I refer to the appointment of John Melluish and I as Administrators of RST on 15 June 2012.

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1 12 July 2012 TO CREDITORS Dear Sir/Madam RST Nominees Pty Limited (Administrators Appointed) ("RST") ACN I refer to the appointment of John Melluish and I as Administrators of RST on 15 June I also refer to the former appointment of John Melluish and I as Administrators of Reed Constructions Australia Pty Limited (In Liquidation) ( RCA ) on 15 June Creditors confirmed our appointment as Administrators of both RST and RCA at the first meeting of creditors held on 27 June 2012 and a committee of creditors was formed. On 9 July 2012, Mark Robinson of PPB Advisory was appointed as liquidator of RCA pursuant to a winding up application in the Supreme Court of New South Wales. Please note that RST has not been placed into liquidation at this time. Enclosed is our report to creditors of RST pursuant to section 439A(4)(a) of the Corporations Act You will note that at this point in time, there is no proposal for a Deed of Company Arrangement ( DOCA ) between RST and its creditors. As Administrators of RST, and former Administrators of RCA, we are working with the liquidator of RCA to determine if there are alternatives to the liquidation of RCA that would provide a greater return to creditors of both RST and RCA. In the event that a DOCA proposal in respect to RST is received between now and the second meeting of creditors of RST on 20 July 2012, an addendum to this report will be issued in order to allow creditors of RST to consider such proposal. We have convened a meeting of creditors to consider and, if thought fit, resolve that RST be placed into liquidation. In the absence of a proposal for a DOCA, our opinion is that, for the reasons set out in our report, RST should be wound up. We enclose the following regarding the meeting of creditors. 1. Notice of Meeting. Please note that the meeting commences at 2:00pm. You should arrive for registration at least 15 minutes prior to the meeting. 2. Informal Claim Form for Voting Purposes. If you submitted one of these for the purposes of the first meeting of creditors of RST, you do not need to submit another one for this meeting.

2 To Creditors 12 July 2012 Page 2 A person is not entitled to vote at the meeting unless they provide particulars of the debt or claim to the Administrators before the meeting. Please note this form is for voting purposes only. All creditors must furnish full details of their claims, indicating whether they rank as secured, preferential or unsecured, and whether they claim title to any goods supplied to RST or any lien/pledge over goods in their possession which are property of RST. 3. Appointment of Proxy form. The form enables you to appoint another person to act on your behalf at the meeting. Proxy Forms submitted for the first meeting of creditors are not valid for this meeting. The Informal Claim Form for Voting Purposes and Proxy Form should be lodged with this office before the meeting and, in any event not later than 4.00pm on the day prior to the meeting. Forms can be sent by facsimile on (02) marked to the attention of Alex Findlay or scanned and ed to alex.findlay@fh.com.au. However, Corporations Regulation A requires lodgement of the original of the Proxy Form with the Administrators office within 72 hours of lodging the faxed/ ed copy. The Administrators Remuneration The Administrators report includes a remuneration report explaining their remuneration claim setting out: (a) (b) Details of time spent by category of staff at the rates applicable for such staff; and, A summary of the work undertaken by the Administrators and their staff in the administration. Remuneration of Liquidators Where creditors resolve that RST be wound up, the Liquidators intend that their remuneration be fixed on the basis of time spent by them and their staff of an appropriate level having regard to the nature and complexity of the work and calculated by reference to the hourly rates set out in the schedule accompanying the Notice of Meeting of Creditors sent out for the purposes of the first meeting of creditors. A further copy of the schedule is included in the Administrators report to creditors together with a schedule setting out the Liquidators likely tasks. Should you have any further queries, please contact Alex Findlay of this office on (02) Yours faithfully RST Nominees Pty Limited Ryan Eagle Administrator

3 RST Nominees Pty Limited (Administrators Appointed) ACN Report by Administrators Pursuant to Section 439A(4)(a) of the Corporations Act 2001 John Melluish and Ryan Eagle 12 July 2012

4 Table of Contents Section Page 1 Executive Summary Introduction Company information Historical financial information Statement by Director Statutory investigations Creditors options, dividend estimates and cost estimates Administrators opinion Administrators remuneration report Further queries Glossary of terms Annexure A B C D E Administrators Remuneration Report IPA Creditor Information Sheet Offences, Recoverable Transactions and Insolvent Trading Notice of Second Meeting Informal Proof of Debt form Appointment of proxy form 12 July 2012

