Riverline Enterprises Pty Ltd (Administrators Appointed) ACN ("the Company") Trading as Matera Construction

Transcription

1 Riverline Enterprises Pty Ltd (Administrators Appointed) ACN ("the Company") Trading as Matera Construction Administrators' Section 439A Report 20 April 2015 Matthew Donnelly Joint & Several Administrator David Hodgson Joint & Several Administrator 2015 Grant Thornton Administrators' Section 439A Report 20 April 2015

2 Contents Section Page 1. Executive summary 5 2. Introduction Background information Trading during the Administration Actions undertaken to date Offences, voidable transactions and insolvent trading Proposal for a deed of company arrangement/creditors' trust Estimated return from a winding up/deed of company arrangement Effect on employees Administrators' recommendation Remuneration Meeting 61 Appendices Page A. ASIC creditor information sheet 64 B. Estimated Outcome Statement 65 C. DIRRI 68 D. Administrators' Remuneration Report 69 E. Notice of second meeting of creditors 70 F. Proof of Debt form 71 G. Proxy form Grant Thornton Administrators' Section 439A Report 20 April

3 Glossary Administrators ARITA ASIC Section 439A Report ATO CGT Deed/DOCA DEEWR DIRRI Director(s) EBITDA Eligible Employee Creditor ERV Matthew James Donnelly and David Mark Hodgson, Voluntary Administrators of the Company appointed under Part 5.3A of the Corporations Act 2001 Australian Restructuring Insolvency & Turnaround Association Australian Securities and Investments Commission A report on the company's business, property, affairs and financial circumstances required to be given to creditors pursuant to Subsection 439A(4) of the Act; and A statement pursuant to paragraph 439A(4)(b) of the Act, setting out the Administrators' opinion and reasons as to each of the options available under Section 439C in respect of the company's future. Australian Taxation Office Capital gains tax Deed of Company Arrangement under Part 5.3A of the Act Department of Education, Employment and Workplace Relations Declaration of Independence, Relevant Relationships and Indemnities Phillip Matera Earnings before interest, tax, depreciation and amortisation Meaning given by Section 9 of the Act Estimated realisable value FEG FYXX GST IBA/ Secured Creditor k Leightons m Non-circulating PAYG PMSI PPSR Prospective Financial Information RATA ROT Fair Entitlements Guarantee Scheme Financial year ended 30 June 20XX Goods and Services Tax Indigenous Business Australia Thousands Leighton Contractors Pty Ltd Millions Fixed charge security interest Pay As You Go Purchase Money Security Interest Personal Property Securities Register Financial information based on assumptions about events that may occur in the future and possible action by an entity. It is highly subjective in nature and its preparation requires the exercise of considerable judgement. Report as to affairs Retention of Title 2015 Grant Thornton Administrators' Section 439A Report 20 April

4 Glossary Section 439A Report A report on the company's business, property, affairs and financial circumstances required to be given to creditors pursuant to Subsection 439A(4) of the Act; and A statement pursuant to paragraph 439A(4)(b) of the Act, setting out the Administrators' opinion and reasons as to each of the options available under Section 439C in respect of the company's future. Statutory priorities The priority for the payment of unsecured creditor claims set down in Subsection 553, 560 and 561 of the Act The Act Corporations Act 2001 The Shire WA WIP The Shire of Exmouth Western Australia Work in Progress YTD15 Year To Date ended 13 March Grant Thornton Administrators' Section 439A Report 20 April

5 Section 1 Executive summary 01. Executive summary 02. Introduction 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement/creditors' trust 08. Estimated return from a winding up/deed of company arrangement 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2015 Grant Thornton Administrators' Section 439A Report 20 April 2015

6 Executive summary Executive summary Background Information Refer to Section 3 Offences, voidable transactions and insolvent trading Refer to Section 6 Proposal for a Deed of Company Arrangement ("DOCA") Refer to Section 7 The Company was incorporated on 11 February 2005 in the state of Western Australia. The Company operated from sub-let premises at Unit 2, 32 Mumford Place, Balcatta WA The Company provided construction services including architectural design, sub-division, submissions, shop fittings, tilt-up construction and project management, however, experienced cash flow difficulties due primarily to a dispute with Leighton Contractors over payment of amounts claimed under the contract. This dispute and cash flow difficulties ultimately led to the appointment of Voluntary Administrators. For general information about offences under the Act, please refer to the enclosed ASIC creditor information sheet, at Appendix A of this report. Offences Our preliminary investigations have not identified any offences committed by the Director Voidable transactions Our preliminary investigations have identified payments totalling c$1,500,000 that may be considered preferential in nature and recoverable by a Liquidator. We have not identified any unreasonable director related transactions that would be recoverable. Further investigations into voidable transactions will be made by the Liquidators should the Company be wound up by creditors. Insolvent trading Our preliminary investigations to date indicate that the Company may have been insolvent from August A DOCA is a mechanism for dealing with creditors claims. A DOCA, if approved by creditors, binds all creditors of the Company arising on or before the date of the appointment of the Administrators unless otherwise specified. At the date of this report we have received a DOCA proposal from the Director, which incorporates the use of as Creditors' Trust. A Creditors' Trust in a DOCA is a mechanism used to expedite the completion of the administration. Once the DOCA is effectuated the control of the Company will return to the director, and once the trust is established the Company ceases to be externally administered. The creditors bound by the DOCA are transferred to the Trust and become beneficiaries of the trust. Creditors should be aware that the Creditors Trust is a separate legal structure to the Company under which your rights are being fundamentally changed. Creditors should take this into consideration when assessing the merits of the DOCA proposal. Creditors should be aware that at the date of issuing this report the secured creditor (IBA) is not prepared to provide the required release of its security under the current terms of the proposed arrangement, or otherwise support such an arrangement at this time. We understand the Director is seeking to resolve the secured creditor's concerns prior to the forthcoming second meeting of creditors. Until such time, the proposed DOCA and Creditors' Trust is not able to be contemplated by creditors as a viable option for the future of the Company. We anticipate being able to give creditors an update in this regard at the meeting and it may be that the secured creditor will be prepared to release its security interest as required and the DOCA can be voted upon by the creditors at the forthcoming meeting Grant Thornton Administrators' Section 439A Report 20 April

