total
1,549,704
91,925
1,641,630
In relation to the loan due from Britco Australia LP (circa $1.5m), by virtue of a deed of
assumption and assignment dated 29 July 2014, Britco Australia LP repaid HSBC the sum of
circa $7.028m in respect of the working capital facility under which the Company was a
guarantor and has a right of contribution from the Company for the monies paid to HSBC.
Because the right of contribution exceeds the value of the monies owed by Britco Australia LP
($1.5m) to the Company, it is exercising a right of set-off, and no funds will be realised by the
Administrators.
In relation to the loan due from Britco International ($91k), the Administrators have agreed to a
request by 8323364 Canada Inc to offset the amount due to the Company from future
distributions to 8323364 Canada Inc (in its capacity as secured creditor) in order to discharge
Britco International’s indebtedness to the Company. The Administrators agreed to the request
because Britco International and 8323364 Canada Inc are associated companies.
4345059_11
Accordingly, the directors’ and Administrators’ ERV in respect of same is $91,926.
5.1.8 Assets subject to specific charges
The directors’ Statement discloses the PPS PMSI registrations as being subject to specific
charges.
We have included our ERV for same in stock on hand and therefore please see our specific
comments regarding same in section 5.1.3.
5.1.9 Employee entitlements
Employee claims are afforded priority of repayment pursuant to Section 556 of the Act, ahead
of any return to unsecured creditors, but after the costs of the administration.
Early on in the administration, the Administrators determined that there would be sufficient
funds available to enable a 100 cents in dollar distribution to priority employee creditors. In
that regard, the Administrators have been making payment to employees of their entitlements
following the termination of their employment.
Table 18 details the current position regarding employee entitlements.
Table 18: Employee entitlements
Entitlements as at Entitlements Paid as
date of appointment at 6 November 2014*
Transferred/saved
Switchrooms sale
Remaining
Entitlements
$
$
$
$
2,046
(2,046)
Nil
Superannuation
141,671
(111,364)
10,054
Annual Leave
456,662
(341,921)
Long Service Leave
132,525
(102,524)
30,000
Rostered Day Off
2,313
(2,312)
Nil
Retention Bonus
60,225
(55,000)
Nil
Redundancy
750,960
(624,030)
(31,942)
95,933
Pay in Lieu of Notice
555,643
(300,381)
(46,821)
100,990
2,102,045
(1,539,582)
(103,487)
328,754
Wages and expenses
Total
(24,724)
91,776
* Distributions made to employees are net of PAYG which is required to be remitted to the ATO, and net of superannuation, which
is paid directly to their super fund.
On appointment, the Company had 61 employees. As at the date of this report, 50 employees
have been made redundant and two employees resigned during the administration, and three
staff are working out relevant notice periods.
Following the sale of Switchrooms (see Section 7), six employees were transferred to
Parratech. As a result of the transfer of the employees, redundancy and pay in lieu of notice
totalling $78,764 did not crystallise and annual leave entitlements totalling $24,725 were
transferred to Parratech.
The remaining entitlements are estimates and are subject to change regarding actual
employee termination dates.
Total employee entitlements were originally calculated as being $2,102,045. As at the date of
this report, total employee entitlements have been reduced by $130,220 due to a number of
employees working out their notice periods.
4345059_11
5.1.10 Secured creditor
At all times prior to 29 July 2014, HSBC Australia held a first ranking GSA over the assets and
undertakings of the Company, which was registered on the PPSR.
Western One Inc (a Canadian listed entity and ultimate holding company of the Group) had (at
all times prior to 29 July 2014) provided a guarantee and indemnity in relation to the
indebtedness of the Company (and Britco Australia GP Pty Ltd) with HSBC Australia, which
totalled circa $37m, shortly before the Administrators’ appointment.
The Company had also provided a guarantee and indemnity to HSBC Australia in respect of
all monies owed by it and its parent entity, Britco Australia GP Pty Ltd (holding company only)
and Britco Australia LP.
Between 25 June and 30 July 2014, we understand that the directors engaged with HSBC
(Australia) (in its capacity as secured creditor) with a view to seeking assurance that it would
not take enforcement action against the Company in the event that the directors appointed
voluntary administrators, or alternatively, accept deferred payment of their secured debt.
We understand that the motivation to seek such arrangements with HSBC (Australia) was to
ensure that any administration of the Company would not be disrupted by a receivership
appointment, with the bank potentially setting off available cash that would normally be
available to voluntary administrators, and receivers potentially having little or no appetite to
trade the business and complete customer contracts, which was considered the best strategy
to maximise the realisable value of the Company’s business and assets, and minimise overall
creditor claims.
HSBC (Australia) refused to enter into a deed of forbearance or standstill.
At the same time, the ultimate holding company was arranging for its group finance facilities
with HSBC (Canada) to be refinanced.
On 29 July 2014, 8323364 Canada Inc repaid in full the balance of HSBC Australia’s debt, and
in return was assigned (at full value) part of the debt owed to HSBC Australia, and all of the
security provided by the Company.
Following the transaction, 8323364 Canada Inc assumed all of the benefits and obligations of
the security (otherwise held by HSBC Australia), and became the first ranking registered
security interest holder over all of the assets and undertakings of the Company.
We have obtained an independent legal review of the assignment of HSBC Australia’s
securities to 8323364 Canada Inc, which concluded that the securities were valid and
enforceable.
The Administrators have received a proof of debt in respect of 8323364 Canada Inc’s secured
claim of $25.8m.
Given the nature of the security given by the Company to HSBC Australia, the Administrators’
ERV is the same as the directors’ ERV in respect of monies owed to 8323364 Canada Inc as
first ranking security interest holder (secured creditor).
4345059_11
5.1.11 Unsecured creditors
In their Statement, the directors have recorded unsecured creditor claims to be $20,188,258
made up as follows:
Table 19: Unsecured creditor claims
$
Trade payables
3,707,459
Goods received not invoiced
2,527,344
Subtotal
6,234,803
Accruals
1,679,685
Britco Australia LP:
Revolving working capital facility
7,028,167
Bank guarantees
5,245,603
Total
20,188,258
Following additional work undertaken post-appointment updating the creditor’s ledger, the
unsecured trade creditors balance as at 30 July totalled $7.2m, which is not materially
different to that recorded, in totality, on the Company’s balance sheet (inclusive of accurals) as
at the date of the Administrators’ appointment.
No material differences have arisen as between the Company’s records and the proofs of debt
received.
This indicates that the Company maintained adequate records in respect of creditors. To date,
the Administrators have received 150 proofs of debt from trade creditors and other arm’s
length suppliers, totalling $5,569,796.
The claim of Britco Australia LP relates to monies repaid by it to HSBC in respect of the
working capital facility. Given the nature of the guarantee and indemnity provided by the
Company, Britco Australia LP has an unsecured right of contribution for same from the
Company.
Additionally, we note that the secured creditor will have an unsecured claim for the shortfall on
its secured debt of between $22.9m and $24.3m. This is discussed further in section 8.
Table 20 summaries the Administrators’ estimated total unsecured creditor claims, which
incorporates creditors per the balance sheet and monies due to Britco Australia LP (for
monies repaid to HSBC) net of our estimated return on the bank guarantees and adjusted by
the $1.549m offset against the loan payable to the Company and the shortfall to the secured
creditors in respect of its security.
Table 20: Administrators’ unsecured creditor summary
Trade payables
Goods received not invoiced
Subtotal
4345059_11
High
Low
$
$
7,171,921
7,171,921
73,250
73,250
7,245,171
7,245,171
High
Low
$
$
7,028,167
7,028,167
(1,549,704)
(1,549,704)
Secured creditor shortfall after adjusting for estimated bank
guarantees to be released/returned
22,971,000
24,390,000
Total Unsecured Creditors
35,694,634
37,113,634
Britco Australia LP:
Revolving working capital facility
Less Inter-Company Loan
These totals are different to the unsecured creditor total in the summary of the directors’
Statement as the secured creditors’ total debt is otherwise included in full earlier in the
Statement calculations.
5.1.12 Contingent liabilities
In their Statement, the directors have recorded contingent liabilities in the sum of $5,245,603,
relating to bank guarantees issued to landlords and customers as security for the performance
of contracts entered into prior to the date of the Administrators’ appointment. Those bank
guarantees were provided by HSBC and Westpac, although, there was a counter guarantee
provided to Westpac by HSBC in respect of the guarantees provided by Westpac.
Following the repayment of the HSBC facilities on 29 July 2014, Britco Australia LP will be an
unsecured creditor in relation to any claims made in respect of these guarantees.
Given the contractual nature of the business and that a number of the guarantees provided
were in respect of the defects liability period (typically 12 months), it will be some time before
the final position in respect of the bank guarantees will be known.
For present purposes the Administrators’ ERV is $2.8m (high) and $3.7m (low) being the
anticipated shortfall from the return of holders of bank guarantees. This is included within the
unsecured creditor table (see Table 20). It is noted that the contingent creditors’ claim of
$5,245,603 has been included within the unsecured claim of Britco Australia LP of
$12,273,770, and therefore has been double-counted in the directors’ Statement.
A further category of contingency relates to customers who terminated their supply contract
with the Company and have engaged alternate suppliers to complete the Company’s contract
works. After first offsetting any shortfall against any debt they owe to the Company and any
bank guarantee security given by the Company, the customer may have a claim as an
unsecured creditor for any shortfall. At this time, it is not possible to quantify same.
5.1.13 Omissions from Statement
The Administrators are not aware of any material omissions from the directors’ Statement.
5.2
Explanation for current financial position
The directors’ explanation for the Company’s current financial position is as follows:

The general downturn in the Company’s key markets (energy and resources sector) led to
significant pressure on margins, and as a result, financial losses were incurred.

The Company’s ultimate parent entity was no longer willing to subsidise the ongoing
losses, which resulted in the decision to appoint administrators.
4345059_11
Our preliminary view is that the Company failed because:

At the time of the sale transaction (January 2013) there had been a contraction of the
industry in which it operated. This manifested in reduced revenue, and a contraction in
margins.

There was an expectation that market conditions would improve however this did not
occur and trading losses continued to be incurred post the sale transaction in 2013 and
2014.
Despite the $2m drawdown of debt funding in January 2014 and the directors restructuring
and cost-cutting efforts through site closures and redundancies, the business continued to
incur trading losses.


When coupled with a high degree of fixed costs, trading losses were incurred that could
not be sustained further without further funding from its ultimate parent entity.
6
Trading by Administrators
6.1
Overview
The Administrators assumed control of the Company’s operations immediately upon
appointment, with attendance on all active sites in Queensland, New South Wales, and
Western Australia.
With the assistance from senior management, appropriate controls and systems were put in
place in respect of purchase orders, release of buildings, stock control, banking and reporting
procedures. All physical assets were secured, including the recovery of $3,703,396 cash held
with HSBC and Westpac.
Immediately following our appointment, efforts were focused on:

Assessing the wind down program in place, prior to the administration, in respect of the
‘modular’ operations in Queensland and Western Australia, in order to evaluate the Joint
Administrators’ position in respect of same;

Assessing those projects which were partially complete as at the date of appointment, and
analysing future cashflow and risks associated with same;

Negotiating with customers in relation to terms upon which ongoing projects were to be
completed by the Company and paid for by those customers; and

Commencing a sale campaign with respect to the Switchrooms business.
Additionally, tasks associated with continued trading and asset realisation were undertaken as
follows:

Preparation of detailed administration trading cashflow forecasts on a rolling basis.