5 1 Executive Summary The director appointed John Melluish and Ryan Eagle of Ferrier Hodgson as the Administrators of RST Nominees Pty Limited ( RST or the Company ) on 15 June On the same day, the director appointed John Melluish and Ryan Eagle of Ferrier Hodgson as Administrators of Reed Constructions Australia Pty Limited (In Liquidation) ( RCA ). Creditors ratified our appointment as Administrators of both Companies at the first meeting of creditors held on 27 June 2012 and a Committee of Creditors was formed. On 9 July 2012, Mark Robinson of PPB Advisory was appointed as liquidator of RCA pursuant to a winding up application in the Supreme Court of New South Wales. Please note that RST has not been placed into liquidation at this time. Investigations undertaken are detailed in section 6 of this report. An issue arising from these investigations is that RST creditors may have a claim against the former Director for breach of director s duties as a result of assuming liabilities of Reed Services Trust without any consideration. The second meeting of creditors is convened for Friday 20 July 2012, and will be held at the offices of Ferrier Hodgson, Level 13, Grosvenor Place, 225 George Street Sydney NSW 2000 at 2:00pm. At this point in time, there is no proposal for a DOCA. As Administrators of RST and former Administrators of RCA, we are working with the liquidator of RCA to determine if there are alternatives to the liquidation of RCA that would provide a greater return to creditors of both RST and RCA. In the event that a DOCA proposal is received between now and the second meeting of creditors, an addendum to this report will be issued in order to allow creditors of RST to consider any such proposal. In the absence of a proposal for a DOCA, our opinion is that, for the reasons set out in this report, the Company should be wound up. We do not estimate that there will be any return to priority or unsecured creditors from the winding up of the Company. Employees may be entitled to claim their entitlements (other than superannuation) under the Federal Government GEERS Scheme. 12 July 2012 Page 1

6 2 Introduction 2.1 Purpose of appointment and this report John Melluish and Ryan Eagle were appointed Administrators of the Company on 15 June 2012 pursuant to Section 436A of the Act. The purpose underlying an Administrator s appointment is to allow for independent control and investigation of an insolvent company s affairs. During the administration period, creditors claims are put on hold. We are required to provide creditors with information and recommendations to assist creditors decide upon the Company s future. Section 439A(4) of the Act explains the purpose of an Administrator s report in providing that the notice (of second meeting) must be accompanied by a copy of: (a) (b) A report by the Administrator about the company s business, property, affairs and financial circumstances; and A statement setting out the Administrator s opinion about each of the following matters: Whether it would be in the creditors interests for the company to execute a Deed of Company Arrangement; Whether it would be in the creditors interest for the administration to end; Whether it would be in the creditors interest for the company to be wound up; His or her reasons for those opinions; and (c) If a Deed of Company Arrangement is proposed a statement setting out details of the proposed deed. In the available time, we have undertaken the investigations detailed in section 6 of this report. These investigations have enabled us to form our opinion about the Company s future. Our opinion is set out in section 8 of this report. 2.2 First meeting of creditors and committee of creditors Creditors attended a first meeting of creditors held at the Sydney Masonic Centre on 27 June At that meeting, creditors ratified our appointment as Administrators of the Company. Creditors elected the following creditors to form a committee of creditors for RST and RCA: Name Firm / Entity Representing Peter Thomas AJ Lucas Operations Pty Limited AJ Lucas Operations Pty Limited Kevin Smith Australian Taxation Office Australian Taxation Office Ben Foskett Beck Corp 470 St Kilda Road Pty Limited Rebel Hanlon CFMEU Various employees and subcontractors Grant Morris Coates Hire Operations Pty Limited Coates Hire Operations Pty Limited David Hicks David Hicks & Co Various subcontractors of the companies Karl Doherty Doyles Construction Lawyers Various subcontractors of the companies Richard Negri E. A. Negri Pty Limited E. A. Negri Pty Limited Chris Andrews Employee Chris Andrews Brad Tonks Lawler Partners Various subcontractors of the companies David Young Pitcher Partners Pitcher Partners 12 July 2012 Page 2

7 Scott Allan QBE Insurance (Australia) Limited QBE Insurance (Australia) Limited Andrew Pondekas SCE Group SCE Resources Pty Limited Michael Laurence Stacks Foster MidCoast Water Darren Beames Vero Insurance Limited Vero Insurance Limited Rodney Owen Westpac Banking Corporation St George Bank, a division of Westpac Banking Corporation On 9 July 2012 a meeting of the committee of creditors of RST was held at the offices of Ferrier Hodgson, Level 13, Grosvenor Place, 225 George Street Sydney NSW The committee members of RCA who were not creditors of RST attended this meeting as observers. At the meeting, the positions of RST and RCA were discussed. The liquidator of RCA, Mark Robinson, was in attendance, who advised that he would undertake an urgent assessment of the financial affairs of RCA before advising whether there were alternatives to the liquidation of RCA that would provide a greater return to creditors of both RST and RCA. 2.3 Second meeting of creditors Pursuant to Section 439A of the Act, the second meeting of creditors of the Company is convened for 20 July 2012 at the offices of Ferrier Hodgson, Level 13, Grosvenor Place, 225 George Street Sydney NSW 2000 at 2:00pm. At the second meeting, creditors will decide the Company s future in voting on one of the following options: That the Administration should end and control of the Company revert to its director; or, That the Company should be wound up; or, That the Company execute a DOCA. 2.4 Declaration of independence, relevant relationships and indemnities The Administrators provided a Declaration of Independence, Relevant Relationships and Indemnities to creditors with their first circular to creditors and also tabled the declaration at the first meeting of creditors. There has been no change in the declaration since that time. John Melluish and Ryan Eagle are partners of Ferrier Hodgson. Ferrier Hodgson is one of Australia s and Asia-Pacific s leading independent corporate restructuring practices with over 30 partners and over 300 staff throughout Australia and Asia. Ferrier Hodgson does not provide accounting, audit, legal or taxation services. John Melluish and Ryan Eagle are Chartered Accountants, Registered and Official Liquidators and members of the IPA. Further information regarding Ferrier Hodgson and the Administrators can be obtained from the firm s website at 12 July 2012 Page 3

