Liquidator s Statutory Report to Creditors

Transcription

1 PHC Projects Pty Ltd (in Liquidation) ACN: ( the Company ) Prepared pursuant to section of the Insolvency Practice Rules (Corporations) 2016 Dated 30 January 2018 Liquidator Kim Wallman Date of Administration 5 October 2017 Date of Liquidation 8 November 2017 Contact Dilyana Panova Telephone Number HLB Mann Judd (Insolvency WA) ABN Level 3, 35 Outram Street West Perth WA 6005 PO Box 622 West Perth WA 6872 Telephone Fax Website: Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (Insolvency WA) is a member of International. A world-wide network of accounting firms and busines s advisers.

2 CONTENTS 1. Introduction Update on the Progress of the Liquidation Recovery of Accounts Receivable and Potential Claims Assets and Liabilities Investigations Undertaken to Date Further Investigations to be Undertaken What Happened to the Business? Receipts and Payments Likelihood of a Dividend Costs of the Liquidation What Happens Next? Where Can You Get More Information? Page 2

3 1. Introduction I, Kimberley Stuart Wallman was appointed Administrator of the above Company on 5 October 2017 pursuant to section 436A of the Corporations Act 2001 ( the Act ). As you are aware at the meeting of creditors held on 8 November 2017, it was resolved that the Company be placed into liquidation. As there were no nominations for an alternative Liquidator, I automatically became Liquidator of the Company in accordance with sections 446A and 499(2A) of the Act. The purpose of this report is to comply with the requirements of section of the Insolvency Practice Rules (Corporations) 2016 as follows: provide creditors with a written account of the winding up the estimated amounts of assets and liabilities of the Company inquiries relating to the winding up of the Company that have been undertaken to date further inquiries relating to the winding up of the Company that may need to be undertaken what happened to the business of the Company the likelihood of creditors receiving a dividend before the affairs of the Company are fully wound up possible recovery actions This report should be read in conjunction with my section report to creditors dated 31 October Update on the Progress of the Liquidation I have set out the information set out below in order to provide creditors with an update regarding the conduct of the liquidation Recovery of Accounts Receivable and Potential Claims Prior to and since the Company transitioned into liquidation on 8 November 2017, I have been working with the Directors of the Company to recover the outstanding accounts receivable and to investigate potential claims against two former clients of the Company. The majority of the accounts receivable have been recovered. As detailed in section 2.2 below, of the $52K estimated for recovery in my report to creditors of 31 October 2017, $46K has been recovered. With respect to the claims against former clients, I advise that I have met with various legal advisors in relation to the investigation of potential grounds to mount recovery actions. It would appear however, based on the advice of said legal advisors, that such claims would be difficult to pursue further. Whilst the matters are not yet finalised, I am not confident of a recovery being achieved for creditors. Page 3

4 2.2. Assets and Liabilities As originally outlined in my report to creditors dated 31 October 2017, I have set out below a summary of the assets and liabilities of the Company, along with details of the assets realised to date. Please note that the figures in the fourth column below will not match the annexed receipt and payments, as the figures presented below are for both the preceding voluntary administration period and subsequent liquidation period. As per Directors RATA Administrator's Initial Estimated Values Realised to Date Notes $ $ ESTIMATED ASSETS Cash on Hand Cash at Bank 100, , ,338 Plant and Equipment 25,150 10, Trade Debtors 52,201 52,201 46,401 2 Contingent Assets 2,450,000 FIR Nil 3 TOTAL ESTIMATED ASSETS 2,627, , ,749 ESTIMATED LIABILITIES Priority Creditors As per Directors RATA Administrator's Initial Estimated Values Estimated Liabilities Wages 109,587 87,669 87,669 4 Superannuation 108, , ,586 5 Annual Leave 24,346 24,079 24,079 4 Payment in Lieu of Notice 48,652 48,652 48,652 4 Notes Unsecured Creditors Trade Creditors 492, , ,000 5 Australian Taxation Office 555, , ,266 6 Office of State Revenue 34,453 34,453 38,212 7 Landlord 14,636 20,000 14,363 B O Connor loan 152, , ,000 B O Connor unsecured entitlements 20,575 20,575 20,575 P Hinton loan 46,000 46,000 46,000 P Hinton unsecured entitlements 8,372 8,372 8,372 L Hinton unsecured entitlements N/A TOTAL ESTIMATED LIABILITIES 1,651,477 1,627,067 1,914,041 Notes: 1. I advise that based on the valuation I sought for the office furniture and computing hardware assets, it was borderline uneconomical to remove the assets for sale at auction. Ultimately, there was no recovery as such achieved from the plant and equipment assets of the Company, however there was a reduction in costs as these assets were transferred to the landlord in lieu of rental costs incurred during the voluntary administration period. 2. The amount recovered to date is less than I initially estimated because one client was charged for an entire month when only one weeks work was completed. 3. This contingent asset has been referred to in section 2.1 above, which I have advised, based on legal advice, is unlikely to be recovered. Page 4