Address matters relating to establishing new trade credit accounts with relevant suppliers
and service providers.

Close liaison with senior management regarding:
o
o
o
Assets and liabilities of the Company;
Various issues associated with the Company’s affairs; and
Daily trading matters, including customer/project matters, recovery of debtors, payment
on post-administration suppliers, and raising of purchase orders.
4345059_11

Contact with lessors and owners of property in relation to real property or plant and
equipment occupied by, or in the possession of, the Company at appointment and entering
into new arrangements post-administration and, where relevant, disclaiming the
Company’s interest in same.

Undertake a stock take across the sites in Queensland, New South Wales, and Western
Australia, and liaise with Company staff regarding same.

Commission a valuation by Grays Online of all plant and equipment across Queensland,
New South Wales, and Western Australia.

Commission Grays Online to undertake an assessment of WH&S risks at all locations, and
address findings of same across the sites.

Preparation of detailed calculations to assist in the assessment of preferential creditor
claims.
6.2
Trading matters and realisation of work in progress
The Administrators continued to trade the business post appointment, in order to maximise the
Company’s assets and the outcome for all stakeholders.
The surplus from trading will increase funds available to the secured creditor after payment of
the costs of the administration and employee entitlements.
We have received full co-operation and support from the Company’s management, without
which the administration would have been more time-consuming and expensive.
6.2.1 Modular
The Administrators concluded that the Modular operations should be wound down
immediately following their appointment.
The decision was made to complete eight projects. Seven of these were completed by
31 August 2014, and practical completion on the remaining project is expected in the week
commencing 1 December 2014. Modular invoices raised post-appointment will total circa
$4.2m (including GST).
Thirteen modular staff were made redundant immediately following appointment, with the
remaining Modular staff made redundant on a phased basis in line with project completion.
There is one remaining Modular employee.
The Modular trading site at Staplyton (Queensland) and Welshpool (Western Australia) were
exited following the completion of the auction and removal of the plant and machinery, and
stock items. Formal notices were served on the landlords of the respective sites on
30 September and 3 October 2014.
6.2.2 Switchrooms
The Switchrooms division was identified as being saleable and immediately taken to market.
Further detail on the sale of business is outlined in section 7.
During this time, the Administrators and their staff, together with senior management, liaised
closely with Switchrooms customers in order to preserve the business and saleability of same.
Given the Administrators’ decision to market the Switchrooms division, all employees were
retained initially in order to preserve the ability to affect a going concern sale.
During the sale process, two employees resigned, and we negotiated terms as to the early
termination of their employment contracts.
4345059_11
Given the ultimate outcome with respect to sale of the Switchrooms division (see section 7), a
staged process for redundancies was implemented in line with project completion and
deliverables being met by the Company. No Switchrooms staff remain employed, although we
have engaged two former staff members to assist with the collection of debtors and finalisation
of certain project matters.
Nineteen projects were completed and post-appointment invoicing totalled circa $2.4m. All
projects were completed by mid-October 2014 and, following the completion of the auctions
and removal of the plant and machinery, and stock items, the Meadowbrook and Glendenning
sites were vacated. Formal notices were served on the landlords on 10 and 16 October 2014
respectively.
6.2.3 Head office
There are two remaining head office staff who are continuing to work with the Administrators
in the collection of debtors, payment of suppliers, and finalisation of trading matters.
6.3
Receipts and payments
A summary of the Administrators’ receipts and payments for the period 30 July to
21 November 2014 is included within Part 8 of the Administrators’ Remuneration Request
Approval Report attached as Annexure D.
7
Sale of Switchrooms business
Immediately following the Administrators’ appointment, a sale process was initiated for the
Switchrooms Division.
Advertisements were placed in the Australian Financial Review (1 and 5 August 2014) with a
company overview, confidentiality deed and preliminary information document then sent to
over 40 parties who had expressed an interest or who we knew may have been interested in
the potential acquisition.
Expressions of interest were received from parties across all aspects of the value chain from
Tier 1 and 2 original equipment manufacturers, competitors, integrators, construction
companies, private equity, switchgear manufacturers, modular building manufacturers, and
engineering companies.
An information memorandum was prepared, detailing the key investment features, major
customer contracts, financial information, assets available for acquisition, sale timetable and
process.
The information memorandum was circulated to over 25 parties, who were then granted
access to a Phase 1 dataroom containing various due diligence materials. Broadly, the sale
timetable provided for:






11 to 15 August - Site visits and management presentations
18 August - Indicative offers
20 August - Selection of shortlisted parties
22 August - Final bids submitted
26 August - Execution of sale contract
2 September - Completion
During the week of 11 August 2014, circa 10 interested parties attended the various
Switchroom sites in New South Wales, Western Australia and Queensland and met with
management.
4345059_11
In addition, these parties were active in the Phase 1 dataroom with various Q&As and
additional information requests were being addressed by management and the Administrators.
On 18 August 2014 we received three indicative offers from interested parties. Having regard
to the conditionality of the offers and the limited information provided to interested parties in
the Phase 1 process, in order to protect the company intellectual property, a Phase 2
dataroom was created containing further detailed information. These shortlisted parties were
granted access to this Phase 2 dataroom on 22 August 2014 and advised that final bids were
to be submitted by 29 August 2014. Prior to submission of final bids these parties were also
provided with a draft asset sale agreement.
A condition of any purchase of the business was the successful novation of the major
customer contracts, and as a result we were in regular dialogue with the major customers
surrounding the sale process and their existing and future projects to keep them informed.
Despite extensive negotiations and the fact that the vast majority of customers remained with
the Company, on 5 September 2014, ABB Australia Pty Ltd, APB Britco’s largest customer,
terminated two projects, representing circa $3.2 million or 50% in future contracted WIP. This
had a significant impact on the sale process.
Despite same, we were able to agree a sale of the Switchroom business to Parratech
Environmental Services Pty Ltd on 15 September 2014. Completion was staged, with First
Completion involving:



A sale of the plant and equipment;
A sale of the business name, domain names and intellectual property; and
Transfer of six existing employees and their entitlements.
The sale consideration was $110,004 (including GST).
Second Completion is due to be triggered in the next two weeks, which will result in the
novation of a major customer contract, at which time the Company’s bank guarantees (circa
$50k) associated with this contract will be replaced by Parratech.
Given the delay in dealing with the extensive number of interested parties, and then the
shortlisted parties, the live projects had substantially been completed at the time of contract
negotiations with Parratech. Because Parratech did not want to assume any go forward
liability for these projects, the Administrators completed all live projects.
8
Statutory investigations
8.1
Nature and scope of review
The Act requires an administrator to carry out preliminary investigations into a company’s
business, property, affairs and financial circumstances.
Investigations centre on transactions entered into by the company that a liquidator might seek
to void or otherwise challenge where the company is wound up. Investigations allow an
administrator to advise creditors what funds might become available to a liquidator, such that
creditors can properly assess whether to accept a DOCA proposal or resolve to wind up the
Company.
Funds recovered would be available to the general body of unsecured creditors. We note the
very substantial claims of related parties would result in approximately 80% of any dividend to
unsecured creditors being paid to related parties, thereby impacting on the commercial reality
as to whether any such claims might be brought.
A liquidator may recover funds from each type of transaction detailed in the Creditor
Information Sheet described in Annexure E of this report. A deed administrator does not have
recourse to these voidable transactions.
4345059_11
A liquidator may also recover funds through other avenues; for example, through action
seeking compensation for insolvent trading or breach of director duties.
An administrator is not obliged to carry out investigations to the same extent as a liquidator. A
liquidator may require many months of investigation and conduct public examinations before
forming a concluded view on recovery action. We investigated matters to the extent possible
in the time available. The dividend estimate in a liquidation scenario set out in section 9.3 of
this report reflects the outcome of our investigations.
The Administrators’ knowledge of the Company’s affairs comes principally from the following
sources:

Communications with the Company’s major unsecured creditors regarding the nature and
amount of the debts owed;

Communications with the secured creditors regarding the nature and amount of the debt
owed;

The directors’ Statement and a detailed questionnaire concerning the Company's affairs
prepared by the directors;

Discussions with senior management;

An independent valuation of the Company's plant and equipment obtained upon our
instructions;

Searches conducted within ASIC records database in relation to the Company and any
related entities;

Searches obtained from the ITSA database relating to the directors of the Company;

Searches obtained from land title offices and motor vehicle authorities; and

An examination of the Company’s books and records, including its financial statements
and management accounts.
8.2
The Company's solvency
8.2.1 Overview of insolvency tests
A precursor to the recovery of funds by a liquidator through the voiding of certain transactions
or through other legal action, such as seeking compensation from directors for insolvent
trading, is establishing the time of the Company’s insolvency.
Establishing insolvency is a complex matter. There are two primary tests used in determining
a company’s solvency, at a particular date, namely:


Balance sheet test; and
Cash flow or commercial test.
The Courts have widely used the cash flow or commercial test in determining a company’s
solvency at a particular date.
Section 95A of the Act also contains a definition of solvency. That definition reflects the
commercial test in stating that a person is solvent if “the person is able to pay all the person’s
debts as and when they become due and payable”.
However, the commercial test is not the sole determinant of solvency. Determining solvency
derives from a proper consideration of a company’s financial position in its entirety and in the
context of commercial reality.
4345059_11
Relevant issues include, but are not limited to the following:

The degree of illiquidity. A temporary lack of liquidity is not conclusive, and regard should
be had to:
o Cash resources; and
o
Monies available through asset realisations, borrowings against the security of assets
or equity/capital raising;

All a company’s assets might not be relevant when considering solvency. For example,
where a company proposes selling assets which are essential to its business operations,
the proceeds of those assets should not be taken into account;

The voluntary and temporary forbearance by creditors not to enforce payment terms;

The expectation or otherwise of financial support from related entities; and finally