7 Executive summary Executive summary (cont'd) Estimated return from a winding up / DOCA Refer to Section 8 Effect on employees Refer to Section 9 Administrators' recommendation Refer to Section 10 The estimated return to priority creditors and unsecured creditors in a Liquidation scenario is dependent upon recoveries from preferential payments and (if pursued) the Leighton claim as detailed at Appendix B of this report. Whilst we have commenced a review of the Leighton claim, we are not currently in a position to comment of the merits of the claim, the likely recovery or whether pursuit of the claim is in the interests of creditors. Further assessment of the claim will be made by the Liquidators in the event creditors resolve to wind up the Company. Accordingly at this stage we are unable to estimate the likely return to unsecured creditors. Under the proposed DOCA we expect priority creditors will receive a dividend of 100 cents with payment to be made from the Initial Costs Amount. The return to unsecured creditors is dependent upon recoveries from the Leighton claim that will be pursued by the Director under the proposed DOCA. We are unable at this stage to quantify the likely recovery from this action. As detailed in Section 7, the net proceeds of any recovery from the claim will be provided to the Trust Fund after payment of the costs of the Litigation Funding and the IBA's outstanding claim. Please note that any estimates provided are subject to change. Based on the information provided, there were 2 people employed by the Company at the date of our appointment. One staff member was terminated by the Administrators shortly following our appointment, whilst the remaining employee has been retained on a limited basis to assist the Administrators. The Administrators will liaise with the Department of Employment to assist with the FEG Scheme, which will be available to employees should the Company be placed into Liquidation. Please note government funding of employee entitlements is discretionary and not available if the Company does not enter into Liquidation. Section 439A(4)(b) of the Act requires the Administrators of the Company to prepare a statement setting out their opinion on the outcome of the Company As detailed, whilst the Director has proposed a DOCA / Creditors' Trust the IBA has advised the Director that it is not prepared to provide the required release of its security under the current terms of the proposed arrangement, or otherwise support such an arrangement at this time. We understand the Director is seeking to resolve the secured creditor's concerns prior to the forthcoming second meeting of creditors. Until such time, the proposed DOCA and Creditors' Trust is not able to be contemplated by creditors as a viable option for the future of the Company. Further, as detailed in Section 7, pursuant to ASIC's Regulatory Guide 82: the reason for the Creditors' Trust may be an abuse of Part 5.3 of the Act; and An Administrator should not recommend a DOCA that uses a Creditors' Trust whereby the proposed value of the creditors trust fund cannot be reasonably estimated at the time the proposal will be voted on by creditors Grant Thornton Administrators' Section 439A Report 20 April

8 Executive summary Executive summary (cont'd) Administrators' recommendation (cont'd) Refer to Section 10 Remuneration Refer to Section 11 Meeting Refer to Section 12 Therefore based on the above it would not be in the best interests of creditors to resolve the Company execute the proposed DOCA. We anticipate being able to give creditors an update in this regard at the meeting and it may be that the secured creditor will be prepared to release its security interest as required and the DOCA can be voted upon by the creditors at the forthcoming meeting. It may also be necessary to adjourn the meeting, which we would not object to on the basis the adjournment allowed the proponent and the Secured Creditor to agree on a proposal that could be considered by creditors. Therefore, in the absence of any other option, the Administrators are of the opinion that it would be in the best interests of creditors that the Company be wound up. This option is recommended as the Company is now insolvent and creditors' claims need to be dealt with under a formal appointment. The Administrators' remuneration is to be approved by creditors at the forthcoming meeting of creditors. A Remuneration Report is enclosed at Appendix D, providing details of work performed to date, estimated future remuneration up to the second meeting of creditors and estimated remuneration of the Liquidators/Deed Administrators, depending on the creditors' decision of the outcome of the Company at the second meeting. The second meeting of creditors is to be held at the offices of Grant Thornton on Level 1, 10 Kings Park Road, West Perth WA 6005 at 3.00pm on Wednesday, 29 April Registration will open 30 minutes prior to the meeting The notice in regards to this meeting is enclosed at Appendix E A Proof of Debt and Proxy Form are enclosed at Appendices F and G and are to be returned to our office by no later than 4.30pm on 28 April Grant Thornton Administrators' Section 439A Report 20 April