5 4. The Fair Entitlements Guarantee has or will advance entitlements to former employees of the Company. 5. The Australian Taxation Office has submitted a claim in the amount of $106, Trade creditors were underestimated as at 31 October 2017, primarily due to a claim from one supplier for $246K less that what was listed in the Company s records. There are several other creditor claims that exceed the amounts recorded in the MYOB database also. 7. The Australian Taxation Office has submitted a claim for $557,266; however I note that there are three outstanding activity statements and two income tax returns, which, if lodged, may increase this liability. Accordingly, I believe that my initial estimate may be understated. This creditor has been issued with a preference payment claim as noted in section 2.3 below in the amount of $22,500, which if successfully recovered, would increase this liability by the same amount. 8. The claim from the Office of State Revenue exceeds what was listed in the Company records. This creditor has been issued with a preference payment claim as noted in section 2.3 below in the amount of $21,000, which if successfully recovered, would increase this liability by the same amount Investigations Undertaken to Date Pursuant to section 533 of the Act, I am required to investigate the past affairs of the Company and report my findings to the Australian Securities & Investments Commission ( ASIC ). To form my opinions and conclusions, I have undertaken the following investigations: Review and analysis of the books, records and financial statements of the Company; Examination of the Company s MYOB management accounting software program; Review of taxation records and interactions and communications with statutory bodies; Searches of vehicle, vessel and land registries; Examination of the assets and liabilities of the Company; Review of the Directors Report as to Affairs and questionnaire submissions; Investigation of potential grounds to mount claims against former clients of the Company. The matters below were addressed in a preliminary manner in my report to creditors of 31 October 2017; however, I have set out below an updated summary of the investigations I have undertaken to date. Duty to ensure books and records are maintained in accordance with the Corporations Act 2001 (Section 286) a company must keep written financial records that: a) correctly record and explain its transactions and financial position and performance, and b) would enable true and fair financial statements to be prepared and audited. I advise creditors that I have taken possession of the Company s hard copy and electronic books and records. The Company engaged the services of a bookkeeper to maintain a computerised MYOB accounting system. Furthermore, the Company utilised the services of an independent, external taxation accountant for the preparation of annual income tax returns and financial statements. This system enabled the Directors to ascertain an accurate perspective of the Company s financial position as required by the Act. It appears that the books and records comply with the requirements of the Act. Insolvent transactions (Section 588FC) these are unfair preferences or uncommercial transactions entered into when a company was insolvent or became insolvent as a result of entering into the transaction. My investigations into this matter are set out below: Unfair preferences (Section 588FA) these are transactions where a company transacts with a creditor resulting in that creditor receiving more than the creditor would receive if the transaction were set aside and the creditor claimed the same amount in a liquidation. Unfair preferences paid a company within six months of the relation-back day (the day of the liquidator s appointment) are void against the liquidator. This timeframe is extended to four years should a related entity be a party to the transaction (s588fe(4)). Page 5

6 My investigations have indicated three payments that may be considered preferential in nature and therefore repayable to the Liquidator. A summary of the payments I have identified are summarised below: Name of Creditor Amount Nature of Payments Estimated Recovery Costs Office of State Revenue $21,000 Payment plan $3,000 - $5,000 Bridget-Anne O Connor $41,000 Loan repayments $3,000 - $5,000 Australian Taxation Office $22,500 Payment plan $3,000 - $5,000 Preference payment claims have been finalised and submitted to the Office of State Revenue and Australian Taxation Office, both of which are currently being assessed. I am however still considering the commercial merits of commencing a claim against Ms O Connor. Uncommercial transactions (Section 588FB) these are transactions entered into that a reasonable person would not have entered, having regard to the benefits and detriment to the company and to the other parties involved in the transaction. Uncommercial transactions entered into by a company are voidable against the Liquidator if they were entered into within two years of the relation-back day. My investigations have not indicated the presence of any uncommercial transactions. Unfair loans to a company (Section 588FD) these are loans made to a company where interest and other charges on the loan are extortionate. These transactions can be recovered regardless of when they were entered into as long as they were entered into on or before the winding up begun. My investigations have not revealed any unfair loans. Unreasonable director-related transactions (Section 588FDA) these are transactions entered into by a company and a director, close associate of a director, or person on behalf of a director, which a reasonable person would not have entered into. The transaction must be a payment by a company, the transfer of property by a company, or the incurrence of an obligation of a director s by a company. These transactions are voidable if they were entered into within four (4) years of the relation-back day. I note that Ms Bridget-Anne O Connor received several repayments towards her loan advanced to the Company; the repayments were paid over a period of approximately 11 months. I consider the repayments to be preferential in nature as noted above. My investigations have not revealed any other related party transactions. Transactions entered into for the purpose of defrauding Creditors (Section 588FE (5)) these are insolvent transactions entered into for the purpose of defeating, delaying or interfering with the rights of creditors and were entered into within a period of ten (10) years prior to the relation-back day. My investigations have not revealed any such transactions. Circulating Security Interest created within six months (Section 588FJ) where a circulating security interest is granted by a company within six months of the relation-back day, the security interest is void against the liquidator unless valuable consideration was given or the company was solvent at the time of granting of the circulating security interest. My search of the PPSR has not revealed any circulating security interests registered against the Company within six months of the relation-back day. Page 6