It is not appropriate to base an assessment of whether a company can meet its liabilities
as and when they fall due on the prospect that a company might trade profitably in the
future.
In summary, it is a company’s inability using such resources as are available to it through the
use of its assets, or otherwise, to meet its debts as they fall due, which indicates insolvency.
8.2.2 Financial Statements
We have focused our analysis at the times of the special purpose financial reports at
31 December 2013 and 31 March 2014, and monthly thereafter.
As noted previously the 31 December 2013 financial statements were not signed and KPMG
did not sign the audit report. We understand that the going concern note proposed by KPMG
contemplated the ultimate parent entity (WesternOne Inc) providing ongoing financial and
operational support to the Company by way of a letter of support for a period of at least 12
months from the signing of the accounts.
The directors have advised that failure by the Company to finalise the December 2013
accounts is not indicative of a lack of ongoing financial support of the Company by the parent
entity. This is referred to further in section 8.2.4.
We also note that the 31 March 2014 financial statements were signed by the directors and
contained a declaration that the Company will be able to pay its debts as and when they fell
due. This supports the directors’ claim that they had a reasonable expectation of continuing
support of the ultimate parent entity.
8.2.3 Balance sheet test
8.2.3.1
Banking facilities
The Company operated a revolving working capital facility ($7m), which was fully drawn as at
the date of the Administrators’ appointment. This facility was guaranteed by its ultimate parent.
8.2.3.2
Finance commitments review
Aside from the Company’s debt financing arrangements with HSBC, the Company rented all
trading premises and had a number of motor vehicle rental and equipment lease/hire
arrangements in place.
As at the date of appointment, there were no rental arrears for the premises.
4345059_11
There was circa $350k (inc GST) outstanding for equipment lease costs relating to contracts
with United Forklifts terminated prior to the administrators’ appointment.
There was an additional balance of circa $31k relating to unpaid forklift hire and equipment
lease charges for July 2014.
8.2.3.3
Accounts payable ageing
Table 21 sets out an ageing of the Company’s payables between December 2013 and July
2014.
Table 21: Accounts payables ageing
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
%
$
%
$
%
$
%
$
%
$
%
Current
4,080,234
56.89%
1,204,326
28.21%
1,317,148
44.20%
2,641,434
66.50%
2,211,300
42.38%
3,510,388
48.95%
30 Days
2,747,855
38.32%
2,482,344
58.14%
1,186,012
39.80%
998,561
25.10%
2,596,783
49.77%
2,886,245
40.24%
60 Days
233,210
3.25%
322,314
7.55%
247,184
8.30%
46,722
1.20%
178,053
3.41%
401,690
5.60%
90 Days +
110,444
1.54%
260,901
6.11%
228,018
7.70%
285,335
7.20%
231,942
4.44%
373,598
5.21%
Total
7,171,742 100.00%
4,269,886 100.00%
2,978,362 100.00%
3,972,052 100.00%
5,218,077 100.00%
7,171,921 100.00%
* The Company’s accounts payable, as set out above, does not include goods receipted that have not been invoiced. As at July
2014, this balance was circa $73k.
The aged creditors listing as at July 2014 has been updated to include all invoices received
after the Administrators’ appointment relating to the period prior to same. Not all invoices for
the pre-appointment period have been received which may also increase the balance
outstanding and impact the ageing analysis.
Current and creditors aged 30 days represent between 84% and 95% of the Company’s total
trade creditors from December 2013 to July 2014. This represents an acceptable ageing
profile and indicates that the Company actively repaid trade creditors as and when they fell
due.
8.2.3.4
Accounts receivable ageing
We have set out in Section 4.1 our analysis of accounts receivable ageing.
Our analysis concluded that the Company had an adequate ageing profile with in excess of
80% of the debtors’ ledger being either current or 30 days at all relevant times.
8.2.3.5
Future Income Tax Benefits
Following the sale transaction, circa $6.6m was recognised as a deferred tax liability (in
anticipation of future tax liabilities to be derived from goodwill that was recognised on
acquisition of circa $24m).
Following the Company’s first year of operations, a deferred tax asset ($8.4m) arose as a
result of the pre-tax losses to December 2013 (circa $36m).
The impact of same was that an FITB asset of $1.8m is recorded on the Company’s balance
sheet at 31 December 2013 to be utilised against future income tax payable.
Taxation calculations were prepared annually by the Company and as a result, further tax
calculations were not prepared after 31 December 2013.
4345059_11
We note however, that a FITB may only be carried forward where future profits are anticipated
to be generated in order to utilise the asset. Given ongoing trading losses, we consider by 30
March 2014 (at the latest) and for all following months, it is arguable that there was no
reasonable basis for continuing to carry the FITB as a non-current asset.
8.2.3.6
Intangible assets
Management has provided a copy of the impairment model prepared by the Company’s
auditors, KPMG, that was utilised to calculate the asset impairment as at December 2013.
The writedown to $6.2m at 31 December 2013 was calculated on the basis of the discounted
cashflows expected to be derived from the use and eventual sale of the assets.
The value of the impairment was calculated and finalised in February 2014.
The directors considered the carrying value of the intangible assets annually and any further
adjustment/writedown would have been considered at year end (ie: December 2014).
Given the ongoing trading losses and deteriorating customer pipeline of future orders, we
consider that by 30 March 2014 (at the latest), it is arguable that had the directors critically
assessed the appropriateness of the carrying value of the intangible assets with regard to the
true future economic benefit to be attributed to same (if any) they would have concluded that
there was no reasonable basis for continuing to carry the intangibles as a non-current asset.
8.2.3.7
Secured creditor debt
By virtue of an accession letter dated 8 February 2013, the Company became an additional
borrower and additional guarantor of the monies advanced by HSBC Australia ($25.8m) for
the purposes of funding in part the sale consideration in January 2013.
The monies were originally advanced to Britco Australia GP Pty Ltd in its capacity as general
partner on behalf of Britco Australia LP and the liability sits on the consolidated balance sheet
of BAGP.
The HSBC facility had an original maturity date of 17 January 2014.
From 17 January 2014, the HSBC facilities were payable on demand and were able to be
called up at any time, noting the term was extended to January 2015. We understand though
it was never called up during this time. The debt to HSBC was guaranteed and ultimately paid
out by the ultimate parent entity.
8.2.3.8
Adjusted net assets
Taking into account our opinions regarding FITB and intangibles, Table 22 summarises our
calculation of the adjusted net assets.
Table 22: Adjusted net assets
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
$
6,069,651
14,314,235
12,754,855
10,848,522
9,835,157
8,822,640
Future Income Tax Benefit
-
(1,864,291)
(1,864,291)
(1,864,291)
(1,864,291)
(1,864,291)
Intangible Assets
-
(6,076,518)
(6,039,691)
(6,002,863)
(5,966,036)
(5,929,209)
6,069,651
6,373,426
4,850,873
2,981,368
2,004,829
1,029,140
Net Assets per GPFR and
Management Accounts
Adjusted Net Assets
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8.2.3.9
Conclusion as to balance sheet test
The directors always held the view that the Company’s co-borrowed term loan from HSBC
Australia would be made good by its ultimate parent entity, which in fact turned out to be the
case and accordingly does not factor into the balance sheet test.
Accordingly and notwithstanding the impact of adjustments for our opinion on the
appropriateness of continued recognition of FITB and other intangibles as non-current assets,
the Company always maintained a positive net asset position and as such was balance sheet
solvent.
8.2.4 Cashflow or commercial test
8.2.4.1
Operating losses
Notwithstanding the Company’s balance sheet solvency, it is necessary to consider the
commercial realities of the Company’s overall financial position and its ability to pay its debts
as and when they fall due.
Please refer to our high level commentary at section 4 in relation to the Company’s historical
financial performance.
We have undertaken an analysis of the Company’s trading losses between April 2014 and
July 2014, which we consider to be the relevant period of concern to unpaid creditors, per the
ageing in Table 21.
As discussed in section 4, the Company incurred average monthly accounting net losses of
circa $1.4m during this time.
We note, however, that these losses include a number of non-cash and extraordinary items.
Accordingly, in order to consider the Company’s trading profit/(loss), these items need to be
added back to the net loss.
Table 23 summarises the trading profit/(loss) before non-cash and extraordinary items for the
period January to July 2014.
Table 23: Trading profit/(loss) before non-cash and extraordinary items
Jan-14 to Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
(2,324,845)
(1,559,380)
(1,906,333)
Depreciation
280,753
92,916
92,588
71,401
48,227
Amortisation of Intangibles
110,482
36,827
36,827
36,827
36,827
Redundancy Costs
145,571
17,541
241,215
155,447
108,947
26,629
51,184
25,729
27,209
8,444
Fixed Asset Write down Modular WA
-
-
-
292,050
-
Stock Write Off
-
-
495,066
132,187
-
374,865
-
(12,727)
-
(1,000)
-
-
-
-
318,693
98,281
27,458
29,199
29,490
35,160
(1,288,264) (1,333,454)
(998,436)
(268,755)
(457,217)
Net Profit / (Loss) (Table 5)
(1,013,366) (1,012,517)
Add back non cash and
extraordinary expenses:
Relocation Costs
Other (Gains)/Losses
Write off future forklift hire
Net Interest (Income)/Expense
Trading profit / (loss) before noncash and extraordinary items
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We note in particular redundancy costs, relocation costs and asset write downs are associated
with the wind down of the modular business. We also note the forklift termination costs relate
to future rental periods and were incurred to reduce future operating costs.
When the non-cash and extraordinary items are added back, the Company’s trading
performance is substantially improved but still generating losses, which are, however,
reducing from circa $1.3m in April to circa $268k in June.
8.2.4.2
Working capital
The working capital position indicates whether a company can pay its immediate debts with its
immediate assets. A positive working capital position is when a company’s current assets
exceed its current liabilities.
Table 24 summarises the Company’s working capital per its financial statements.
Table 24: Working Capital Position
Current Assets
Current Liabilities
Working Capital / (Deficiency)
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
$
17,691,730
21,398,620
18,282,618
18,230,689
18,461,691
15,506,306
(12,376,391)
(18,076,216)
(16,516,808)
(18,379,722)
(18,991,355)
(17,105,256)
5,315,338
3,322,403
1,765,810
(149,033)
(529,664)
(1,598,950)
We note the following in respect of the above:

Current assets represent cash at bank, accounts receivable, inventory, WIP and
prepayments.

Current liabilities represent accounts payable, accrued liabilities (wages, leave and
bonuses payable, provisions for WorkCover and warranty liabilities), taxes payable,
deferred revenue and the Company's working capital facility ($7m), which was guaranteed
by the ultimate parent entity.

The increase in current assets between December 2013 and March 2014 relates
principally to an increase in cash at bank following a $2m drawdown on the revolving
working capital facility. The increase in the working capital facility was, however, offset by
a circa $6m increase in deferred revenue, resulting in a deterioration of working capital as
at March 2014.

The Company first experienced a working capital deficiency in May 2014 as a result of an
increase of circa $2.1m of accounts payable, despite an increase in accounts receivable of
circa $700k.

The Company's working capital position continued to deteriorate in June 2014 due to a
further increase in accounts payable of circa $600k.