9 Executive Summary Key events of the Administration The timeline below details the key statutory events of the Administration: Creditors, including the secured creditor, are notified of the appointment. The Administrator: 1. Prepares their s.439a report. 2. Undertakes investigations. End of convening period. Creditors receive s439a report. 13 March March March March April April April April 2015 Appointment of the Voluntary Administrators. First meeting of creditors held. Committee of Creditors appointed. The Administrators issues their s.439a report to creditors. Second Meeting of Creditors. Creditors to decide Company's future: 1. The administration ends; 2. The Company executes a DOCA; or 3. The Company is wound up. Formal investigations are required during the entire Administration period Grant Thornton Administrators' Section 439A Report 20 April

10 Section 2 Introduction 01. Executive summary 02. Introduction 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement/creditor's trust 08. Estimated return from a winding up/deed of company arrangement 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2015 Grant Thornton Administrators' Section 439A Report 20 April 2015

11 Introduction Appointment and first meeting Appointment of Administrators Matthew James Donnelly and, I, David Mark Hodgson were appointed Joint and Several Administrators ("the Administrators") of the Company under Part 5.3A of the Act on 13 March 2015 by the Director of the Company. The Administrators took control of the Company's business became responsible for the on-going trading, employee related matters and review of the Company's assets. The purpose of the appointment of Administrators is to allow for independent insolvency practitioners to take control of and investigate the affairs of an insolvent company. During that time creditors' claims are put on hold. At the end of that period we are required to provide creditors with information and recommendations to assist creditors to decide upon the Company's future. First meeting Pursuant to Section 436E of the Corporations Act 2001 the Administrators are required to call a meeting of creditors of the Company within eight (8) business days of our appointment. The First Meeting of Creditors was held on 23 March 2015 at the offices of Grant Thornton, Level 1, 10 Kings Park Road, WA 6005 and the appointment of the Joint and Several Administrators was confirmed by the creditors in attendance. At this meeting, pursuant to Section 436E of the Act creditors it was resolved to form a Committee of Creditors. The Committee of Creditors are as follows: Committee of Creditors Administrators Prior Involvement The Partners of Grant Thornton have not received any payments as an inducement for the acceptance of this appointment and the Partners of Grant Thornton have not paid any inducement to secure this appointment. Grant Thornton is not a creditor of the Company or its Directors, past and present. Matthew James Donnelly and I are not disqualified from acting as Administrators, Liquidators or Deed Administrators of the Company by virtue of the provisions of the Act or any other rules. I refer creditors to the Declaration of Independence, Relevant Relationships and Indemnities ( DIRRI ) which was attached to my previous report to creditors dated Wednesday, 13 March 2015 and tabled at the initial meeting of creditors in accordance with Section 436DA of the Act. Creditor Land Surveys No Problems Just Solutions Pty Ltd Madden Civil Pty Ltd (Ozwest Civil) Selected Plumbing Pty Ltd Wangara Classic Cabinets Representative Peter Rullo Joshua Madden Wade Smith Garry Goss 2015 Grant Thornton Administrators' Section 439A Report 20 April

12 Introduction Report to creditors Purpose of this report The purpose of this report is to provide creditors with sufficient information for them to make an informed decision about the future of the company, including: Background information about the company The results of our investigations The estimated returns to creditors Details of the proposed Deed of Company Arrangement; and The options available to creditors and our opinion on each of these options. In the time available to us, we have undertaken the following investigations to prepare this report and formulate our opinion: Conducted a preliminary investigation into the affairs of the Company utilising the books and records held by the Company and the Company s external accountants; Conducted a preliminary analysis into statutory investigations concerning: Preference payments; Voidable transactions; and Insolvent trading. Review of the financial position of the Company including recoverable property, other assets and liabilities. Review of writ and statement of claim relating to actions commenced against Leighton Contractors. At the meeting of creditors to be held on 29 April 2015, creditors will be asked to make a decision by passing a resolution in respect of options available to them. In this report we have recommended to creditors that the company be wound up and detailed why this option is, in our opinion, in creditors' best interests. The Administrators have relied on information provided from numerous sources to prepare the report, including: Discussions with the Director and management of the Company; Discussions with the Secured Creditor; Information available from public sources, such as, Australian Securities and Investments Commission (ASIC) and the Personal Property Securities Register (PPSR); and A review of the Company's books and records provided to date. Whilst we have no reason to doubt the accuracy of any information, we have not performed an audit and we reserve the right to alter our conclusions, should the underlying data prove to be inaccurate or change materially from the date of this report. In the event that the Company proceeds to liquidation, this report will form the basis of our further investigations. Provided that funding is available, the investigations will be more extensive than those undertaken to date, particularly due to the time constraints of the voluntary administration process. Further investigations may be supported by public examinations of the Director, officers and others who may be able to provide information about the Company's examinable as that expression is defined in the Act. It is the Administrators' view that this report provides sufficient information to creditors to allow them to make an informed decision as to the Company's future and allows the Administrators to make a reasoned and fair recommendation based upon their opinions and the opinions available to creditors Grant Thornton Administrators' Section 439A Report 20 April