8 2.5 Basis of Report This report has been prepared primarily from information received from the director of the Company and the Company s books and records. We have investigated the affairs of the Company; however there may be certain matters of which we are not aware. We have not conducted an audit of the Company. In order to complete our report we have utilised information from: ASIC; PPSR; The Company s books and records; Discussions with, and a questionnaire completed by, the director; Discussions with employees of the business; Discussions with debtors of the business; Discussions with the secured creditor and bond holders; Discussions with creditors; and Public databases. 2.6 Summary of receipts and payments There have been no receipts and payments in the Administration from the date of our appointment to the date of this report. 12 July 2012 Page 4

9 3 Company information 3.1 Statutory information A search of the ASIC database revealed the following information Incorporation date and registered office The Company s incorporation date was 12 August The registered office is listed as Level 2, 41 McLaren Street, North Sydney NSW Company officers The details of the officers over the past 12 months are: Name Role Appointment Date Cessation Date Geoffrey Vere Reed Director 12 August 2011 Current Derry Bernard Hill Director 12 August March 2012 Adam Richard Field Secretary 2 March 2012 Current Derry Bernard Hill Secretary 12 August March 2012 Scott Andrew Ivery Secretary 12 August June 2012 A search of the National Personal Insolvency Index maintained by the Insolvency Trustee Service Australia, shows that the director is not bankrupt or subject to a Personal Insolvency Agreement under Part X of the Bankruptcy Act Shareholders The ASIC database discloses the shareholders to be: Shareholder Type Shares Held RBG Holdings Group Pty Limited Ordinary Shares Registered chargeholder St George Bank, a division of Westpac Banking Corporation, holds security over all present and after acquired property. The charge was registered on the PPSR on 3 April The Company has the following debt owed to St George: Description Amount ($) RST - Overdraft 112,120 Amounts owed by RCA to St George (guaranteed by RST): - Overdraft 23,113,302 - Multioption - Bills 15,000,000 - Fitout loan - North Sydney Office 1,606,110 - Bank Guarantees 8,087,769 Total 47,919,301 St George has lodged a proof of debt against both RST and RCA for $48.1 million. We are working with St George to understand the $200,700 difference between their claim and the Companies records. 12 July 2012 Page 5

10 3.1.5 Winding up Applications There were no winding up applications filed with the Court prior to our appointment. 3.2 Company history RST is a company within the Reed Group. The Reed Group structure can be summarised as follows: RBG Holdings Group Pty Limited Beneficiary McLaren Street Investments Pty Limited Building Equipment Hire Pty Limited Reed Constructions Australia Pty Limited RPS Management Pty Limited RST Nominees Pty Limited Reed Services Trust Trustee Erolcene Pty Limited Heavy Plant Leasing Pty Limited Heavy Plant 1 Pty Limited Dungowan Tamworth Pty Limited Trustee Dungowan Tamworth Trust Administrators Appointed In Liquidation ANZ Entities to which the Administrators were appointed Entities to which the Liquidator was appointed Entities which ANZ holds security over all present and after acquired property Heavy Machinery Pty Limited ST George Entities which St George Bank holds security over all present and after acquired property Geoffrey Reed has been the primary director of the Reed Group of entities since 1979 with the incorporation of RC Dormant Pty Limited (formerly Reed Constructions Pty Limited) in that same year. At present the parent entity in the Reed Group is RBG Holdings Group Pty Limited. RST was incorporated on 12 August 2011 and became the trustee of the Reed Services Trust on 14 June Prior to becoming the trustee of the Reed Services Trust, RST undertook little to no commercial activities. As trustee of the Reed Services Trust, RST has assumed the liabilities of the Reed Services Trust including outstanding employee entitlements and unsecured creditor claims of $5.4 million. Prior to RST being trustee of the Reed Services Trust, Mr Graham McElevenny had been trustee from 12 March 1998 to 19 March 2012, following which RCA had been trustee before being replaced by RST on 14 June We understand that the Reed Services Trust s sole function was to employ and pay employees who worked for RCA for which it received a management fee. The management fee was such that the trust only ever covered costs and no profit was made by the trust. 12 July 2012 Page 6

11 3.3 Decision to appoint Administrators As outlined above, Reed Services Trust employees performed work on behalf of RCA. In addition, RST was heavily reliant on RCA for funds in order to pay Reed Services Trust employees. As a result of the financial difficulty of RCA (and subsequent appointment of Voluntary Administrators on 15 June 2012), the director resolved to place RST into Voluntary Administration at the same time as RCA. A background around the decision to appoint Administrators to RCA (and therefore RST) is discussed below. In recent years, the financial performance of RCA was largely driven by the profit it was able to generate from its contracts with RMS and DEC. In late 2011 queries had been raised by both RMS and DEC regarding the quantum of claims being made by RCA under its contracts with these NSW Government departments. Ultimately, RMS and DEC formally rejected RCA s contract claims on 20 February 2012 and 16 March At this time RCA attempted to settle their significant claims before agreeing with the parties to enter into an Expert Determination process. This process commenced on 16 April 2012 with an interim determination having been provided on 21 May During this time RCA was in discussions with its secured creditor, St George, to seek its ongoing support of the Companies. RCA, in the period immediately prior to our appointment, ceased its operating activities. On 5 June 2012, as a result of the cessation of operations of RCA, the Companies made 69 staff employed by the Reed Services Trust redundant. These staff members were owed outstanding wages and entitlements in excess of $4.7 million at the time of their redundancy. As a result of these factors, the Director resolved to appoint Administrators. The appointments took effect on 15 June July 2012 Page 7