Despite a circa $1m decrease in accounts payable as at July 2014, the Company’s
working capital deficiency increased by circa $1m as a result of reduction in cash of circa
$700k and a reduction in accounts receivable of circa $2.1m.
As a result of the May 2014 loss, the Company’s positive working capital is consumed and a
small deficit in working capital arises. This deficit increases in June and July as a result of
continued losses.
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8.2.4.3
Adjusted working capital
It is necessary to have regard to the commercial realities in respect of HSBC Australia’s
working capital facility of $7m, because absent the Company’s obligation to pay HSBC
Australia (because of the ultimate parent entity’s guarantee and payment of same), it improves
the Company’s operational working capital position and its ability to pay trade creditors as and
when they fall due.
In Table 25 we summarise the adjusted working capital removing the working capital facility
liability of $7m provided by HSBC Australia (which was a current liability on the balance sheet)
as these facilities were at all times guaranteed by the Company’s ultimate parent entity and
were ultimately paid by the parent entity on 29 July 2014.
Table 25: Adjusted working capital
Dec-13
Mar-14
Apr-14
May-14
Jun-14
Jul-14
$
$
$
$
$
$
Working Capital per SPFR and
Management Accounts (per Table 24)
5,315,338
3,322,403
1,765,810
(149,033)
(529,664) (1,598,950)
Add back HSBC Working Capital Facility
5,000,000
7,000,000
7,000,000
7,000,000
7,000,000
7,000,000
10,315,338
10,322,403
8,765,810
6,850,967
6,470,336
5,401,050
Adjusted Working Capital
This adjustment results in a working capital surplus, thereby indicating that there are sufficient
current assets to meet current liabilities at all relevant periods.
8.2.4.4
Cash flow / Availability of other cash resources – cash flow test
The Company maintained a rolling 12-week cashflow forecast, which was provided to the
ultimate parent entity on a weekly basis.
The cashflow detailed the Company’s forecast cash receipts and cash payments on a daily
basis.
Management has advised that no other cash resources were available to the Company other
than its working capital facility of $7m (which was fully drawn following a $2m drawdown in
January 2014).
The directors advise that no request for additional funding was made during 2014 to the
Company’s ultimate parent as one was not required.
8.2.4.5
Access to alternative sources of finance
Management has advised that no additional external funding options were pursued by the
Company because of its ongoing expectation of ultimate parent entity support.
8.2.4.6
Disposal of non-core assets
The directors had engaged in a program of divestment of its non-core assets during 2014.
A number of asset sales were completed prior to the Administrators’ appointment in
connection with the wind down of the Company’s modular operations.
There were no further material non-core assets available for realisation.
8.2.4.7
Dishonoured payments
No dishonoured payments were uncovered following a review of the Company’s trading bank
accounts.
4345059_11
Management has advised and nor has it come to our attention that there were any creditors
who were refusing to supply and or provide credit to the Company.
8.2.4.8
Creditor forbearances/indulgences
Management has advised and nor has it come to our attention that there were any creditor
forbearance/structured repayment arrangements in place.
8.2.4.9
Charge
Payment of statutory commitments including Superannuation Guarantee
8.2.4.9.1
Superannuation
By and large, the Company paid all superannuation contributions for employees within the
required timeframe.
Superannuation for the month of July totalling $65k had not been remitted as at the date of the
Administrators’ appointment however same was not due and payable at this time.
Our investigations revealed that circa $14k of superannuation contributions of two employees
had been overlooked between March 2013 and March 2014.
All the respective arrears have now been remitted to the respective superannuation funds or
the Australian Taxation Office as a priority employee dividend.
8.2.4.9.2
Australian Taxation Office
A review of the Company’s ATO Portal Statement dated 8 July shows that all lodgements and
payments were up to date to June 2014 and the Company was in a refund position.
The Company’s BAS return for July 2014 was lodged by the Administrators on 21 August
2014 and a refund of circa $183k was received on 27 August 2014.
No monies were offset by the ATO against the refund, thereby indicating that there was no
claim of the ATO as at the date of the Administrators’ appointment.
8.2.4.9.3
Payroll tax
A review of the Company’s records shows that the Company’s payroll tax lodgements and
payments were up to date to June 2014 with circa $42k outstanding for July 2014 noting
however that this amount was not due and payable at the date of the Administrators’
appointment.
8.2.4.10
Conclusion as to cashflow test
The critical issue influencing the cashflow test is the extent to which the co-borrowings from
HSBC, being guaranteed by the ultimate parent entity, ought to be included into such analysis.
Because of the guarantee given to HSBC by the parent entity, the directors always considered
the Company’s ability to meet its debts to trade creditors from its working capital assets,
exclusive of the working capital loan from HSBC.
On this basis, which in fact turned out to be the case when the parent entity repaid the HSBC
Australia debt, the Company always maintained a positive working capital position and was
cashflow solvent.
4345059_11
8.2.5 Conclusion as to solvency
Both the balance sheet test and cashflow test of insolvency are materially impacted by the
treatment of the co-borrowed term loan and working capital loan from HSBC.
The $25.8 term loan and the $7m working capital facility, were at all times guaranteed by the
Company’s ultimate parent entity and were ultimately paid by it.
At no time did HSBC Australia seek to have its facilities repaid. Rather, in January 2014 the
HSBC facilities were extended to January 2015.
Given the commercial reality that the directors expected the Company’s debts to HSBC
Australia would be made good by its parent entity (which in fact it was), circa $4m of working
capital was left in the Company.
Prima facie, our analysis shows that the Company was balance sheet and cashflow solvent at
all material times.
However, regard must be had to the period from 25 June 2014 onwards.
This is the date from when we understand the directors were considering their options to exit
the business, which we are advised included a trade sale, a solvent wind down, creditors’
voluntary liquidation or voluntary administration.
It is during this period that the $7m working capital facility needs to be considered further. If a
decision was made during that time to enter voluntary administration, then the directors ought
to have been aware that further debts incurred during that period would potentially remain
unpaid as the $7m working capital facility liability, to HSBC or the ultimate parent entity under
the guarantee, would crystallise upon an appointment.
In other words, being aware of the possibility of an impending appointment, the Company
could not take the benefit of excluding that working capital liability from its working capital
analysis.
The directors have advised no such decision was made during this time, and only on 30 July
2014 was the decision to appoint an administrator made.
8.3
Potential liquidator recoveries – Insolvent trading
8.3.1 Director liability
Section 588G of the Act imposes a positive duty upon company directors to prevent insolvent
trading. If a director is found guilty of an offence in contravening Section 588G, the Court may
order him or her to pay compensation to the company equal to the amount of loss or damage
suffered by its creditors.
The Court may also impose upon the directors one of two types of civil penalty orders. The
first can include a fine not exceeding $200k or an order prohibiting directors from participating
in the management of a company. The second, where there is criminal intent and a
conviction, a director could also be imprisoned for up to five years or fined as well.
ASIC usually applies for civil penalty orders, while applications for compensation payable to
the company are usually made by a liquidator, or in specified circumstances, a creditor.
The substantive elements of Section 588G are:

A person must be a director of a company at a time when the company incurs a debt;

The company must be insolvent at that time or becomes insolvent by incurring the debt;
and
4345059_11

The director must have reasonable grounds for suspecting that the company is insolvent
or would so become insolvent by incurring the debt.
Summarised below are the defences contained in Section 588H:

The directors had reasonable grounds at the time the debt was incurred to expect the
company to be solvent and would remain solvent even after the debt was incurred;

The directors relied on another person to provide information about whether or not the
company was solvent;

The directors were ill or for some other good reason did not take part in the management
of the company; and

The directors took reasonable steps to prevent the incurring of the debt.
The directors advise that the Company was solvent at all times by reason of the surplus
working capital position, having regard to the parent entity guarantee and ultimate repayment
of the $7m working capital facility.
Further the directors advise that at all times they had a reasonable expectation of ongoing
parent entity support.
We consider the directors had a reasonable expectation of ongoing parent entity support for
the following reasons:




Extent of common directors;
Guarantee and ultimate repayment of HSBC’s facilities;
Guarantee provided in respect of a substantial property lease; and
Conversion of debt to equity of circa $10.6m on 28 March 2014.
A critical point again is from 25 June 2014 onwards.
The directors advise that parent entity support remained in place right until the appointment of
Administrators, with sufficient working capital available to meet trade creditor claims and
substantial cash at bank (circa $4m).
8.3.2 Commercial viability of any claim
A liquidator must form an opinion as to the date the company became insolvent and determine
the debts incurred from that date, thereby quantifying the loss to the company. The costs of
proceeding with an insolvent trading action must be considered as does the personal financial
capacity of the directors to pay a judgement obtained against them.
In considering further any insolvent trading analysis and progressing any claim, the following
should be recognised:

That any liquidator would be without funds, as all realisations are paid back to the secured
creditor;

That further investigation and prosecution of any claim by a liquidator would require
funding from unsecured creditors; and

As the ultimate parent entity is expected to be an unsecured creditor for between $23m
and $24m for the shortfall on its security, it would significantly dilute any return to
unsecured trade creditors as it would receive circa 80% of any dividend to creditors.
Having regard to the above, even if a claim existed, it would be uncommercial for a liquidator
to proceed with same.
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In these circumstances, creditors would need to consider the merits of bringing a claim in their
own right pursuant to Section 588T, again having regard to the various issues raised herein.
8.3.3 Holding company liability
Section 588V of the Act provides that a holding company may be held liable for the debts of a
subsidiary in certain circumstances. The substantive elements of Section 588V are:

The corporation is the holding company at the time when the company incurs a debt;

The subsidiary is insolvent at that time, or becomes insolvent by incurring that debt;

At that time, there are reasonable grounds for suspecting that the subsidiary is insolvent;

The holding company, or one or more of its directors, is aware at that time there are
grounds for suspecting the subsidiary is insolvent; or

Having regard to the nature and extent of the holding company’s control of the subsidiary’s
affairs, then it would be reasonable to expect that:
o
o
The holding company would be aware of the subsidiary’s financial position; or
At least that the holding company’s directors would also be aware.
We consider that the following entities would be considered ‘a holding company’ for the
purposes of Section 588V:

BAGP in its capacity a general partner to Britco Australia LP by virtue of its 100%
shareholding in the Company;

Britco International Inc by virtue of its 80% shareholding in Britco Australia LP and its
100% shareholding in Britco Australia GP Pty Ltd;

WesternOne Inc by virtue of its ultimate shareholding in Britco International Inc.
Section 588V is only enlivened if, and only if, it is found that the Company traded when
insolvent.
In relation to the ‘awareness’ or ‘control’ aspects of Section 588V, we note the following
relevant factors that ought to be taken into account:

The high degree of commonality of the directors of the Company as they were also
directors of BAGP, and Britco International Inc and were at least part of the management
team of WesternOne Inc.

Consolidated financial reports were prepared on a quarterly basis for the purposes of
WesternOne and its reporting obligations to the Toronto Stock Exchange and it therefore
had specific knowledge of the Company’s financial performance.

The Company prepared monthly management accounts which were submitted to the
directors. The directors therefore were informed on a monthly basis as to the financial
position of the Company.

Rolling weekly cashflow forecasts were prepared and submitted to the directors. The
directors therefore were aware of the ongoing funding requirements of the Company.