7 Directors duty to prevent insolvent trading (Section 588G) a director of a company has a duty to prevent a company from incurring a debt when the company is insolvent or there are reasonable grounds to suspect that the company is or would become insolvent. A director would fail to fulfil that duty if the director was aware of the grounds for suspecting the company is or would become insolvent or a reasonable person in a like position would be aware of such grounds. The defences available to a director are as follows; (i) (ii) (iii) (iv) The director had reasonable grounds to expect, and did expect, that the company was solvent and would remain so; or The director had reasonable grounds to believe, and did believe, that a competent and reliable person was providing adequate information to the Director and based on that information the director expected the company to be solvent and to remain so; or The director did not take part in the management of the company at the time due to illness or other good reason; or The director took reasonable steps to prevent the company from incurring the debt. I have formed the view that the Directors may have traded whilst insolvent because at the time transactions were entered into, there were reasonable grounds to believe the Company may not have been able to pay its debts as and when they fell due. I have based my preliminary view on the following indicators of insolvency: Taxation arrears (GST and PAYG-w) Arrears in respect of Superannuation Guarantee Charge ( SGC ) Payroll Tax arrears The Company s balance sheet indicates a shortage of working capital to cover short-term liabilities at 30 June 2016, with a current ratio of 0.85 (a current ratio less than 1 indicates insufficient current assets to meet current liabilities) Having said the above, the Company entered into payment plans for its SGC liability and other statutory taxes, which it appears to have been able to adhere to. My view is the Directors may also have valid defences to insolvent trading actions evidenced by their belief that they would be able to recover disputed outstanding accounts receivable amounts discussed in section 2.1 and 2.2 above. These claims would later prove, most likely, to be unrecoverable. Accordingly, I do not believe that a recovery will be achieved for the benefit of creditors. I have however reported the matter to ASIC as part of my investigatory duties Further Investigations to be Undertaken The below listed investigations remain outstanding as at the date of this report: Finalisation of preference payment claim recovery actions and further investigations into director related transactions Finalisation of potential claims against former clients Page 7

8 3. What Happened to the Business? As originally outlined in my report to creditors of 31 October 2017, please see an extract below from Mr Hinton s Director s questionnaire, where he provided a response in relation to when he first realised the Company may have had to be placed into external administration: The point of no return for us came after two events. The first was the State Solicitors eventual reply to our out of court settlement proposal to DCS in late September. Secondly, the position taken by Lands to our continued requests to revisit the pricing structure and its payment schedule of our contract and the position that put us in with regards to the agreements with our sub-contractors. Other contributing factors included the continued delays in the proposed 18-month contract extension with Defence and the overall current state of the West Australian market. Set out below are what Mr Hinton considers were the causes of the demise of the Company: In broad terms, the PHC business failed as a result of our success in delivering efficiencies to our clients. Our biggest success in our history was the work we delivered for the Department of Corrective Services (DCS). The savings and efficiencies we created for the Department also created a target on PHC. There was a consort of Public Servants inside DCS that were intent on stopping us from delivering any more improvements. They used questions inside Parliament, innuendo, red-herring CCC investigations, political pressure and non-payment of invoices to cripple PHC and influenced the management of DCS to steer clear of PHC. By deciding to fight these tactics, PHC became embroiled in a series of disputes that still remain unresolved with PHC lacking the resources to fund the required legal action to recoup the money owed. The timing of these disputes coincided with a general downturn in business within WA and while we thought our results at DCS would lead to future work within WA government, we understand the disputes and innuendo mentioned above contributed to the drying up of opportunities. Our efforts to embark on expanding to other states did not prove successful quickly enough. We also kept a number of loyal employees who were earmarked for the next stages of work at DCS work that did not eventuate. This decision caused a drain on PHC s financial position. The decision to engage administrators became apparent when our August 1 proposal to DCS for an out of court settlement was denied in late September. Coupled with new contracts and new pricing structures for existing contracts not eventuating as expected unfortunately ensured our decision. In my view, the strategic management of the Company s contractual arrangements with clients contributed to the demise of the Company. Like any contractual arrangement, it is critical that there is a clear understanding of the required and agreed scope of work, the mechanism to address areas of work that fall outside the scope and the relevant methodologies for submission of payment claims. Failure to address the above elements, akin to a contraction contract for example, can lead to incurrence of costs that are ultimately not paid by the customer (i.e. variation works). I do note and acknowledge the matters identified by Mr Hinton above contributed to the demise of the Company (i.e. shortcomings on both sides of the contractual relationship). For the sake of my reporting requirements, I advise that the business of the Company was not sold or transferred to a third party. 4. Receipts and Payments Attached at Appendix A are details of all receipts and payments in the liquidation to date. Page 8