12 4 Historical financial information 4.1 Preparation of financial statements Management accounts have been prepared for the Company as at 15 June Given the Company was incorporated on 12 August 2011, no financial statements have been prepared to date. 4.2 Profit and loss statement and preliminary analysis As the Company had undertaken little to no commercial activities prior to being appointed as trustee of the Reed Services Trust on 14 June 2012, no profit and loss for the Company had been prepared. As previously detailed, the Reed Services Trust s function was to employ and pay employees of RCA and accordingly it operated on a breakeven basis. 4.3 Balance sheet and preliminary analysis The Company s balance sheet as at 15 June 2012 is summarised below: Balance Sheet 15 June 2012 $ Assets Current assets 328,836 Non-current assets 3,043,410 Total assets 3,372,246 Liabilities Current liabilities (1,663,704) Non-current liabilities - Total liabilities (1,663,704) Surplus/(Deficiency) 1,708,543 Our comments on the Company s balance sheet are set out below: The assets of the Company consist entirely of intercompany loans. This is discussed in section of this report. The current liabilities are in respect to outstanding PAYG and provisions for employee entitlements. We note that the Company s balance sheet only recognises $145,000 of the $4.9 million of outstanding employee entitlement liabilities or $48.12 million owed to St George. The Company s liabilities are discussed in further detail at section and section of this report. 12 July 2012 Page 8

13 5 Statement by Director 5.1 Summary Section 438B of the Act requires the director to give the Administrators a Statement about the Company s business, property, affairs and financial circumstances. We received the Director s Statement on 29 June In the Statement, the Director detailed the Company s assets and liabilities at book value and ERV. The following tables summarise the assets and liabilities described in the Director s Statement: Statement as at 15 June 2012 Report Reference Cost or Net Book Value $ 000 Director s ERV $ 000 Administrators ERV $ 000 Assets: Interest in land Sundry debtors ,371 Unknown Unknown Cash on hand Cash at bank Stock on hand Work in progress Plant & equipment Motor vehicles Other assets Sub total 3,371 Unknown Unknown Assets subject to specific charges Less amounts owing under charges Total available assets 3,371 Unknown Unknown Liabilities: Less: Priority creditors - Employee entitlements payable in Advance of secured creditors (4,682) (4,682) (4,922) - Secured creditors (112) (112) (48,120) - Partly secured creditors Total priority creditors (4,794) (4,794) (53,042) Contingent assets Contingent liabilities Available to unsecured creditors Nil Nil Nil 12 July 2012 Page 9

14 Ordinary unsecured creditor claims (1,253) (1,253) (490) Estimated Surplus/(Deficiency) (2,676) Unknown Unknown Our comments on the Director s Statement are as follows: Interest in land Property searches indicate that the Company does not own any real property Sundry Debtors The Company s debtor ledger consists of intercompany loans totalling $3,371,042. The Director s statement summarised the sundry debtors of the Company as follows: Sundry debtors Cost or Net Book Value $ Director s ERV $ Administrators ERV $ Reed Constructions Australia Pty Limited (In Liquidation) RBG Holdings Group Pty Limited Ace Woollahra Pty Limited 2,943,168 Unknown Unknown 328,836 Unknown Nil 99,038 Unknown Nil Total 3,371,042 Unknown Unknown All three of these entities have provided first ranking security to St George in respect to RCA s outstanding St George debt of $48.1 million (either through direct debt or as guarantors of that debt) and as a result, we do not expect any significant recoveries from these intercompany loans. We have estimated that it is currently unknown if there will be a return from the liquidation of RCA Cash on Hand and Cash at Bank The Reed Services Trust held an active bank account with St George which was used for the purposes of paying the employees of RCA. The account was in overdraft in the amount of $112,120 as at the date of our appointment Stock The Director has reported no stock on hand as at the date of our appointment for the Company Work in Progress The Director has reported no work in progress as at the date of our appointment Plant and Equipment The Director has reported no plant and equipment in the name of the Company as at the date of our appointment Motor Vehicles The Director has reported no motor vehicles in the name of the Company as at the date of our appointment. 12 July 2012 Page 10