There was an ongoing involvement of those entities in the affairs of the Company by way
of mutual dealings which were recorded in intercompany loan balances.
4345059_11

There was a Canadian executive appointed from Britco Canada to work closely with the
local senior management team in the day to day operations.
The defences the holding companies may rely upon are set out in Section 588X and are
essentially the same as those a director may rely upon under Section 588H. Having regarding
to the actual circumstances and the commercial realities that the Company’s term loan and
working capital facilities were at all times guaranteed by its ultimate parent entity then it would
also be reasonable for the holding companies to argue same.
Even if a claim existed the Courts have held that, as a defence to such proceedings, a holding
company can offset any claim by a liquidator under Section 588W against monies owing under
an intercompany loan account.
Accordingly, potential counterclaims and set-offs against any claims brought against those
entities could include:

BAGP – a substantial right of contribution claim for monies repaid to HSBC (in excess of
$3m)

WesternOne Inc – an equitable set-off of $25.8m for monies repaid to HSBC that remain
outstanding against any insolvent trading claim.
Further we also note that circa 80% of any dividend to unsecured creditors would be paid to
related entities.
As such, a liquidator would not bring any such claim.
8.3.4 Presumption of insolvency – inadequate books and records
Failure to keep or retain adequate books and records in accordance with Section 286 of the
Act provides a rebuttable presumption of insolvency under Section 588E of the Act. A
liquidator can rely on the presumption of insolvency in litigation, including:


Compensation claims arising from insolvent trading; and
Recovery of voidable transactions from related entities.
The presumption cannot be relied upon in the recovery of an unfair preference except where
the recovery is sought from a related entity.
The Administrators are of the view that the Company maintained adequate books and records
in accordance with Section 286.
8.4
Potential liquidator recoveries – voidable transactions
A liquidator has the power to void certain transactions which are either not beneficial to, or
detrimental to a company. An administrator must identify any transactions that appear to be
voidable by a liquidator.
Enclosed at Annexure E is a creditor information sheet published by ARITA. This information
sheet details the types of transactions which a liquidator can seek to void.
8.4.1 Unfair preferences
A payment to a creditor is preferential if it is made at a time when the company is insolvent
and it results in the recipient receiving a greater return than they would receive if the payment
were set aside and the creditor lodged a claim in the liquidation.
4345059_11
Should a liquidator establish any such unfair preference payments, these amounts may be
recouped, thereby increasing the funds available to ordinary unsecured creditors. If a creditor
disgorges an unfair preference payment to a liquidator, the creditor is entitled to prove for
dividend. Therefore, whilst recovering an unfair preference increases the pool of funds
available to creditors, it also increases total creditor claims.
Our preliminary investigations into the Company’s affairs do not reveal any payments being
potentially voidable as unfair preferences:
8.4.2 Uncommercial transactions
A transaction is an uncommercial transaction if it is made at a time when the company is
insolvent and it may be expected that a reasonable person in the company’s circumstances
would not have entered into the transaction having regard to:


The benefits or detriment to the company of entering into the transaction; and
The prospective benefits to other parties to the transaction upon entering into it.
Should a liquidator establish any such uncommercial transactions, those transactions may be
set aside thereby increasing the funds available to ordinary unsecured creditors.
Our preliminary investigations, based on books and records in the Administrators’ possession,
do not disclose any transactions of an uncommercial nature which may lead to recoveries by a
liquidator in the event that the Company is wound up.
8.4.3 Unfair loans
Section 588FD of the Act provides that a loan to a company is unfair if the interest and
charges are extortionate. In considering whether interest and charges are extortionate, regard
must be had to:





Risk the lender is exposed to;
Value of security;
Term;
Repayment schedule; and
Amount of loan.
Based on our investigations to date, the Company was not a party to any unfair loans.
8.4.4 Unreasonable director-related transactions
Pursuant to Section 588FDA of the Act, a transaction is an unreasonable director-related
transaction of the company if:

The transaction is a payment, transfer of property, issue of securities or incurring of an
obligation by the company;

Made by the director or close associate of the director; and

That a reasonable person in the company’s circumstances would not have entered into
having regard to the benefit or detriment to the company or other parties.
Should a liquidator establish any such transactions, they may be set aside, thereby increasing
the funds available to unsecured creditors.
Our preliminary investigations do not reveal any unreasonable director-related transactions.
4345059_11
8.4.5 Obstruction of creditors’ rights
Section 588FE of the Act provides for the voiding of transactions designed to defeat, delay or
interfere with creditors rights.
Our investigations do not disclose any transactions intended to obstruct creditors’ rights.
8.4.6 Voidable charges
We have not identified any charges which may be voided by a liquidator.
8.5
Other potential liquidator recoveries
8.5.1 Compensation for breach of director duties
Based on our investigations to date, we have not identified any offences the directors may
have committed under the provisions of the Act.
8.5.2 Arrangements to avoid employee entitlements
Provisions contained in Part 5.8A of the Act commenced operation on 30 June 2000 and aim
to protect the entitlements of a company’s employees from agreements that deliberately
defeat the recovery of those entitlements upon insolvency.
Under Section 596AB(1) of the Act, it is an offence for a person to enter into a transaction or
relevant agreement with the intention of, or with intentions that include:


Preventing recovery of employee entitlements; or
Significantly reducing the amount of employee entitlements recoverable.
Based on our investigations to date, there has been no contravention of Part 5.8A of the Act
by any person.
8.6
Possible offences
Based on preliminary investigations, the Administrators have not identified any offences the
directors may have committed under the Act.
8.7
Other matters arising from investigations
8.7.1 Falsification of Books
Pursuant to Section 1307 of the Act, it is an offence for a person to engage in conduct that
results in the concealment, destruction, mutilation or falsification of any securities of or
belonging to the company or any books effecting or relating to affairs of the company.
If a breach is proven, Part 9.4 of the Act provides for criminal penalties only. Therefore, any
breaches of Section 1307 will not result in recovery of funds by a liquidator.
The Administrators’ preliminary investigations do not reveal any evidence of falsification of
books.
4345059_11
8.7.2 False or Misleading Statements
Pursuant to Section 1308 of the Act, a company must not advertise or publish a misleading
statement regarding the amount of its capital. It is an offence for a person to make or
authorise a statement that, to the person’s knowledge, is false or misleading in a material
particular.
The Administrators’ preliminary investigations do not reveal any evidence of any false or
misleading statements.
8.7.3 False Information
Pursuant to Section 1309 of the Act, it is an offence for an officer or employee to make
available or give information to a director, auditor, member, debenture holder, or trustee for
debenture holders of the company that is to the knowledge of the officer or employee:
a) False or misleading in a particular manner; or
b) Has omitted from it a matter the omission of which renders the information misleading in a
material respect.
The Administrators’ preliminary investigations do not reveal any evidence of any false
information.
8.8
Summary of potential liquidator recoveries
Table 26 summarises the potential recoveries by a liquidator in the event the Company is
wound up, subject to creditor funding to pursue same.
Table 26: Potential liquidator recoveries
Reference
High
Low
$’000
$’000
Unfair preferences
8.4.1
Nil
Nil
Uncommercial transactions
8.4.2
Nil
Nil
Unfair loans
8.4.3
Nil
Nil
Unreasonable director related transactions
8.4.4
Nil
Nil
Transactions undertaken to obstruct creditors’ rights
8.4.5
Nil
Nil
8.3.1 / 8.3.3
Nil
Nil
Breaches of directors duties
8.5.1
Nil
Nil
Avoidance of employee entitlements
8.5.2
Nil
Nil
Nil
Nil
Compensation from directors/holding company for insolvent trading
Total
8.9
Directors’ ability to pay a liquidator’s claims
We have not written to the directors of the Company to determine the personal financial
capacity of the directors to meet any potential liquidator action.
8.10
Report to ASIC
The Administrators do not intend to report to ASIC pursuant to section 438D of the Act.
4345059_11
Administrators’ opinions, dividend estimates and cost estimates
9
Pursuant to Section 439A(4)(b) of the Act, we are required to provide creditors with a
statement setting out the Administrators’ opinion on whether it is in the creditors’ interests for
the:



Company to execute a DOCA; or
Administration to end; or
Company to be wound up.
In forming our opinion, it is necessary to consider an estimate of the dividend creditors might
expect, and the likely costs, under each option.
9.1
No proposal for a DOCA
The Administrators have not received any proposal from the directors from a DOCA.
Therefore, no such proposal will be submitted to creditors.
9.2
Administration to end
Creditors may resolve that the administration should end if it appears the Company is solvent
or, for some other reason, control of the Company should revert to its directors.
Based on our preliminary investigations and analysis of the Company’s financial information,
the Company is insolvent. There appears to be no valid commercial reason why control of the
Company should revert to its directors.
If the administration were to end, there is no mechanism controlling an orderly realisation of
assets and distribution to creditors. In those circumstances, we are unable to say what the
Company might ultimately pay creditors or what costs it might incur.
Therefore, our opinion is that it is not in the creditors’ interest for the administration to end. It is
appropriate that the Company’s affairs be dealt with under Part 5.3A of the Act, as outlined in
section 9.3.
9.3
Winding up of Company
Based on the information in this report, the Administrators provide in Table 27 the estimated
outcome for each class of creditor, where the Company is wound up.
Table 27: Estimated dividend to creditors in a winding up scenario
Section
High
Low
$'000
$'000
656
656
656
656
(215)
(228)
Legal fees
(35)
(44)
Valuation fees, asset sale costs and commission, WH&S costs
(58)
(58)
Net non-circulating assets available to secured creditor (8323364 Canada Inc)
348
326
Non-circulating assets
Plant and equipment
5.1.5
Total non-circulating assets available to secured creditor (8323364 Canada Inc)
Less: Estimated realisation costs
Administrators' and Liquidators' fees
4345059_11
Section
Less: Amounts owed to secured creditor
5.1.10
Shortfall to secured creditor from non-circulating assets
High
Low
$'000
$'000
25,800
25,800
(25,452)
(25,474)
3,703
3,703
278
278
Circulating assets
Cash at bank
5.1.2
Pre-appointment BAS refund
Debtors
5.1.1
4,000
3,900
Prepayments
5.1.6
100
80
90
85
Other miscellaneous circulating proceeds
Stock
5.1.3
531
531
Estimated total net WIP
5.1.4
2,775
2,579
(2,000)
(2,000)
9,477
9,156
(1,938)
(2,050)
(311)
(392)
(76)
(76)
7,152
6,638
(1,867)
(1,867)
5,285
4,771
(5,245)
(5,245)
2,441
1,558
Shortfall to secured creditor from non-circulating asset realisations
(25,452)
(25,474)
Total shortfall to secured creditor
(22,971)
(24,390)
Nil
Nil
Less: Estimated trading overheads
Total estimated circulating assets available for distribution
Less: Estimated realisation costs
Administrators' and Liquidators' fees
Legal fees
Valuation fees, asset sale costs and commission, WH&S costs
Net circulating assets available for priority creditors
Priority employee claims
5.1.9
Net circulating assets available to secured creditor (8323364 Canada Inc)
Contingent Liabilities owed to 8323364 Canada Inc (Bank Guarantees)
Guarantees to be released and returned
Total assets available to unsecured creditors
In the event the Company were to be wound up, there will not be a dividend to unsecured
creditors.
As set out earlier in this report, there will be sufficient assets to pay a 100 cents in the dollar
dividend to employees in respect of employee entitlements.
The estimated return to the secured creditor is between $8.1m and $6.7m (inclusive of the
return of bank guarantees), resulting in a shortfall of approximately $22.9m and $24.3m in a
high and low scenario respectively.
The Administrators make the following comments:

The estimates provided above are subject to change.
4345059_11

Any costs associated with litigation, for example, recovering debtors, assets, or insolvent
trading claims are excluded.