13 Introduction Compliance, Independence and Communications Compliance with best practice We confirm that this report complies with the statements of best practice issued by the Australian Restructuring Insolvency and Turnaround Association (ARITA), with regard to content of the Administrators' report and the Code of Professional Practice with regard to remuneration. Independence As disclosed in our First Notice to Creditors dated 13 March 2015, the Administrators undertook a proper assessment of the risks in relation to their independence prior to accepting the appointment. Our assessment identified no real or potential risk to our independence. We confirm that there have not been changes to the DIRRI as stated in the initial Notice to Creditors. A copy of the DIRRI is enclosed at Appendix C for your information Communications with various parties The Administrators have liaised with various parties during the administration, including: All known creditors (including employees) via a creditor circular; The Director of the Company to understand the business' underlying activity, financial position and reason for failure; Indigenous Business Australia, the Secured Creditor, to better understand the background of the Company and the financing arrangements; and The Shire of Exmouth with regards to the Ningaloo Centre project. Disclaimer In reviewing this report, creditors should note the following: This report is based on information from the books, records and other information provided by the Director. Whilst the Administrators have reviewed the information, there has been no independent verification of the information. In considering the options available to creditors and formulating their recommendations, the Administrators have necessarily made forecasts of asset realisation and total creditors. These forecasts and estimates may change. Whilst the forecasts and estimates are the result of the Administrators' best assessments in the circumstances, creditors should note that the outcome for creditors may differ from the information provided in this report This report is not for general circulation, publication, reproduction or any use other than to assist creditors in evaluating their position as creditors and must not be disclosed without the prior approval of the Administrators The Administrators do not assume or accept any responsibility for any liability or loss sustained by any creditor or any other party as a result of the circulation, publication, reproduction or any use beyond that permitted above. The statements and opinions given in this report are given in good faith and in the belief that such statements are not false or misleading. Except where otherwise stated, we reserve the right to alter any conclusions reached on the basis of any changed or additional information which may be provided to us between the date of this report and the date of the second meeting. Neither the Administrators, nor any member or employee thereof are responsible in any way whatsoever to any person in respect of any errors in this report arising from incorrect information; and Creditors must seek their own independent legal advice as to their rights and the options available to them at the second meeting of creditors Grant Thornton Administrators' Section 439A Report 20 April

14 Section 3 Background information 01. Executive summary 02. Introduction 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement/creditor's trust 08. Estimated return from a winding up/deed of company arrangement 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2015 Grant Thornton Administrators' Section 439A Report 20 April 2015

15 Background Information Overview Background A search of the ASIC data base has shown that the Company was incorporated on 11 February The principal business activity of the Company is providing construction services including architectural design, sub-division, submissions, shop fittings, tilt-up construction and project management. Projects contracted to the Company were generally within Western Australia. The Company trades as a sub-tenant from premises leased by Matera Electrical located at Unit 2, 32 Mumford Place, Balcatta WA We are not aware of any formal documentation for the sub-leasing arrangement. Upon our appointment the Company had one contract on foot with the Shire of Exmouth ("the Shire") for work to be conducted on the Ningaloo Centre ("the Ningaloo Project"). We were advised by the Director that all work on the contract had been suspended shortly prior to our appointment. We understand the design phase of the project was near completion, however the Shire was in the process of seeking funding for the construction phase. On the 25 March 2015, the Shire issued the Company with a Notice to Show Cause, which required the Company to show cause in writing as to why the Shire should not exercise the right to terminate the contract on the grounds the Company had breached contact by way of a wrongful suspension of work. The Administrators advised the Shire that the Company was not in a position to resume works under the contract. We understand the Director is currently liaising with the Shire regarding the Company's ability to continue this project should the proposal for a Deed of Company Arrangement/Creditors' Trust be approved. However, as discussed at Section 7 the DOCA proposes that any amount, inclusive of retention funds held by the Company on the Ningaloo Project will not form part of the Deed Fund Registered office and principal place of business An ASIC search prior to our appointment noted: the registered office of the Company was Level 4, Havelock Street, West Perth WA the principal place of business of the Company was Unit 2, 32 Mumford Place, Balcatta WA 6021 Company officeholders and shareholders The Company search indicates that the Director and Secretary of the Company are as follows: Name Position Appointment Date Cessation Date Phillip William Matera Director/Secretary 24/02/2005 Current According to the ASIC database no changes had been made to the Company officeholders within the twelve months prior to the date of our appointment. To date we have not identified any other person who may be considered to be a shadow director of the Company. Shareholders Shareholder Class Shares Issued Susan Matera Ordinary 100 Searches of the ASIC database identified that the Director transferred his 100% shareholding in the Company to his wife, Susan Matera, prior to the commencement our appointment. We have sought confirmation from the Director as to the consideration for these shares and should we be appointed as Liquidators will review the commerciality of same upon receipt of further information Grant Thornton Administrators' Section 439A Report 20 April