15 5.1.8 Other Assets The Director s Statement for the Company does not include any other assets Assets Subject to Specific Charges The Director s Statement for the Company does not include any assets subject to specific charges Contingent Assets The Director s Statement for the Company does not include any contingent assets Employee claims The Director s Statement indicates employee entitlements of $4,681,766 for the Company. The Administrators have undertaken a review of the employee entitlements for the Company as detailed below: Description Cost or Net Book Value $ Director s ERV $ Administrators ERV $ Wages Not Provided Not Provided 481,807 Superannuation Not Provided Not Provided Annual Leave Not Provided Not Provided 611,617 Long Service Leave Not Provided Not Provided 352,208 Notice (PILN) Not Provided Not Provided 1,016,812 Redundancy Not Provided Not Provided 2,070,220 Total 4,681,766 4,681,766 4,921,556 Please note that the Administrators ERVs are subject to the receipt and adjudication of final proofs of debt from former employees. Employee claims are afforded priority of repayment pursuant to Section 556 of the Act. Employee creditors have been made aware of their potential entitlement to make a claim against the GEERS. With respect to the employees of the Company, their eligibility to claim against GEERS should the Company proceed to liquidation is at this time uncertain having regard to the change in Trustee of the Reed Services Trust on 14 June We have provided GEERS with all of the relevant documentation and are working with their staff in order to determine a firm position in relation to this issue Secured Creditors The Director s Statement for the Company advises that amount owing to St George is $111,657. The Administrators review of the secured creditor position is that St George holds a valid general security interest in all present and after acquired property of the Companies. At the date of appointment the overdraft account had a debit balance of $112,120. St George has lodged a proof of debt in the Administration for $48,120,000. The debt is secured by other entities within the group. 12 July 2012 Page 11

16 In accordance with the provisions of Section 450A(3) of the Act, we notified St George of the appointment and advised of their right to enforce their security within 13 business days after our appointment Partly Secured Creditors The Director has reported no partly secured creditors at the date of our appointment for the Company Ordinary Unsecured Creditors The Director s Statement for the Company advises that unsecured creditors as at 15 June 2012 are $1,252,580. A summary of the Company s unsecured creditors balance is detailed below: Description Cost or Net Book Value $ Director s ERV $ Administrators ERV $ Intergroup creditors 171, , ,886 ATO PAYG payable 1,080,693 1,080, ,621 Other creditors ,490 Total 1,252,579 1,252, ,997 Please note that the Administrators ERV are subject to the receipt and adjudication of final proofs of debt from creditors. The amounts below represent monies owed by the Company to the following related entities: Related Entity Amount ($) Heavy Plant Leasing Pty Limited 171,886 Total 171,886 Creditors should be aware that a defeated resolution for the Company to be wound up may be declared carried, if defeated by the vote of a related entity Contingent Liabilities The Director s Statement for the Company does not include any contingent liabilities Omissions from Statement Save for our previous comments regarding specific disclosures in the Statement, there are no material omissions from the director s Statement. 5.2 Explanation for current financial position The directors explanation for the Company s current financial position is as follows: Significant losses on RCA s key contracts arising from an inability to recover additional costs, particularly in relation to the: o NSW Road and Maritime Services ( RMS ) Contracts on the Great Western Highway ( GWH ) and Central Coast Highway ( CCH ); and o Building for the Education Revolution ( BER ) Contract with the NSW Department of Education and Communities ( DEC ). 12 July 2012 Page 12

17 General downturn in the construction industry and, in particular, the downturn in Government project spending. Deep discounting of construction industry competitors following industry downturn; Increased wage and input costs in relation to projects. Customers inability to meet payments as a result of financial difficulty. We generally concur with the directors reasons for the failure of the Company. In addition, we consider that the following factors also contributed to the failure of the Company: The assumption of the liabilities of the Reed Services Trust on 14 June Failure of RCA to recognise and properly address loss making contracts. Failure of RCA to effectively deal with damages on construction work and subsequent inability to collect funds. General lack of control over costs and expenditure. 12 July 2012 Page 13

18 6 Statutory investigations 6.1 Nature and scope of review The Act requires an administrator to carry out preliminary investigations into a company s business, property, affairs and financial circumstances. Investigations centre on transactions entered into by a company that a liquidator might seek to void or otherwise challenge where the company is wound up. Investigations allow an administrator to advise creditors what funds might become available to a liquidator such that creditors can properly assess whether to accept a DOCA proposal or resolve to wind up the company. Funds recovered would be available to the general body of unsecured creditors including secured creditors but only to the extent of any shortfall incurred after realising their security. A liquidator may recover funds from each type of transaction detailed in the Creditor Information Sheet described in Annexure B of this report. A deed administrator does not have recourse to these voidable transactions. A liquidator may also recover funds through other avenues; for example, through action seeking compensation for insolvent trading or breach of director duties. An administrator is not obliged to carry out investigations to the same extent as a liquidator. A liquidator may require many months of investigation and conduct public examinations before forming a concluded view on recovery action. We investigated matters to the extent possible in the time available. The dividend estimate in a liquidation scenario set out in section 9.2 of this report reflects the outcome of our investigations. The Administrators knowledge of the Company s affairs comes principally from the following sources: Communications with the Company s major unsecured creditors regarding the nature and amount of the debts owed. Those creditors confirmed that the details disclosed by the Company are substantially correct. Communications with the secured creditor regarding the nature and amount of the debt owed. The secured creditor confirmed the information supplied by the Company. The director s Statement and a detailed questionnaire concerning the Company s affairs prepared by the director. Discussions with the director and their advisors. A search of the ASIC records relating to the Company and any related entities. Searches obtained from the Roads and Maritime Services and the New South Wales Land Titles Office. An examination of the Company s books and records including its financial statements and management accounts. 6.2 The Company s solvency Overview A precursor to the recovery of funds by a liquidator through the voiding of certain transactions or through other legal action, such as seeking compensation from director for insolvent trading, is establishing the Company s insolvency at the relevant time. Establishing insolvency is a complex matter due in part to the complexity of corporate financial transactions and the lack of clear prescriptive legal authority on proof of insolvency. Notwithstanding, there are two primary tests used in determining a company s solvency, at a particular date; namely: 12 July 2012 Page 14