9 5. Likelihood of a Dividend The Act specifies that if there are funds left over after the payment of the costs of the liquidation, the Liquidator will pay these to creditors as a dividend. Generally, the order in which funds are distributed are as follows: 1. Costs and expenses of the liquidation, including Liquidator s approved fees; 2. Outstanding employee wages and superannuation (equal ranking); 3. Outstanding employee leave of absence payments including annual leave, sick leave (if applicable) and long service leave; 4. Employee retrenchment pay (redundancy payments or pay in lieu of notice as the case may be); and 5. Ordinary unsecured creditors. Each category is paid in full before the next category is paid. If there are insufficient funds to pay a category in full, the available funds are paid on a pro-rata basis. The next category or categories will not receive a dividend. The likelihood of a dividend being paid to creditors will be affected by a number of factors including: the size and complexity of the liquidation the amount of assets realisable and the costs of realising those assets the statutory priority of certain claims and costs the value of various classes of claims including secured, priority and unsecured creditor claims the volume of enquiries by creditors and other stakeholders Accordingly, given the asset position of the Company and the costs involved in the liquidation of the Company, I anticipate that there may be a partial return to former employees of the Company in respect of unpaid SGC and other entitlements based on the following assumptions: High Return Low Return Cash on hand $4,719 $4,719 Plus preference payment claim recoveries $43,500 $0 LESS Liquidator s future remuneration (subject to approval and includes GST) ($22,000) ($13,000) Net assets for distribution to priority creditors $26,219 $0 Wages and superannuation (section 556(1)(e)) $194,255 $200,000 Dividend rate 13.5 cents / $ Nil Given that other categories of employee entitlements will not be paid in full, it is highly unlikely that there will be a return to unsecured creditors of the Company. Given the above and if you have not already done so, I respectfully suggest that unsecured creditors consider the debt owed by the Company as unrecoverable and should be written off. As noted above, to the extent there are any outstanding priority employee entitlements (not including superannuation) these may be satisfied under the Fair Entitlements Guarantee. Dividend notices will be issued in the event that a dividend becomes available. Page 9

10 6. Costs of the Liquidation My remuneration was approved by creditors in the total amount of $103, and I have set out below a summary of the resolutions that were approved: Remuneration Amount (Exc GST) Remuneration approvals sought: Resolution from 5 October 2017 to 22 October 2017 $52, Resolution from 23 October 2017 to 31 October 2017 $15, Resolution from 1 November 2017 to Finalisation $36, Total remuneration approved $103, What Happens Next? I will proceed with the liquidation, including: Finalisation of recovery of preference payment claims Finalisation of the liquidation I may write to you again with further information on the progress of the liquidation. I expect to have completed this liquidation within six months to a year. 8. 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 ) You can contact my office and speak with Dilyana Panova on (08) or via on dpanova@hlbinsol.com. There is also information about this liquidation on my firm s website: Yours faithfully, Kim Wallman Liquidator of PHC Projects Pty Ltd (In Liquidation) ACN Page 10

11 Annexure A Page 1 of 1 PHC Projects Pty Ltd (In Liquidation) ACN: Liquidator s Account of Receipts and Payments 8 November 2017 to 25 January 2018 $ Liquidator s Opening Balance (Transferred from VA account) 38,362 Receipts Pre-appointment Debtors Recoveries 18,054 Total 54,416 Payments Liquidator s Remuneration 26,614 ATO BAS Payment 5,915 Legal Fees 5,500 Consultancy Fees 4,455 Insurance 3,943 IT Support 2,921 Payroll Costs 1,426 Liquidator s Disbursements 902 Bank Charge 21 Total 46,974 Cash Balance 4,719