16 Background Information Overview Secured creditors The Personal Property Securities Register (PPSR) is the register where details of security interests in personal property can be registered and searched. The PPSR replaced security interests previously recorded on Commonwealth, State and territory registers. These charges were transferred to the PPS Register on 30 January All PAAP no Exception replaces the former ASIC Fixed and Floating Charge. A Purchase Money Security Interest ( PMSI ) has a priority ahead of the general first registers rules (provided certain registration requirements have been met). This includes Security Interests formerly known as fixed charges as well as other specific interests (retention of title, bailment). A search of the PPSR indicates the existence of security interests held over the Company. These are detailed opposite. We note the following: The Administrators wrote to all parties shortly following appointment to request further details of their claims. A number of parties have discharged their registrations in light of this. After liaising with Mechanical Project Management Pty Ltd we note that their All PAAP with exception registration was incorrectly processed and we deem this to be invalid. The Company had five motor vehicle leases on the date of our appointment detailed as follows: Toyota Finance Australia Ltd - on review of the realisable value and the payout values to the financier, these four motor vehicles were disclaimed to the financier. BMW Finance Limited the fair market value estimate by Ross's Auctioneers & Valuers ("Ross's") indicates a potential surplus. We note however, that any equity in the vehicle would be subject to IBA's non-circulating charge and would therefore go towards reducing their liability. We are continuing to work with a number of parties in relation to motor vehicle and other goods registrations, these generally relate to goods or hire equipment which are no longer in the Company's possession (i.e. invalid registration). Name of Chargeholder Collateral Class PMSI Access Group Motor Vehicle Yes Access Group Other Goods Yes Aluminium Specialities Group Pty Other Goods Yes ATF Services Pty Ltd Other Goods Yes B & D Australia Pty Ltd Other Goods Yes BMW Finance Limited Motor Vehicle Yes Bondor Other Goods Yes Coates Hire Operations Pty Ltd Motor Vehicle Yes Coates Hire Operations Pty Ltd Other Goods Yes Complete Hire & Sales Pty Ltd Other Goods Yes Cooling Bros. Glass Company Pty Ltd Other Goods Yes Force Corp Pty Ltd Motor Vehicle Yes GCS Group Motor Vehicle Yes GCS Group Motor Vehicle Yes GCS Group Motor Vehicle Yes GCS Group Other Goods Yes GCS Group Other Goods Yes GCS Group Other Goods Yes Kennards Hire Pty Ltd Other Goods Yes Laminex Group Pty Ltd Other Goods Yes M. & B. Sales Pty Ltd Other Goods Yes Mechanical Project Management Pty Ltd All PAAP, Except Not Provided Mobile Dewatering Other Goods Yes Onesteel Other Goods Yes Onsite Rental Group Operations Pty Ltd Other Goods No Plascorp Pty Ltd Other Goods Yes Toyota Finance Australia Ltd Motor Vehicle No Toyota Finance Australia Ltd Motor Vehicle No Toyota Finance Australia Ltd Motor Vehicle No Toyota Finance Australia Ltd Motor Vehicle Yes Waco Kwikform Ltd Other Goods Yes Waco Kwikform Ltd Other Goods Yes 2015 Grant Thornton Administrators' Section 439A Report 20 April

17 Background Information Overview Indigenous Business Australia ("IBA") On 25 November 2013, the Company entered into a Loan Agreement with the Company for a business loan on the amount of $1,950,000. The purpose of the loan was to assist with the working capital requirements for the Elizabeth Quay Project. The outstanding payout figure as at the date of the Administrators' appointment was $1,450,420. The terms of the loan required the debt to be amortised over 14 months to be repaid as follows; $200,000 per month for months 6 to 13 inclusive, then; $350,000 plus all accrued and capitalised interest on or before the 14th Month The loan was secured by the following security documents and assets: 1. A registered security interest over all present and after acquired property registered on 19 December Personal guarantees provided by the Director and his wife supported by: a) Registered 2nd ranking mortgage over residential property. As at the date of our appointment, the Company was in arrears, although we note the Secured Creditor had not sought to enforce its security. We understand the Director's property has been sold and is due to settle in June The Director has advised that he intends to remit the net surplus proceeds of c.$750,000 to the IBA pursuant to the above mentioned personal guarantees. Should this occur it is likely the Director will subrogate as a secured creditor and be entitled to claim this amount against the Company once the IBA is paid in full. As detailed in Section 7 of this report, the Director has proposed a Deed of Company Arrangement ("DOCA") for creditors consideration. In its current form the DOCA relies upon the IBA agreeing to release or waive its entitlements under the above mentioned fixed and floating charge. The Director has been advised by the IBA's legal advisors that they are not prepared to provide such a release under the current terms of the proposed arrangement and have reserved all rights granted in accordance with the above detailed security documents. Outstanding or previous winding up applications A summary of winding up applications filed against the Company prior to the appointment of the Administrators is detailed below. The application made by Land Surveys No Problems Just Solutions Pty Ltd under section 459P of the Corporations Act was for the Company to be wound up by the Court in insolvency on the grounds that the Company has failed to comply with a Statutory Demand. The hearing was listed for Thursday 2 April 2015 but has since been adjourned to 21 May 2015 by consent from both parties. Winding up Applications Petitioning Creditor Date Status Land Surveys No Problems Just Solutions Pty Ltd 25/02/2015 Adjounred unitl 21 May 2015 The appointment of Administrators changes the relation back day and therefore the period in which payments made by the Company can be found to be preferential in nature and therefore recoverable by a Liquidator. The impact of this change is discussed further in Section Grant Thornton Administrators' Section 439A Report 20 April