19 Balance sheet test; and Cash flow or commercial test. The Courts have widely used the cash flow or commercial test in determining a company s solvency at a particular date. Section 95A of the Act also contains a definition of solvency. That definition reflects the commercial test in stating that a person is solvent if the person is able to pay all the person s debts as and when they become due and payable. However, the commercial test is not the sole determinant of solvency. Determining solvency derives from a proper consideration of a company s financial position in its entirety and in the context of commercial reality. Relevant issues include, but are not limited to the following: The degree of illiquidity. A temporary lack of liquidity is not conclusive; Regard should be had to: o o Cash resources Monies available through asset realisations, borrowings against the security of assets or equity/capital raising All of a company s assets might not be relevant when considering solvency. For example, where a company proposes selling assets which are essential to its business operations, the proceeds of those assets should not be taken into account; The voluntary and temporary forbearance by creditors not to enforce payment terms; and It is not appropriate to base an assessment of whether a company can meet its liabilities as and when they fall due on the prospect that a company might trade profitably in the future. In summary, it is a company s inability using such resources as are available to it through the use of its assets, or otherwise, to meet its debts as they fall due, which indicates insolvency Preliminary determination In assessing the solvency of any entity there are a number of indicia used to form a view as to whether the entity could pay its debts as and when they fell due. These indicia include the following. Banking arrangements were the banking facilities in order, was the Company operating in excess of its overdraft limits and were cheques being returned or dishonoured? Taxation obligations were all of the company s statutory obligations being met on time including PAYG and superannuation instalments? Trade creditors were payment plans entered into and was legal action being undertaken for the recovery of debts including SOP claims. Were the aged creditors in excess of standard terms? Wages were wages being met on time? Also, it would be necessary to determine what resources were immediately or imminently available to meet any outstanding liabilities including additional finance facilities, the injection of capital or loans, or the recovery of debtors or WIP due. These issues are discussed below: RST timeline Significantly, whilst RST was incorporated on 12 August 2011 it only became the trustee of the Reed Services Trust on 14 June Prior to becoming the trustee of the Reed Services Trust, RST undertook no commercial activities. RST had no liabilities or assets prior to 14 June 2012, when it assumed $5.4 million of outstanding employee entitlements and unsecured creditor claims due to becoming trustee of the Reed Services Trust. 12 July 2012 Page 15

20 Prior to RST being trustee of the Reed Services Trust, Mr Graham McElevenny had been trustee from 12 March 1998 to 19 March 2012, following which RCA had been trustee before being replaced by RST on 14 June Conclusion Based on the above analysis, it is our preliminary view that RST did not trade whilst insolvent. As soon as RST became the trustee of the Reed Services Trust, RST assumed responsibility for the liabilities of the trust and the director of RST placed the Company into Voluntary Administration. A liquidator would need to conduct further investigations of the previous trustees of the Reed Services Trust (RCA and Mr McElevenny), and possibly conduct public examinations of relevant parties, to ultimately determine whether Reed Services Trust employees would have access to those funds Presumption of insolvency inadequate books and records Failure to keep or retain adequate books and records in accordance with Section 286 of the Act provides a rebuttable presumption of insolvency under Section 588E of the Act. A liquidator can rely on the presumption of insolvency in litigation including: Compensation claims arising from insolvent trading; and Recovery of voidable transactions from related entities. The presumption cannot be relied upon in the recovery of an unfair preference except where the recovery is sought from a related entity. Our preliminary view is that the Company maintained adequate books and records in accordance with Section 286. Accordingly, the presumption of insolvency under Section 588E would not be available. 6.3 Potential liquidator recoveries - voidable transactions Unfair preferences A payment to a creditor is preferential if it is made at a time when the company is insolvent and it results in the recipient receiving a greater return than they would receive if the payment were set aside and the creditor lodged a claim in the liquidation. The payments would be protected if the creditor from whom the liquidator seeks to recover: Became a party to the transaction in good faith; and At the time when they became a party: o o o They had no reasonable grounds for suspecting that the Company was insolvent at that time, or would become insolvent; and A reasonable person in that person s circumstances would have had no such grounds for so suspecting; and Provided valuable consideration under the transaction or has changed their position in reliance on the transaction. A creditor seeking protection must prove all three elements. Should a liquidator establish any such unfair preference payments, these amounts may be recovered, thereby increasing the funds available to ordinary unsecured creditors. If a creditor disgorges an unfair preference payment to a liquidator, the creditor is entitled to prove for dividend. Therefore, whilst recovering an unfair preference increases the pool of funds available to creditors, it also increases total creditor claims. Our preliminary investigations into the Company s affairs do not reveal any unfair preference payments. 12 July 2012 Page 16