Any additional liquidators’ costs associated with the above are excluded.

Any change in the estimate will only impact on the funds available for distribution to the
secured creditor.
10
Administrators' opinion
On the basis that no DOCA proposal has been received, and ending the Administration is not
a viable option due to the insolvency of the Company, it is the Administrators’ opinion that the
Company should be placed into liquidation and wound up.
11
Administrators' remuneration report
Pursuant to Section 449E of the Act, we enclose as Annexure D the Administrators’
Remuneration Request Approval Report. At the second meeting of creditors, we intend
seeking approval of the remuneration set out in the remuneration report. Details of
disbursements incurred are also included in the remuneration report.
12
Further information
ASIC has released several insolvency information sheets to assist creditors, employees and
shareholders with their understanding of the insolvency process. You can access the relevant
ASIC information sheets at www.asic.gov.au.
13
Additional matters and queries
The Administrators will advise creditors in writing of any additional matter that comes to their
attention after the dispatch of this report that, in their view, is material to creditors’
deliberations.
In the meantime, should creditors have any queries, please do not hesitate to contact Alissia
Bell of this office.
DATED this 25th day of November 2014
Tim Michael
Administrator
4345059_11
Glossary of terms
Abbreviation
Description
$
Australian dollars, unless otherwise specified
ABN
Australian Business Number
ACN
Australian Company Number
Act
Corporations Act 2001
Administrators /
Joint Administrators
Will Colwell, Tim Michael and Jim Sarantinos
ARITA
Australian Restructuring Insolvency & Turnaround Association
ASIC
Australian Securities and Investments Commission
ATO
Australian Taxation Office
BAGP
Britco Australia GP Pty Limited
BAS
Business Activity Statement
Company
APB Britco Pty Limited (Administrators Appointed)
DIRRI
Declaration of Independence, Relevant Relationships and Indemnities
DOCA
Deed of Company Arrangement
ERV
Estimated Realisable Value
FEG
Fair Entitlements Guarantee
FITB
Future Income Tax Benefit
HSBC
HSBC Bank Pty Ltd
ITSA
Insolvency and Trustee Service Australia
k
Thousand
m
Million
NPII
National Personal Insolvency Index
Parratech
Parratech Environmental Services Pty Ltd
PAYG
Pay As You Go withholding tax
PMSI
Purchase Money Security Interests
PPSA
Personal Property Securities Act 2009 (Cth)
PPSR
Personal Property Securities Register
ROT
Retention of Title
SGC
Superannuation Guarantee Charge
Statement
Directors’ Statement about the Company’s Business, Property, Affairs and
Financial Circumstances
United
United Forklifts
4345059_11
Abbreviation
Description
Westpac
Westpac Banking Corporation
WH&S
Workplace Health & Safety
WIP
Work in progress
4345059_11
Annexure
A Notice of meeting of creditors (Form 529)
4345059_11
25 November 2014
Form 529
Notice of Meeting
Subregulation 5.6.12(2)
APB Britco Pty Limited (Administrators Appointed) (“the Company”)
ACN 161 737 766
NOTICE is given that a meeting of creditors of the Company will be held at Christie Corporate
Centre, Katana Room, Level 2, 320 Adelaide Street, BRISBANE QLD 4000 on Thursday 4
December 2014 at 10.30am (AEST), 9.30am (AEDST), 8.30am (AWDST).
Agenda
1.
To consider a statement by the directors about the Company’s business, property,
affairs and financial circumstances.
2.
To consider the circumstances leading to the appointment of the Administrators to the
Company, steps taken by the Administrators following their appointment, and the
various options available to creditors.
3.
To resolve that:


The administration should end; or
The Company be wound up.
4.
If it is resolved that the Company be wound up, consider whether a Committee of
Inspection is to be appointed, and if so, the members of that Committee.
5.
If it is resolved that the Company be wound up, consider whether, pursuant to Section
477(2A) of the Corporations Act 2001 (“the Act”), creditors authorise the Liquidators to
compromise a debt owed to the Company up to a maximum limit of $250,000.
6.
That, pursuant to Section 477(2B) of the Corporations Act 2001, creditors authorise the
Liquidators to enter into any agreement on the Company’s behalf where:
a) the term of the agreement may end; or
b) obligations of a party to the agreement may, according to the terms of the
agreement, be discharged by performance; more than three months after the
agreement is entered into.
7.
If it is resolved that the Company be wound up, consider whether, subject to obtaining
the approval of the Australian Securities and Investments Commission (“ASIC”)
pursuant to Section 542(4) of the Act, the books and records of the Company may be
disposed of by the Liquidators 12 months after the dissolution of the Company or earlier
at the discretion of ASIC.
8.
To fix the remuneration of the Administrators.
9.
If it is resolved that the Company be wound up and no Committee is appointed, to fix
the remuneration of the Liquidators.
10.
Any other business that may be lawfully brought forward.
4542211_1
For a person to be eligible to attend and vote at the meeting on your behalf, a Form 532,
Appointment of Proxy, is to be completed and submitted by no later than 4.00pm on 3
December 2014, to:
c/- Ferrier Hodgson
GPO Box 838, BRISBANE QLD 4001
Tel:
Fax:
Email:
Note:
07 3831 4833
07 3831 3862
[email protected]
In accordance with Regulation 5.6.36A of the Corporations Regulations 2001, if a proxy is submitted by facsimile, the
original document must be lodged within 72 hours after lodging the faxed copy.
A company may only be represented by proxy or by an attorney appointed pursuant to
Corporations Regulations 5.6.28 and 5.6.31 respectively or, by a representative appointed
under Section 250D of the Act.
In accordance with Subregulation 5.6.23(1) of the Corporations Regulations, creditors will not
be entitled to vote at the meeting unless they have previously lodged particulars of their claim
against the Company in accordance with the Corporations Regulations and that claim has
been admitted, for voting purposes, wholly or in part.
Tim Michael
Administrator
4542211_1
Annexure
B Appointment of proxy (Form 532)
4345059_11
25 November 2014
Form 532
Appointment of Proxy
Regulation 5.6.29
APB Britco Pty Limited (Administrators Appointed) (“the Company”)
ACN 161 737 766
Instructions:
Please complete Sections A, B, C and D and submit in accordance with the Section E.
*
Strike out if inapplicable.
A. Name and Contact Details of Person or Entity Entitled to Attend Meeting
(if entitled in a personal capacity, given name and surname; if a corporate entity, full name of company, etc)
of
(address)
Tel:
Fax:
B. Appointment of Person to Act as Proxy
Note:
You may nominate “the Chairperson of the meeting” as your proxy (or your alternate proxy in the event that the first-named
proxy is not in attendance).
*I / *We, as named in Section A above, a *creditor / *eligible employee creditor / *contributory /
*debenture holder / *member of the Company, appoint
(name of person appointed as proxy)
or in his / her absence
(address of person appointed as proxy)
(name of person appointed as alternate proxy)
as *my / *our proxy
(address of person appointed as alternate proxy)
to vote at the second meeting of creditors to be held on 4 December 2014 at 10.30am (AEST),
9.30am (AEDST), 8.30am (AWDST), or at any adjournment of that meeting in accordance with
the instructions in Section C below.
C. Voting Instructions
Note:
A general proxy is entitled to vote on any resolution, subject to Regulation 5.6.33 of the Corporations Regulations 2001, as
they see fit at the meeting – tick the “general proxy” box.
A special proxy in entitled to vote only in accordance with your specific instructions – tick the “special proxy” box and indicate
your specific voting instructions by ticking one option only for each resolution for which you wish to give such instructions.
Your proxy may act as both a special proxy, in accordance with your instructions in relation to specific resolutions, and as a
general proxy, in relation to resolutions where you have not issued specific instructions – tick both the “general proxy” and
“special proxy” boxes. Your proxy will then be authorised to vote specifically in accordance with your instructions in relation to
those resolutions where specific instructions have been given, and generally in relation to resolutions where no specific
instructions have been given, and other business of the meeting.
*My / *Our proxy, as named in Section B above, is entitled to act as *my / *our :

general proxy, to vote on *my / *our behalf generally, as *he / *she determines, subject to
any specific instructions below, if applicable.
and / or

special proxy, to vote on *my / *our behalf specifically, in accordance with the following
special instructions: (for each resolution for which you wish to give specific voting instructions, please tick one option
only)
Resolution
For
Against
Abstain
1.
That the Administration should end.



2.
That the Company be wound up.



3.
That a Committee of Inspection be appointed, the members of












which are to be determined by the meeting.
4.
That, pursuant to Section 477(2A) of the Corporations Act
2001, creditors authorise the Liquidators to compromise a debt
owed to the Company up to a maximum limit of $250,000.
5.
That, pursuant to Section 477(2B) of the Corporations Act
2001, creditors authorise the Liquidators to enter into any
agreement on the Company’s behalf where:
a) the term of the agreement may end; or
b) obligations of a party to the agreement may, according to
the terms of the agreement, be discharged by
performance; more than three months after the agreement
is entered into.
6.
That, subject to obtaining the approval of the Australian
Securities & Investments Commission (ASIC) pursuant to
Section 542(4), the books and records of the Company be
disposed of by the Liquidators 12 months after the dissolution
of the Company or earlier at the discretion of ASIC.
Resolution
7.
For
Against
Abstain