18 Background Information Overview Books and Records Creditors should be aware that an Administrator is required to conduct an investigation into the position of the Company. In doing so, a preliminary review has been conducted of the books & records of the Company in our possession. Section 286 of the Act provides that a Company must keep written financial records that: correctly record and explain its transactions and financial position and performance; and would enable true and fair financial statements to be prepared and audited. The following books and records were provided by the Company; Detailed general ledger accounts from the Company's management accounting system for FY14 and YTD15; Detailed payroll information for the period 1 July 2014 to 13 March 2015 Aged receivable records and debtor invoices; The Company s bank account statements with Bank West for the twelve (12) months prior to appointment as Administrators; Pre Appointment Insurance Documents; Schedule of employee entitlements; Creditor correspondence (including various demands for payments); Secured creditor charge documentation; Creditors listing; Employee contracts; Documentation regarding the Company s lease agreements; Insurance certificates and policies; and Documents pertaining to the Company's claim against Leighton Contractors. Additionally, the Administrators have obtained copies of the Company's IT server, s and all intellectual property relating to the Ningaloo Project. Given the size and nature of the business operated by the Company, it appears that the Company s books and records are adequate to comply with Section 286 of the Act. Failure by the Company to maintain books and records in accordance with Section 286 provides a rebuttable presumption of insolvency of the Company. This presumption can be relied upon by Liquidators in an application for compensation for insolvent trading and other actions for recoveries pursuant to Division 2 of Part 5.7B of the Act from related entities. This is further discussed in Section 6 of this report. This opinion on the adequacy of the Company s books and records is an initial opinion based on investigations that have been carried out over a limited period of time. In providing this opinion we note that an audit has not been completed (nor will an audit be completed) of the Company s financial records. Further investigations will follow should creditors decide to wind-up the Company at the forthcoming meeting of creditors Grant Thornton Administrators' Section 439A Report 20 April

19 Background Information Historical financial information Figures presented below for the years ended 30 June 2013 and 30 June 2014 have been sourced from annual financial statements prepared by the Company's external accountant. Figures presented below for the 2015 financial year to the date of our appointment have been sourced from the Company's management accounts. These have not been audited and do not represent the view of the Administrators. They have been presented for information purposes only. Summarised Statement of Financial Performance $'000 FY13 FY14 1-Jul-14 to 13-Mar-15 Income Contract Income 11,632 17,974 10,372 Other Total Income 11,678 18,108 10,386 Expenditure Subcontractors (8,390) (14,348) (9,921) Materials (972) (1,258) (549) Employee Costs (1,323) (2,318) (2,565) Other Costs (954) (1,389) (749) Total Expenditure (11,639) (19,313) (13,784) Profit/(Loss) before income tax 39 (1,205) (3,398) Historical financial performance The income of the Company was derived from their construction contracts. There was a minimal amount of other income received. key projects over the historical review period included Zimbulis and Elizabeth Quay. The key cost of the business was payments to subcontractors, these made up over 70% of total expenditure incurred in each historical period. Employee related expenditure increased substantially from $1.3 million for FY13 to $2.6 million from 1 July 2014 to 13 March The Company generated losses of $1,205,000 and $3,398,000 in FY14 and FY15 respectively. Summarised Statement of Financial Position $'000 As at 30 June 2013 As at 30 June 2014 As at 13 March 2015 Current Assets 3,468 7,153 2,385 Non-Current Assets Total Assets 3,771 7,495 2,754 Current Liabilities (3,536) (8,466) (7,167) Non-Current Liabilities (185) (183) (140) Total Liabilities (3,720) (8,649) (7,307) Net Assets 51 (1,154) (4,552) Equity 51 (1,154) (4,552) Liquidity Ratios Current Ratio Net Asset Ratio Historical financial position Key movements in the statement of financial position related to: an increase in trade debtors and retentions receivable from $2.1 million at 30 June 2013 to $3.1 million at 30 June an increase of $2.7 million in accrued revenue from 30 June 2013 to 30 June an increase in trade creditors and retentions payable from $3.3 million at 30 June 2013 to $6.8 million at 30 June the loan provided by Indigenous Business Australia in the 2014 financial year. The Company operated under limited funding prior to this. The Company's current ratio consistently operated below a value of 1 which indicates potential solvency issues. This was partially mitigated as the Company maintained a significant cash balance and generally paid creditors as and when they fell due. Section 6 for further commentary regarding the Company's working capital Grant Thornton Administrators' Section 439A Report 20 April