21 6.3.2 Uncommercial transactions A transaction is an uncommercial transaction if it is made at a time when the company is insolvent and it may be expected that a reasonable person in the company s circumstances would not have entered into the transaction having regard to: The benefits or detriment to the company of entering into the transaction. The prospective benefits to other parties to the transaction upon entering into it. Should a liquidator establish any such uncommercial transactions, those transactions may be set aside thereby increasing the funds available to ordinary unsecured creditors. Our preliminary investigations do not disclose any transactions of an uncommercial nature which may lead to recoveries by a liquidator in the event that the Company is wound up Unfair loans Based on our investigations to date, the Company was not a party to any unfair loans Unreasonable director-related transactions Our preliminary investigations do not reveal any unreasonable director related transactions Obstruction of creditors rights Our investigations do not disclose any transactions intended to obstruct creditors rights Voidable charges We have not uncovered any security interests that may be deemed voidable under section 588FJ or 588FL of the Act during the course of our investigations. 6.4 Potential liquidator recoveries - insolvent trading Director liability Our preliminary investigations do not show that the Company traded whilst it was insolvent Holding company liability RBG Holdings Group Pty Limited was the holding company of RST Nominees Pty Limited. Furthermore, in our view, the nature and extent of RBG s control over the Company s operations was such that it would be reasonable to expect RST Nominees Pty Limited and its director had knowledge of the Company s financial position. Again, a liquidator would likely seek legal advice on these issues and consider the commerciality of proceeding with recovery action. For the purposes of this report, we estimate the likely recovery from an insolvent trading action against RBG to be nil. 6.5 Other potential liquidator recoveries Compensation for breach of director duties Based on my preliminary investigations, the directors may have breached their duties as directors in: Failing to act in good faith; Failing to discharge their duties with reasonable care and diligence. RST became trustee of the Reed Services Trust at a time when the trust had outstanding priority and unsecured creditors of $5.4 million. 12 July 2012 Page 17

22 There was no consideration received for assuming these liabilities, this action by the Director appears to have not have been in the best interests of the Company, and could be considered a breach of director s duties. A liquidator may directly bring action against the Director for a breach of duty. The Director s personal financial position is discussed below. In addition the Company has a Directors and Officers insurance policy as discussed below. As a consequence of these alleged breaches, the directors may be liable to compensate the Company or are liable under the Act s civil penalty provisions Arrangements to avoid employee entitlements Based on our investigations to date, there has been no contravention of Part 5.8A of the Act by any person Debts incurred by Company as trustee Pursuant to Section 197 of the Act, a director of a company, when it incurs a liability while acting or purporting to act as trustee, is liable to discharge the liability if the company: (a) (b) Has not, and cannot, discharge the liability or that part of it; and Is not entitled to be fully indemnified against the liability out of trust assets. This is so even if the trust does not have enough assets to indemnify the trustee. The person is liable both individually and jointly with the company and anyone else who is liable under the section. Further investigation is needed to determine whether a liquidator of RST has a claim against the Director as director of RST or the Director as director of RCA, as RCA was the trustee of the trust at the time employees were made redundant. Further investigation is also needed to determine whether a liquidator of RST has a claim against the former trustee of the trust, Graham Charles McElvenny, for debts incurred by the trust prior to the transfer of the trustee to RCA on 19 March Possible offences Based on preliminary investigations, we have identified possible offences the director may have committed under the Act as detailed in Section above. 12 July 2012 Page 18

23 6.7 Summary of potential liquidator recoveries Set out below is a summary of the potential recoveries by a liquidator in the event the Company is wound up: Potential Recovery Item High ($) Low ($) Unfair preferences Nil Nil Uncommercial transactions Nil Nil Unfair loans Nil Nil Unreasonable director related transactions Nil Nil Transactions undertaken to obstruct creditors rights Nil Nil Compensation from director for insolvent trading Nil Nil Compensation from holding company for insolvent trading Nil Nil Breaches of director duties Unknown Nil Avoidance of employee entitlements Nil Nil Debts incurred by Company as trustee Unknown Nil 6.8 Director s ability to pay a liquidator s claims At our request, the director provided a statement of his financial position, details of which are set out in the table below: Director s Financial Position $ 000 Assets Property Assets 10,000 Less: Bank mortgages over property assets (6,950) Total Assets 3,050 Liabilities Guarantee creditors (67,107) Total Liabilities (67,107) Surplus/(Deficiency) (64,057) Our comments in relation to the above are as follows: The property assets relate to two properties that are owned by the Director personally. The bank mortgages relate to the loans on the two property assets. The guarantee creditor balance is in respect of bank facilities and bonds entered into by RCA with St George ($47.8m), Vero ($17.5m) and QBE ($1.8m) that have been guaranteed by Geoffrey Reed. These claims are contingent liabilities. We note that the Company has Directors and Officers insurance, which a liquidator may be able to pursue during the course of liquidation. 12 July 2012 Page 19