That the remuneration of the Administrators, as set out in the
Remuneration Approval Request Report dated 25 November
2014, for the period from 1 November 2014 to 3 December
2014 (assuming second meeting of creditors is not adjourned)
be fixed up to a maximum amount of $262,000, plus any
applicable GST, but subject to upward revision by resolution of
creditors, and that the Administrators be authorised to make
periodic payments on account of such accruing remuneration
as incurred.
8.
That the remuneration of the Liquidators, as set out in the
Remuneration Approval Request Report dated 25 November
2014, for the period from the 4 December 2014 to the
completion of the Liquidation be fixed up to a maximum
amount of $200,000, plus any applicable GST, but subject to
upward revision by resolution of creditors, or the Committee of
Inspection should one be appointed, and that the Liquidators
be authorised to make periodic payments on account of such
accruing remuneration as incurred.
D. Signature
Dated:
Signature:
Name / Capacity #:
#
If an individual, insert full name
If a sole trader, insert in accordance with the following example: “full name, proprietor”
If a partnership, insert in accordance with the following example: “full name, partner of the firm named in Section A above”
If a company, pursuant to Regulations 5.6.28 and 5.6.31 of the Corporations Regulations 2001, it may only be represented by
proxy or attorney respectively, or by a representative appointed under Section 250D of the Corporations Act 2001. The
document appointing the proxy, attorney or representative must be in executed in accordance with Section 127 of the
Corporations Act 2001, in which instance, insert in accordance with the following example: “full name, director / secretary /
director/secretary of the company named in Section A above” or under the hand of some officer duly authorised in that capacity,
and the fact that the officer is so authorised must be stated in accordance with the following example: “full name, for the
company named in Section A above (duly authorised under the seal of the company)” – a copy of authority / power of attorney
is to be annexed.
E. Submitting the Proxy
For a person to be eligible to attend and vote at the meeting on your behalf, this form is to be
completed and submitted by no later than on , to:
c/- Ferrier Hodgson
GPO Box 838, BRISBANE QLD 4001
Tel:
07 3831 4833
Fax:
07 3831 3862
Email: [email protected]
Note:
In accordance with Regulation 5.6.36A of the Corporations Regulations 2001, if a proxy is submitted by facsimile, the original
document must be lodged within 72 hours after lodging the faxed copy.
Certificate of Witness (to be completed only in special circumstances – see below)
This certificate is only to be completed only if the person giving the proxy is blind or incapable of writing. The certificate of
the creditor, contributory, debenture holder or member must not be witnessed by the person nominated as proxy.
I
(name of witness)
of
(address of witness)
certify that the above instrument appointing a proxy was completed by me in the presence of and at the request of the person
appointing the proxy and read to him/her before he/she signed or marked the instrument.
Dated:
Signature:
Annexure
C Informal proof of debt
4345059_11
25 November 2014
Informal Proof of Debt for the Purposes of Voting
Regulation 5.6.47
APB Britco Pty Limited (Administrators Appointed) (the Company)
ACN 161 737 766
Name of creditor
Amount of debt claimed:
Consideration for debt:
Whether debt secured, preferential or
unsecured:
Details of claim to title to any goods and/or security including dates, etc:
Balance, if any, after deducting value of security (see note):
..........................................................................
Creditor (or person authorised by creditor)
Note:
Under the Corporations Regulations, a creditor is not entitled to vote at a meeting unless (Regulation 5.6.23):
a.
his claim has been admitted, wholly or in part, by the Liquidator; or
b.
he has lodged with the Liquidator particulars of the debt or claim, or if required, a formal proof of debt.
A secured creditor may vote (Regulation 5.6.24):
a.
for the whole of his debt provided that he surrenders his security;
b.
for the deficiency if the value of the security is less than the amount of the debt.
Proxies must be made available to the Liquidator
(see note)
Annexure
D Remuneration approval request report
4345059_11
25 November 2014
Section 449E
ACN 161 737 766 (the Company)
Remuneration Approval Request Report
1
Declaration
We, Jim Sarantinos, Tim Michael and Will Colwell of Ferrier Hodgson, have undertaken a
proper assessment of this remuneration claim for our appointment as Administrators of the
Company in accordance with the Corporations Act 2001 (Cth) (the Act), the Australian
Restructuring Insolvency & Turnaround Association (ARITA) Code of Professional Practice
(the Code) and applicable professional standards.
We are satisfied that the remuneration claimed is in respect of necessary work, properly
performed, or to be properly performed, in the conduct of the administration.
2
Executive summary
2.1
Summary of remuneration approval sought for the Company.
To date, remuneration totalling $1,820,045.00 (ex GST) has been approved by the
Committee of Creditors and paid in the administration of the Company. This remuneration
report details approval sought for the following fees:
Period
Amount (ex GST)
$
Past remuneration approved:
Voluntary administration
30 July 2014 to 31 August 2014
882,295.50
1 September 2014 to 30 September 2014
591,607.00
1 October 2014 to 31 October 2014
346,142.50
Total past remuneration approved
1,820,045.00
Current remuneration approval sought:
Voluntary administration
1 November 2014 to 3 December 2014
262,000.00
Total – voluntary administration*
262,000.00
25 November 2014
Page 2
Amount (ex GST)
$
Period
Current remuneration approval sought:
Liquidation
4 December 2014 to the completion of the Liquidation
200,000.00
Total – Liquidation*
200,000.00
* Approval for the future remuneration sought is based on an estimate of the work necessary to the completion of the
administration and liquidation. Should additional work be necessary beyond what is contemplated, further approval may be
sought from creditors.
Please refer to Section 3 and 4 for full details of the calculation and composition of the
remuneration approval sought.
2.2
Comparison to estimate of costs provided in Initial Advice to Creditors
The remuneration approval sought is within the estimate of costs advised at the meeting of
the Committee of Creditors held on 15 August 2014 of between $2.25m and $2.75m, plus
GST, which also included legal fees.
The Administrators refined their estimate of just their total costs (Administration and
Liquidation) in updates to the secured creditor, as follows:
Date
Low
High
21 August 2014
$2.36m
$2.51m
13 October 2014
$2.15m
$2.28m
Despite the collection of debts and return of bank guarantees being more protracted than
anticipated, our total estimated professional fees for both the Administration and Liquidation
will be $462,000.00, which is in line with the most recent estimate provided to the secured
creditor on 13 October 2014.
3
Description of work completed/to be completed
For statutory purposes, fees are required to be reported into the following seven categories:







Assets
Creditors
Employees
Trade on
Investigation
Dividend
Administration
25 November 2014
Page 3
3.1
Resolution 1
Company:
Administration Type:
Practitioners:
Period:
Task area
Assets
48.4 hours
$21,600.00
(excl GST)
Creditors
Voluntary Administration
Jim Sarantinos, Tim Michael and Will Colwell of Ferrier Hodgson
1 November 2014 to 3 December 2014
General description
Includes
Sale of business
 Ongoing assistance to Parratech
 Matters in connection with Deed of Novation of
customer contracts
Debtors
 Correspondence with debtors
 Ongoing review and assessment of debtors
ledger
 Matters relating to debtor disputes
 Matters in connection with Deeds of Releases
 Instructions to solicitors to prepare demand
notices to pre-appointment debtors
Other assets
 Regular sweeps and monitoring of preappointment bank accounts
 Monitor cash at bank and ongoing updates of
receipts and payments
 Assess recoverability and status of bank
guarantees
Second Meeting of
Creditors 439A Report
 Prepare 439A report to creditors
 Update cash flow, security position, summary of
bank guarantees, employee entitlements and
debtors for 439A report
 Finalise and issue 439A report
 Preparation for second meeting of creditors
Creditor enquiries
 Receive and follow up creditor enquiries via
telephone and email
 Review and prepare correspondence to
creditors and their representatives via facsimile,
email and post
 Discussions and dealings regarding unpaid subcontractors
 Dealings with Jandakot landlord in relation to
guarantee and releasing of same
329.4 hours
$129,100.00
(excl GST)
25 November 2014
Page 4
Task area
Employees
23.5 hours
$7,450.00 (excl
GST)
Trade on
150.6 hours
$52,950.00
(excl GST)
General description
Includes
Retention of title claims
 Preparation and negotiation of retention of title
settlement deed with claimants
Secured creditor
 Respond to secured creditor’s queries
 Reporting and calls with secured creditor
regarding status of the administration
Committee of Creditors
 Preparation of report and notice to Committee of
Creditors of meeting including remuneration
report
 Hold fourth meeting with Committee of Creditors
 Prepare minutes of meeting and lodge with
ASIC
Employee enquiries
 Discussions and emails with employees
regarding queries throughout
Calculation of entitlements
 Preparation of letters to employees regarding
notice, termination and entitlements owing
 Calculate and process payment of employee
entitlements
Workers compensation
claims
 Correspondence with insurer regarding ongoing
workers compensation insurance requirements
in QLD, NSW
 Cancel WA workers compensation
Superannuation
 Calculate and process payment of
superannuation calculations
Trade-on management