20 Background Information Director's report as to affairs (RATA) (1 of 4) RATA Description Note Book Value ($) Director's Estimated Realisable Value ($) Assets not specifically charged Sundry Debtors 1 2,256,430 2,252,170 Cash on hand Cash at Bank 3 150, ,717 Plant and Equipment 4 213,097 3,000 Total Assets not specifically charges 2,620,344 2,405,987 Assets subject to specific charges Motor Vehicles 5 152, ,706 Amount owing to Charge Holder (147,099) (147,099) Net Assets subject to specific charges 5,086 1,607 Total Assets 2,625,430 2,407,594 Amount owing to Priority Creditors 6 10,000 10,000 Assets available to Secured Creditor 2,615,430 2,397,594 Amount owing to Secured Creditor 7 1,431, ,000 Assets available to Unsecured Creditors 8 1,184,023 1,647,594 Amount owing to Unsecured Creditors 5,776,216 5,776,216 Contingent Assets 9 4,132,427 4,132,427 Surplus/(Deficit) before Realisation and Administration costs (459,766) 3,805 Directors report as to affairs (RATA) Pursuant to Section 438B(2) of the Act, the Director of the Company is required to complete a statement about the Company's business property, affairs and financial circumstances, also known as the RATA. The RATA is a snapshot in time as at the date of our appointment of the assets and liabilities of the Company, disclosing book values and the estimated realisable value (ERV) for assets. On 13 March 2015 a written request was issued to the Director to complete the RATA for the Company. The Director provided the RATA to the Administrators on 31 March 2015 and a summary is presented opposite. We provide our comments on the RATA on the following page. Explanation for difficulties Director's explanation The Director has cited the failure of Leighton Contractors to pay the Company the amount the subject of the litigation claim as the main reason for the Company's financial difficulties and the need to appoint Voluntary Administrators. Administrators' opinion Our investigations into the affairs of the Company confirm that the Company's difficulties were brought about by reasons identified by the Director. We are also of the opinion that the Company's marginal profit in FY13 and trading losses in FY14 and YTD15 also contributed to the Company's failure Grant Thornton Administrators' Section 439A Report 20 April

21 Background Information Director's report as to affairs (RATA) (2 of 4) Administrators' comments on the RATA submitted by the Directors Note Item Administrators' comment 1 Sundry Debtors A breakdown of the debtors as detailed by the Director in the RATA is as follows; Details Amount Owing Amount Realisable Debtors 1,006,618 1,006,618 Employee Loan 16,000 16,000 Post 20 August Expense Claim 1,211,236 1,211,236 Unexpired Borrowing Costs 4,260 - Loan to Director 18,316 18,316 Total 2,256,430 2,252,170 Debtors Debtors consists of the following: Debtor Debtor Balance Administrators Comments Fyfield One Pty Ltd 67,441 Currently liaising with debtor re collection of amount owing Retention Balance 259,293 Leighton Contractors Pty Ltd - 559,726 Matera Electrical Services 55,315 owed by the Company totalling c.$525k. - Shire of Exmouth 20,231 Review of progress claims identified actual amount owing to company $200 Total 142, ,631 44,612 Administrators Comments Amount not due and payable until December 2015 and is subejct to review of defects and variations Amount currently disputed by debtor. We understand this forms part of the Company's claim again Leightons - Discussed further at Note 9 Unlikely to be recovered in a Liquidation scenario due to the notice to show cause and failure of the Company to complete the contract Based on the above, we believe the estimated realisable value of debtors and retentions to be $67,441 and $259,293 respectively Grant Thornton Administrators' Section 439A Report 20 April

