Makin & Luby Pty Ltd (In Liquidation) ACN (the Company)

Transcription

1 Makin & Luby Pty Ltd (In Liquidation) ACN (the Company) Joint and Several Liquidators Statutory Report to Creditors Thursday, 25 January 2018 Andrew Hewitt Joint and Several Liquidator T (03) E andrew.hewitt@au.gt.com.au Matthew Byrnes Joint and Several Liquidator T (03) E matt.byrnes@au.gt.com

2 Introduction We refer to our appointment as Joint and Several Administrators of Makin & Luby Pty Ltd (In Liquidation) ( the Company ) on 25 September 2017 and subsequent appointment as Joint and Several Liquidators ( the Liquidators ) on 31 October 2017, pursuant to a resolution passed by creditors of the Company. We note that this Report should be read in conjunction with our other reports issued to creditors dated 26 September 2017, 23 October 2017 and 8 November The purpose of this report is to: Provide you with an update on the progress of the liquidation; and Advise you of the likelihood of a dividend being paid in the liquidation. We have relied on information provided from numerous sources to prepare this report, including: Discussions with the Directors, management and staff members of the Company; Discussions with the creditors and other stakeholders; 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. Update on the progress of the liquidation Circumstances leading to the winding up The circumstances leading to the appointment of Matt Byrnes and I as Joint and Several Administrators of the Company was discussed in detail in my Voluntary Administrators Report dated 23 October In this report and at the second meeting of creditors on 31 October 2017, it was advised to creditors than in our opinion the Company was insolvent and therefore there needed to be a mechanism to deal with creditors claims. Given no Deed of Company Arrangement was put forward by any party, we recommended that the Company be placed into Liquidation and at the second meeting of creditors the Company s creditors resolved to wind up the Company. At this meeting Matt Byrnes and I were appointed Joint and Several Liquidators of the Company. As you may be aware, we traded the Company s business during the Voluntary Administration period until 23 October On 23 October 2017 trading of the Company s business was licensed to Ferntree Gully Auto Sales Pty Ltd (FTGAS) (trading as CD Motor Group) who assumed the trading responsibility and ongoing operations of the Company. Accordingly, the business of the Company is still continuing to trade under the control of FTGAS with the view to completing the sale of the Company s business and assets to FTGAS in the near future. Details of the sale are discussed further on page 4 of this report. Assets and liabilities The Directors of the Company are required to complete and provide to the Liquidators a statement about the Company's business, property, affairs and financial circumstances, also known as the Report as to Affairs ( 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 Directors opinion on the estimated realisable value (ERV) for assets. 2

3 On 2 October 2017 a written request was issued to the Directors to complete the RATA for the Company. A summary of the RATA received from the Directors together with the Liquidators estimated value (ERV) of the assets and liabilities is provided in the table below. Directors' Report as to Affairs $'000 Notes Book Value Directors' ERV Liquidators' ERV Assets Interest in land Sundry debtors Withheld Cash on hand Cash at bank Inv entory & WIP Plant and equipment Other assets Net assets subject to security interests Contingent assets Withheld Total Assets 3,385 2, Liabilities Employee entitlements: 8 Annual leav e Leav e Loading (incl abov e) (incl abov e) 28 Long serv ice leav e PILN N/A - assume all employ ees transferred 77 Redundancy to purchaser upon settlement. 174 Superannuation Unsecured creditors 9 4,633 4,633 5,139 Total Liabilities 5,346 5,346 5,889 Estimated Surplus (Deficiency) (1,961) (3,107) (5,073) We provide the following comments with respect to the Directors RATA: 1. Sundry debtors are made up of loans receivable balances detailed in the Company s balance sheet and the Directors RATA at the date of our appointment. We have written to each party requesting repayment of these amounts or details of any dispute and the responses received will form part of our estimated realisable value calculation. 2. As advised in our report dated 23 October 2017, Cash at Bank represents the value of cash in the Company s bank account as at the date of our appointment. Soon after our appointment the business bank deducted funds totalling c.$83k from the account to offset an outstanding credit card liability. Shortly after, the Liquidators wrote to the bank seeking recovery of the amount or alternatively supporting documents providing for their right of set off. We received a response to this letter early this year and are currently reviewing the position. 3. The inventory and WIP amounts represent parts stock on hand at the date of our appointment. Given limitations of the Company s system we were not able to track sales of stock on hand at the date of appointment separately to sales of stock purchased by the Administrators during their trading period, however based on the information available to us we have estimated that a total of c.$264k was realised to date from parts stock on hand at the date of appointment. We are still working through the realisation of a small portion of remaining stock to which suppliers have alleged security interests in the stock. 3