Ongoing liaison with staff on trading matters
Authorising purchase orders
Maintaining purchase order register
Preparing and authorising receipt vouchers
Processing payment of wages and employee
entitlements
Assess and process payments of necessity
associated with ongoing projects
Liaison regarding further amended preappointment BAS and exchange of creditor
information
Ongoing liaison with Black Diamond
Work required to obtain certification on final
project
25 November 2014
Page 5
Task area
Investigation
General description
Includes
Budgeting and financial
reporting
 Preparing budgets and cash flows
 Various meetings to discuss trading position and
cash flow
Conducting investigation
 Review Company’s books and records
 Review and preparation of Company nature and
history
 Preparation of investigation file
 Prepare updated July financials
 Conducting and summarising statutory searches
 Ongoing preparation of comparative financial
statements
 Prepare estimated outcome statement
 Review intercompany loan accounts
 Investigations for 439A report to creditors
Insurance
 Correspondence with broker regarding ongoing
insurance requirements
 Ongoing updates with broker regarding status of
administration
 Discussion with insurer regarding insurance
claims against the Company
Document maintenance /
file review / checklist
 Filing of documents
 File reviews
 Updating checklists
Bank account
administration
 Requesting bank statements
 Bank account reconciliations
 Ongoing correspondence with HSBC and
Westpac regarding transfers from preappointment accounts to Administrators’ account
ASIC forms
 Preparing and lodging ASIC forms
 Correspondence with ASIC regarding statutory
forms and lodgements
ATO and other statutory
reporting
 Complete and lodge BAS and payroll tax returns
and process payments
Planning / review
 Ongoing discussions and meetings regarding
status / strategy of administration
95.0 hours
$40,000.00
(excl GST)
Administration
31.3 hours
$10,900.00
(excl GST)
25 November 2014
Page 6
3.2
Resolution 2
Company:
Administration Type:
Practitioners:
Period:
Task area
Assets
Liquidation
Jim Sarantinos, Tim Michael and Will Colwell of Ferrier Hodgson
4 December 2014 to the completion of the Liquidation
General description
Includes
Debtors
 Ongoing correspondence with debtors
 Ongoing review and assessment of debtors
ledger
 Matters relating to debtor disputes
 Matters in connection with Deeds of Releases
 Instructions to solicitors regarding same
 Finalise matters in relation to debtors
Plant and equipment
 Finalisation of matters regarding asset
realisations
Assets subject to specific
charges
 Ongoing PPSR matters and resolution of same
Other assets
 Regular sweeps and monitoring of preappointment bank accounts
 Monitor cash at bank and ongoing updates of
receipts and payments
 Assess recoverability and status of bank
guarantees and liaise with holders of bank
guarantees
Creditor enquiries
 Receive and follow up creditor enquiries via
telephone and email
 Review and prepare correspondence to
creditors and their representatives via facsimile,
email and post
 Dealings with Jandakot landlord in relation to
guarantee and releasing
Second Meeting of
Creditors 439A Report
 Hold second meeting of creditors
 Prepare and lodge minutes for the second
meeting of creditors
Secured creditor
 Respond to secured creditor’s queries
 Reporting and calls with secured creditor
200.0 hours
$85,000.00
(excl GST)
Creditors
72.0 hours
$25,000.00
(excl GST)
25 November 2014
Page 7
Task area
General description
Includes
regarding status of the liquidation
Employees
10.0 hours
$3,650.00 (excl
GST)
Trade on
Committee of Inspection
 Correspondence with Committee of Inspection
 Preparation of report and notice to Committee of
Inspection of meeting including remuneration
report
Employee enquiries
 Discussions and emails with employees
regarding general queries
Calculation of entitlements
 Preparation of letters to employees regarding
notice, termination and entitlements owing
 Calculate and process payment of employee
entitlements
Workers compensation
claims
 Correspondence with insurer regarding ongoing
workers compensation insurance requirements
and cancelation of same
Superannuation
 Calculate and process payment of
superannuation entitlements
Other employee matters
 Prepare and send PAYG summaries to
employees
 Finalise employee matters
Trade-on management
 Ongoing liaison with staff on trading matters
 Preparing and authorising receipt vouchers
 Processing payment of wages and employee
entitlements
 Assess and process payments of necessity
associated with ongoing projects
 Finalisation of final project and other trade on
matters
Insurance
 Correspondence with broker regarding ongoing
insurance requirements
 Ongoing updates with broker regarding status of
administration
 Discussion with insurer regarding insurance
claims against the Company
 Cancelation of insurance and obtain refund of
same
175.0 hours
$74,000.00
(excl GST)
Administration
40.0 hours
$12,350.00
(excl GST)
25 November 2014
Page 8
Task area
General description
Includes
Document maintenance /
file review / checklist
 Filing of documents
 File reviews
 Updating checklists
Bank account
administration
 Requesting bank statements
 Bank account reconciliations
 Ongoing correspondence with HSBC and
Westpac regarding transfers from preappointment accounts to Administrators’ account
 Close bank accounts
ASIC forms
 Preparing and lodging ASIC forms
 Correspondence with ASIC regarding statutory
forms and lodgements
ATO and other statutory
reporting
 Complete and lodge BAS and payroll tax returns
 Cancel GST and payroll tax registration
Planning / review
 Ongoing discussions and meetings regarding
status / strategy of administration
25 November 2014
Page 9
4
Calculation of remuneration
4.1
Resolution 1 (1 November 2014 to 3 December 2014)
Task
Assets
Creditors
Employees
Trade on
Investigation
Dividend
Administration
Total
Hours
Amount
$
48.4
21,600.00
329.4
129,100.00
23.5
7,450.00
150.6
52,950.00
95.0
40,000.00
-
-
31.3
10,900.00
678.2
262,000.00
Please note that the above is an estimate only. If costs exceed the estimate, creditors will be
advised accordingly and further approval will be sought.
4.2
Resolution 2 (4 December 2014 to the completion of the Liquidation)
Task
Hours
Amount
$
200.0
85,000.00
Creditors
72.0
25,000.00
Employees
10.0
3,650.00
175.0
74,000.00
Investigation
-
-
Dividend
-
-
40.0
12,350.00
497.0
200,000.00
Assets
Trade on
Administration
Total
Please note that the above is an estimate only. If costs exceed the estimate, creditors, or a
Committee of Inspection if there is one, will be advised accordingly and further approval will
be sought.
25 November 2014
Page 10
5
Statement of remuneration claim
5.1
Resolutions to be put to the creditors at the Second Meeting convened for Thursday
4 December 2014.
At the second meeting of creditors, creditors will be asked to consider the following
resolutions:
5.1.1
Voluntary administration period
Resolution 1: 1 November 2014 to 3 December 2014
"That the remuneration of the Administrators, as set out in the Remuneration Approval
Request Report dated 25 November 2014, for the period from 1 November 2014 to 3
December 2014 be fixed up to a maximum of $262,000.00, plus any applicable GST, and may
be paid, but subject to upward revision by resolution of creditors, and that the Administrators
be authorised to make periodic payments on account of such accruing remuneration as
incurred."
Please note that the above is an estimate only. If any costs exceed the estimate, creditors
will be advised accordingly and further approval of the Administrators’ remuneration will be
sought in the future.
5.1.2
Liquidation period
Resolution 2: 4 December 2014 to the completion of the Liquidation
"That the remuneration of the Liquidators, as set out in the Remuneration Approval Request
Report dated 25 November 2014, for the period from 4 December 2014 to the completion of
the Liquidation to be fixed up to a maximum of $200,000.00, plus any applicable GST, and may
be paid, but subject to upward revision by resolution of creditors, and that the Liquidators be
authorised to make periodic payments on account of such accruing remuneration as incurred."
Please note that the above is an estimate only. Final costs depend heavily upon:



The debt collection process and outcome of discussions with debtors regarding same
and extent of legal litigation advice required;
The extent of involvement required to facilitate return of bank guarantees; and
Finalisation of all other matters in connection with Administration trading period.
If any costs exceed the estimate, creditors will be advised accordingly and further approval of
the Administrators’ remuneration will be sought in the future.
25 November 2014
Page 11
5.1.3
Remuneration approved and drawn to date
The Administrators’ remuneration approved and drawn to date is as follows:
Period
30 July 2014 to 31 August 2014 (ex GST)
Amount approved
$
882,295.50
Amount drawn
$
882,295.50
591,607.00
591,607.00
1 September 2014 to 30 September 2014 (ex GST)
1 October 2014 to 31 October 2014 (ex GST)
Total
6
346,142.50
1,820,045.00
1,473,902.50
Remuneration recoverable from external sources
The Administrators have not received, and are not entitled to receive, any funding from
external sources in respect of remuneration.
7
Disbursements
7.1
Types of disbursements
Disbursements are divided into three types:

Externally provided professional services. These are recovered at cost. An example is
legal fees.

Externally provided non-professional costs such as travel, accommodation and search
fees. These disbursements are recovered at cost.

Internal disbursements such as photocopying, printing and postage. These
disbursements, if charged to the administration, would generally be charged at cost;
though some expenses such as telephone calls, photocopying and printing may be
charged at a rate which recoups both variable and fixed costs. The relevant rates are set
out below:
Disbursement type
Charges (ex GST)
Advertising
At cost
Couriers
At cost
Mileage reimbursement
$0.76 per kilometre
Photocopying (colour)
$0.50 per page
Photocopying (mono)
$0.20 per page
Photocopying (outsourced)
At cost
Printing (colour)
$0.50 per page
Printing (mono)
$0.20 per page
Printing (outsourced)
At cost
25 November 2014
Page 12
Disbursement type
Charges (ex GST)
Postage
At cost
Searches
At cost
Storage and storage transit
At cost
Telephone calls
At cost
Note: Above rates are applicable for the financial year ending 30 June 2015
7.2
Disbursements paid from the administration to Ferrier Hodgson
The following disbursements have been paid from the administration to Ferrier Hodgson for
the period from 30 July 2014 to 30 September 2014.
Disbursements paid
Notes Basis
Total (excl GST)
$
Externally provided non-professional
services
Meeting advertising - ASIC
At cost
149.00
Courier
At cost
137.35
At cost
1,552.70
Taxi Fares (GST Free)
At cost
58.58
Taxi Fares
At cost
974.14
Search Fees
At cost
111.30
Storage and Storage Transit
Internal disbursements
At cost
1,456.17
Photocopying - mono
1,543 pages @ $0.20/page
Printing - mono
10,442 pages @ $0.20/page
2,088.40
Postage
Mileage Reimbursement
At cost
12,084 km @ $0.76 per km
526.56
9,184.11
Computer Hard Drive
At cost
258.71
Telephone Calls
At cost
1,419.66
Meeting Room Hire
Meeting Room Hire
(i)
At cost
2,746.10
Server Relocation
At cost
1,203.04
Stationery
At cost
6.30
Parking and Tolls
At cost
1,820.85
Total
(ii)
308.60
24,001.57
Notes:
(i)
(ii)
This relates to the cost to hire the meeting room for the first meeting of creditors held on 11 August 2014
This relates to boardroom hire costs for Company staff working at Ferrier Hodgson Brisbane office for the
period of 1 October 2014 to 30 November 2014, which is a pro-rata cost of the actual costs on a per sqm
allocation.
25 November 2014
Page 13
In relation to disbursements paid from the administration to Ferrier Hodgson for the period
from 30 July 2014 to 30 September 2014, we advise the following:

We have undertaken a proper assessment of disbursements claimed for the Company, in
accordance with the law and applicable professional standards. We are satisfied that the
disbursements claimed are necessary and proper.

Creditor approval for the payment of disbursements is not required. However, the
Administrators must account to creditors. Creditors have the right to question the
incurring of disbursements and can challenge disbursements in court.

Future disbursements provided by Ferrier Hodgson will be charged to the administration
on the same basis as the table in Section 7.1.
8
Report on progress of the administration
The Remuneration Approval Request Report must be read in conjunction with the report to
creditors dated 25 November 2014.
9
Summary of receipts and payments
A summary of receipts and payments for the period 30 July 2014 to 21 November 2014 is set
out in the table below:
Total
$
Receipts
Amounts transferred from bank accounts at appointment
3,703,396
Pre-appointment debtors – Modular
2,151,373
Pre-appointment debtors – Switchrooms
1,428,232
Other debtors – Black Diamond
397,892
Post-appointment debtors – Modular
1,973,501
Post-appointment debtors – Switchrooms
1,462,945
Circulating asset sales
584,056
Non-circulating asset sales
723,276
Interest received
Sundry Sales
19,449
1,194
Pre-appointment BAS refund
183,216
Post-appointment BAS refund
62,726
Pre-appointment wages overpayment recovered
12,729
Petty Cash Banked
FBT Refund
Other
Total receipts
5,035
233
1,000
12,710,251
25 November 2014
Page 14
Total
$
Payments
Wages
Employee entitlements
On costs on (wages and employee entitlements)
(581,265)
(1,228,988)
(625,082)
Sub-contractor payments
(2,614,955)
Leased premises rent
(1,240,743)
Supplier payments:
Contract Staff
(101,783)
Utilities
(76,344)
Insurance
(51,311)
Legal Fees
(315,911)
Grays Costs (WHS, Plant Hazard Reports, Valuations, Commissions on Sale of Assets) (143,647)
Other
(156,398)
Voluntary Administration Costs
Fees
(1,621,293)
Disbursements
(17,227)
Bank charges
(1,543)
Other
(2,011)
Total payments
Net receipts and payments
(8,778,501)
3,931,751
Represented by
Administrators cash at bank
620,270
Investment – Term deposits
3,311,481
Closing cash at bank as at 21 November 2014
3,931,751
10
Queries
If you require further information in respect of the above, or have other queries, please
contact Alissia Bell of this office on 07 3834 9296.
11
Information available
The partners of Ferrier Hodgson are members of ARITA. Ferrier Hodgson follows the Code.
A copy of the Code may be found on the ARITA website at www.arita.com.au.
25 November 2014
Page 15
An information sheet concerning approval of remuneration in external administrations can
also be obtained from the Australian Securities & Investments Commission website at
www.asic.gov.au.
Tim Michael
Administrator
Annexure
E Australian Restructuring Insolvency & Turnaround Association Creditor
Information Sheet
4345059_11
25 November 2014

Report to Creditors – 25 November 2014 25/11

Transcription

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