22 Background Information Director's report as to affairs (RATA) (3 of 4) Administrators' comments on the RATA submitted by the Directors Note Item Administrators' comment 1 Sundry Debtors Continued Employee Loan The Company's management advise this has been outstanding with some time and that attempts to collect the debt have been unsuccessful. We have Details yet to determine the collectability of this amount. Amount Owing Amount Realisable Post Details Debtors 20 August Expense Claim Leighton Contractors ("Leightons") Amount 1,006,618 Owing Amount Realisable 1,006,618 The Debtors Employee Director Loan has advised this amount relates to sub-contractor 1,006,618 16,000 expenses incurred on the 1,006,618 16,000 Elizabeth Quay project post 20 August 2014 for which Leightons Employee Post 20 August advised Loan Expense they Claim would - Leighton pay. Contractors From our discussions 1,211,236 with the Company's management 16,000 1,211,236 we are of the opinion this amount has been incorrectly 16,000 classified Post Unexpired as 20 August Borrowing a debtor Expense Costs and instead should be included in the Claim - Leighton Contractors 1,211,236 4,260 amount claimed by the Company 1,211,236 -against Leightons, discussed further at Note 9. Accordingly, Details Amount Owing Amount Realisable Unexpired Loan to Director Borrowing we have Costsnot considered the collectability of this 18,316 4,260 amount as a sundry debtor 18,316 - Unexpired Debtors Loan Total to Director Borrowing Costs 1,006,618 2,256,430 18,316 1,006,618 2,252,170 18, Cash on hand Cash at Bank Employee Total Loan 2,256,430 16,000 2,252,170 16,000 Not recoverable Post 20 August Expense Claim - Leighton Contractors 1,211,236 1,211,236 Loan Unexpired to Director Borrowing Costs 4,260 - We Loan understand to Details Director this amount relates payments in lieu of wages Amount 18,316and Owing salary. We are currently Amount 18,316 Realisable reviewing this matter to confirm same Total Debtors 2,256,430 1,006,618 2,252,170 1,006,618 Represents Employee the Loan limited cash on hand at the date of appointment. 16,000 16,000 The Company Post 20 August operated Expense a Claim bank - Leighton account Contractors through Bank of Western 1,211,236 Australia. At the date of 1,211,236 appointment the balance of the account was $150,716. All monies Unexpired held Borrowing the Company Costs bank balance as at the date of appointment 4,260 have now been transferred - to the Administrators' account. Loan to Director 18,316 18,316 4 Plant and Equipment Plant Total and Equipment as detailed by the Director reflects the written 2,256,430down value of all of the 2,252,170 Company s fixed assets and incorrectly includes amounts for motor vehicles leased from third parties. Based on an independent valuation obtained following our appointment, we expect the estimated realisable value of Plant & Equipment to be between $2,000-$5,000. As previously advised, any funds received from fixed assets realisations would fall under the IBA's security interest and would therefore not be available for the benefit of unsecured creditors. 5 Motor Vehicles The value included by the Director reflects the pay-out value and pay out amounts for five (5) financed motor vehicles held by the Company. The Director has incorrectly netted each financier against each other in aggregate. We confirm however, that based on review four (4) of the vehicles do not hold any equity and have therefore been disclaimed. Based on the independent valuation obtained, we understand there is estimated equity of c$20,000 in the remaining vehicle. In addition, the Company owns one encumbered vehicle which has been valued at c$9,000. Accordingly, an amount of $29,000 should be the estimated realisable value for net assets subject to specific charges and not $1,607 as detailed above Grant Thornton Administrators' Section 439A Report 20 April

23 Background Information Director's report as to affairs (RATA) (4 of 4) Administrators' comments on the RATA submitted by the Directors Note Item Administrators' comment 6 Amount owing to Priority Creditors 7 Amount owing to Secured Creditor 8 Amount owing to Unsecured Creditors At the date of our appointment the Company employed 2 staff members. The amount included by the Director at this item reflects balance sheet employee entitlements at the date of appointment of these 2 employees. It therefore does not include any provision for redundancy and payment in lieu of notice entitlements. Our preliminary assessment of total employee entitlements indicates amounts owing of approximately $20,000 to $22,000. This amount relates to amounts owing to the IBA under a loan agreement entered into with the Company on 25 November The Director has attributed an ERV of $750,000 to this debt, which reflects the anticipated pay out to the IBA after payment of the net sale proceeds from the director's personal property. Whilst the director has included the net amount owed to the IBA in his RATA we note that in a Liquidation scenario the director will likely subrogate as a secured creditor and be entitled to claim this amount against the Company once the IBA is paid in full. Under the proposed DOCA at Section 7 of this report the director, as a Non-Participating Creditor, will only claim for any such amount as an unsecured creditor and will not participate in any dividends until such time unsecured creditors of the Company have received 40 cents in the dollar. Unsecured creditors consists of trade creditors including retentions owing, related party claims and the ATO, as per the Company's records at the date of appointment. To date we have received proofs of debt from unsecured creditors totalling $4,046,840. We have yet to receive a proof of debt from the ATO. The final amounts owed to unsecured creditors will be determined if and when an adjudication process is undertaken. 9 Contingent Assets On 24 February 2015, in the Supreme Court of Western Australia, the Company filed a writ of summons against Leighton Contractors Pty Ltd in the amount of $4,123,427. The claim relates to monies owed pursuant to a works contract for the performance of work in relation to Elizabeth Quay, for claims up to and including 20 August The Administrators have commenced their review of this claim and have continued to compile the necessary information to support a statement of claim. However, at the date of this report, we are not in a position to comment of the merits of the claim, the likely recovery or whether pursuit of the claim is in the interests of creditors. Further assessment of the claim will be made by the Liquidators in the event creditors resolve to wind up the Company. 10 Surplus before Realisation & Administration Costs Whilst the Director's RATA provides for a surplus of assets subject to the costs of the Administration we note that the surplus is contingent upon the extent of the recovery of the Leighton claim. In this regard we refer to our above comments. Further, in our opinion the Director has understated a number of liabilities, including the debt owed to the secured creditor which would result in a deficiency if included at the appropriate amounts Grant Thornton Administrators' Section 439A Report 20 April