4 4. To date, the Liquidators have realised c. $12.7k in plant and equipment expect to receive c.$150k from the sale of remaining plant and equipment upon completion of the sale of business and assets, pursuant to the executed Business Licence and Sale Deed. We note that there is one remaining secured creditor who are entitled to receive the proceeds of the sale of assets subject to their security interest (which includes the plant and equipment of the Company) less any reasonable costs incurred in realising those assets. 5. Other assets in the Directors RATA consist of security deposits, a bond for leased premises and primarily goodwill, which all now have little or no value now that the Company is in liquidation. 6. Net assets subject to security interests consists of: a. Vehicles financed by the floorplan facility provided by Macquarie Bank Limited, from which there was no equity in the assets available to the Liquidators; and b. Accounts receivable balances at the date of appointment financed by the invoice discounting facility with Scottish Pacific (BFS) Pty Ltd. To date, the Liquidators have realised c.$247.5k over and above the secured debt and are continuing to pursue recovery of the remaining debts. We have engaged a debt collector to assist in this regard. 7. Contingent assets include bonuses, rebates, holdbacks and warranty claims from the franchisors. These amounts are still subject to collection and the ERV has been withheld as commercially sensitive. 8. We note that the Directors did not include an estimate for PILN or redundancy in their RATA as they anticipated that all employees would be transferred with the sale of business. The Liquidators ERV represents the pre-appointment entitlements of those employees whose employment was terminated either via redundancy or resignation (except for superannuation which is calculated for all employees) as there are a number of employees that remain employed by the Company and whose employment is likely to transfer to FTGAS upon second completion of the sale of business. 9. These values have not been verified by the Liquidators and are subject to change. Sale of Business Prior to and upon our appointment we undertook an urgent assessment of the Company s financial ability to continue trading as well as the benefits to creditors in maintaining the going concern value of the business by trading. Following this assessment of the Company s position, we decided to continue trading the business for a short period of time to preserve the value of the Company s business and work towards completing the sale subject to the Heads of Agreement signed prior to our appointment. From 23 October 2017, trading of the business was licensed to the purchaser (FTGAS) pursuant to a Business Licence and Sale Deed (the Deed). The Deed accounted for two stages of completion, for which a high level summary of each is provided below: 4

5 First completion (occurred on 6 November 2017): Trading of the business was licenced to FTGAS with effect from 23 October Sale of Hyundai parts stock at values agreed in the Heads of Agreement. Sale of consumables stock at book value. Sale of all vehicles subject to the Macquarie floorplan finance at agreed values (the proceeds of which were paid directly to Macquarie as the secured creditor). Sale of Company owned vehicles at agreed values. Second completion (yet to complete): Occurs upon election by the purchaser and upon giving notice to the Company. The business of the Company is assumed by FTGAS (trading no longer licenced). Nominated employees are transferred to the purchaser and the entitlements of transferring employees (excluding superannuation) are assumed by the purchaser. The entitlements transferred are to be offset by the parts stock value received at first completion. Sale and transfer of domain names and other intellectual property. Sale of plant and equipment at the agreed value of $150k. The delay in second completion is due to the purchaser being unable to enter into lease agreements with each of the landlords of the operating premises. We will update creditors in due course upon the status of second completion. Investigations and possible recovery actions Investigations undertaken To date, we have undertaken the following investigations: What happened to the business of the Company; Insolvent trading review; Director related offences review (criminal and civil); Voidable transaction review (unfair preference payments, unfair loans and unreasonable director related transactions); and Investigations into any potential shadow directors. Our findings of these investigations are detailed below. What happened to the business of the Company The Company was incorporated in the State of Victoria on 13 March 2008 and ran Hyundai and Suzuki automotive dealerships (Sales and service), in addition to being a spare parts wholesaler for Hyundai, Suzuki and Subaru. The business was purchased by the Directors in 2008 and operated from three locations in Victoria. The Directors advised that in mid-2016, they engaged with their financial advisors to sell the business. A sale campaign was undertaken which identified a suitable buyer and progressed to executing conditional contracts. These contracts were entered into around March However, after prolonged delayed, ultimately the purchaser was unable to progress to settlement and therefore the contract was terminated in August

6 Given the previously extensive sale campaign, a second short sale campaign quickly identified an alternate purchaser for the business; however the price offered was substantially less than the previous contract. Once it became clear that the sale contract would not result in the secured creditors, landlords and financiers being paid in full in order to release security over the Company assets, the Directors made the decision to place the Company into Voluntary Administration. Further to the above, the Directors also identified the economic difficulties in the industry compounded by a loss of support from key suppliers attributed to the Company s failure. Our investigations have not given us reason to disagree with the Director s explanation, in particular regarding the prolonged and ultimately unsuccessful sale. In addition, we also note that Subaru terminated the wholesale parts agreement on 19 September 2017 which meant the loss of a significant portion of their parts business. Insolvent trading We have reviewed both the cash flow and balance sheet tests of insolvency and our initial review has determined that the Company was insolvent prior to the date of appointment of the Administrators. We have considered the following factors in our initial review: Significant liabilities owed to the Australian Tax Office without any substantial repayments. A gradually worsening aged creditors position. The failure to settle on the contract with the first interested purchaser of the business. A net asset deficiency. Ongoing trading losses and decreasing gross profit margins. We are yet to determine the actual date of insolvency or quantify any potential insolvent trading claim against the Directors of the Company, however this will be investigated in determining whether to pursue an insolvent trading claim or other voidable transaction recoveries (discussed further below). The likelihood of recovery of any insolvent trading claim will also need to be assessed prior to taking any action. Voidable transactions Our preliminary investigations have not identified any recoverable uncommercial transactions, unfair loans or unreasonable director related transactions that are commercial to pursue. Our preliminary investigations have uncovered payments totalling c.$257.7k to third parties during the relation-back period from the determined date of insolvency that may potentially constitute unfair preference payments. We are currently reviewing these preference payments in more detail to determine the recoverability of these amounts, however we expect to issue notices to some or all of these parties shortly. Further inquiries to be undertaken We plan to undertake the following further investigations: Firm up the Company s determined date of insolvency and assess the recoverability of any potential insolvent trading claim. Review circumstances of identified potential preference payments in detail and issue notices to the relevant parties as appropriate. 6

7 Receipts and Payments to date Below is a summary table of the Liquidators receipts and payments for the period 25 September 2017 to 23 January VA period ($) 25 Sep Oct 17 Liquidation period ($) 1 Nov Jan 18 Total ($) (incl GST) Receipts Pre-appointment debtor collections 789, ,064 1,078,489 Less distribution to Secured Creditor (478,939) (353,144) (832,082) Post-appointment trading sales (v ehicles & parts) 370,572 57, ,117 Less distribution to Secured Creditor (v ehicle sales) (159,829) - (159,829) Sale of Hy undai stock & consumables to FTGAS 208, ,815 Vehicle debtors and deposits receiv ed in error 115, ,576 Pre-appointment v ehicle debtors 72,775 (2,500) 70,275 Cash at bank on appointment 65,236-65,236 Other income 19,089 12,567 31,656 Plant and equipment - 14,000 14,000 Unallocated debtor receipts - 11,083 11,083 Receipts total 1,002,720 28,616 1,031,336 Payments Staff w ages and on costs (215,656) (56,978) (272,634) Rent & Rates - (106,733) (106,733) Motor v ehicle parts (925) (45,905) (46,829) GST control 312 (35,628) (35,316) Professional fees (4,946) (16,651) (21,597) Agent's fees - (21,423) (21,423) Sundry operating ex penses (9,911) (9,347) (19,257) Repairs & Maintenance (15,904) - (15,904) Freight - (14,817) (14,817) Post-appointment employ ee entitlements pay out - (12,114) (12,114) Motor v ehicle ex penses (6,297) (5,374) (11,671) Insurance - (10,430) (10,430) Bank charges (2,214) (2,641) (4,856) Pay ments total (255,541) (338,040) (593,581) Net receipts/(payments) 747,180 (309,424) 437,756 Other matters Matters still outstanding include: Settlement of second completion of the sale of business. In the event second completion is not achieved the Liquidators will be required to cease trading the business under the licence and deal with the remaining employees and assets of the Company. Assisting the purchaser with any ongoing trading issues during the licence period in order to achieve second completion. Collection of Company debtors. Collection of loans receivable amounts. Pursuit of any potential preference claims. Complete my investigations into the Company s affairs. Finalisation of the Administrators trading liabilities. Assisting the Commonwealth Department of Employment with verification of employee claims submitted to the Fair Entitlements Guarantee (FEG) Scheme. 7

8 Complete my reporting to the corporate insolvency regulator, ASIC. Subject to timing of the above tasks, the expected timeframe for completion of the liquidation is within the next 12 months. Likelihood of a dividend The likelihood of any dividend being paid to creditors is likely to be contingent on the recovery of loan receivable amounts and any potential voidable transaction claims. At the current time, there is not expected to be sufficient funds realised from the assets of the Company to pay a dividend to priority or unsecured creditors. However, should this change and we do declare a dividend, creditors will be contacted and asked to submit a proof of debt. This formalises your claim in the liquidation and is used to determine all claims against the Company. Cost of the liquidation As previously advised in our initial information to creditors, we had estimated that our total remuneration for the liquidation to be $50,000 (excl. GST and disbursements). To date we have incurred time in excess of this amount, however we expect there to be limited funds to pay our costs in full and as such are not requesting any further fee approval from creditors at this stage. What happens next in the liquidation? We will proceed with the liquidation, including finalising all matters outlined on the previous page under Other matters. If we receive a request for a meeting that complies with the guidelines set out in the initial information provided to you, I will hold a meeting of creditors. We may write to you again with further information on the progress of the liquidation, in particular once an outcome is known with respect to second completion of the sale of business. We expect to have completed this liquidation within the next 12 months. Compliance with best practice We confirm that this report complies with the requirements in the Insolvency Practice Rules (IPR), specifically IPR 70-40, as well as the statements of best practice issued by the Australian Restructuring Insolvency and Turnaround Association (ARITA) with regard to content of the Statutory Report by Liquidator. 8

9 What to do next You should now: Read the attached report. Complete and return your proof of debt. Where can you get more information? You can access information which may assist you on the following websites: ARITA at ASIC at (search for insolvency information sheets ). There is also information about this liquidation on Should you have any queries with respect to the above, you may also contact Isabel Lutvey of my office on (03) or via on Dated: Thursday, 25 January 2018 Andrew Hewitt Joint and Several Liquidator 9