24 6.9 Report to ASIC Given certain offences alleged against the Company s directors, I am required to report to ASIC pursuant to section 438D of the Act. 7 Creditors options, dividend estimates and cost estimates Pursuant to Section 439A(4)(b) of the Act, we are required to provide creditors with a statement setting out our opinion on whether it is in the creditors interests for the: Administration to end; Company to be wound up; Company to execute a DOCA. In forming our opinion, it is necessary to consider an estimate of the dividend creditors might expect, and the likely costs, under each option. 7.1 Administration to end Creditors may resolve that the administration should end if it appears the Company is solvent or, for some other reason, control of the Company should revert to its directors. Based on our preliminary investigations and analysis of the Company s financial information, the Company is insolvent. There appears to be no valid commercial reason why control of the Company should revert to its director. If the administration were to end, there is no mechanism controlling an orderly realisation of assets and distribution to creditors. We are unable to say what the Company might ultimately pay creditors or what costs it might incur. Therefore, our opinion is that it is not in the creditors interest for the administration to end. 7.2 Winding up of Company Based upon the information in this report, where the Company is wound up, we estimate that the only avenues of recovery for creditors are recoveries per the summary at section 6.7 for breaches of director duties or debts incurred by the Company as trustee. The commerciality of proceeding with these actions must be considered. We do not estimate that there will be any return to priority or unsecured creditors from the winding up of the Company. Employees may be entitled to claim their entitlements (other than superannuation) under the Federal Government s GEERS. The table below summarises the estimated employee entitlements for the Company s employees that may be able to be claimed through GEERS, should the Company be placed into liquidation: Entitlement Amount ($ 000) Annual Leave 439 LSL 239 PILN 642 Redundancy 1,334 Wages 453 Total 3, July 2012 Page 20

25 These amounts have been calculated using the usual GEERS financial limits imposed by the scheme. As discussed in section , employees eligibility to claim against GEERS should RST proceed to liquidation is at this time uncertain having regard to the change in trustee of the Reed Services Trust on 14 June Administrators opinion As stated in section 7.1 above, the option of the administration ending is clearly not viable. The only currently available option to creditors at this point in time is to wind up the Company. 9 Administrators remuneration report The costs of winding up the Company s affairs are estimated at $80,000. Pursuant to Section 446E of the Act, we enclose as Annexure A the Administrators Remuneration Report. At the second meeting of creditors, we intend seeking approval of the remuneration set out in the remuneration report. Details of disbursements incurred are also included in the remuneration report. 10 Further queries We will advise creditors in writing, if practicable, of any additional matter that comes to our attention after the dispatch of this report that, in our view, is material to creditors deliberations. In the meantime, should creditors have any queries, please do not hesitate to contact Alex Findlay on (02) DATED this 12 th day of July 2012 John Melluish Administrator Ryan Eagle Administrator 12 July 2012 Page 21

26 Glossary of terms Abbreviation ABN ACN Description Australian Business Number Australian Company Number Act Corporations Act 2001 Administrators ASIC ATO Company / RST Companies DEC Director DOCA ERV GEERS IPAA PPSR RBG RCA RMS Secured Creditor / St George Ryan Eagle and John Melluish Australian Securities and Investments Commission Australian Taxation Office RST Nominees Pty Limited Reed Constructions Australia Pty Limited (In Liquidation) and RST Nominees Pty Limited NSW Government Department of Education and Communities Geoffrey Reed Deed of Company Arrangement Estimated Realisable Value General Employee Entitlements Redundancy Scheme Insolvency Practitioners Association of Australia Personal Property Securities Register RBG Holdings Pty Limited Reed Constructions Australia Pty Limited (In Liquidation) NSW Government Department of Roads and Maritime Services St George Bank, a division of Westpac Banking Corporation 12 July 2012 Page 22

27 Annexure A Administrators Remuneration Report 12 July 2012

28 CORPORATIONS ACT 2001 Section 449E RST NOMINEES PTY LIMITED (ADMINISTRATORS APPOINTED) ( THE COMPANY ) ACN REMUNERATION REPORT We, Ryan Eagle and John Melluish, have undertaken a proper assessment of this remuneration claim for our appointment as Voluntary Administrators of the Company in accordance with the law and applicable professional standards. We are satisfied that the remuneration claimed is in respect of necessary work, properly performed in the conduct of the administration. Our Remuneration Report, prepared pursuant to Section 449E of the Corporations Act 2001, takes the following format. Part A A1 A2 Schedule of hourly rates and general guide to staff experience Tasks undertaken by the Administrators and remuneration calculation for the period 15 June 2012 to 9 July 2012 A3 Schedule of the Administrators anticipated tasks and remuneration estimate for the period 10 July 2012 to 20 July 2012 A4 A5 Where Liquidators are appointed, a schedule of the Liquidators anticipated tasks and remuneration estimate from 20 July 2012 to the conclusion of the Liquidation Remuneration approved and drawn to date A6 Resolutions to be put to creditors at the meeting convened for 20 July 2012 Part B B1 Administrators disbursements B2 Summary of Receipts and Payments for the period 15 June 2012 to 9 July 2012 B3 Other creditor information on remuneration The Remuneration Report must be read in conjunction with the report to creditors dated 12 July 2012.

29 PART A A1 SCHEDULE OF HOURLY RATES & GENERAL GUIDE TO STAFF EXPERIENCE Classification Rate ($) Experience Partner/Appointee 595 Director 500 Senior Manager 445 Manager 370 Assistant Manager 315 Senior Analyst 280 Analyst 250 Accountant 220 The Partner/Appointee is a registered liquidator and member of the ICAA and, generally, the IPA, bringing specialist skills to the administration or insolvency task. For specific experience and other details of the appointee/s, please visit our website at Generally, minimum of 12 years experience at least 2 years of which is to be at Manager level. University degree; member of the ICAA and, generally, the IPA, with deep knowledge and lengthy experience in relevant insolvency legislation and issues. Generally, more than 7 years experience with at least 2 years as a Manager. University degree; member of the ICAA and, generally, the IPA; very strong knowledge of relevant insolvency legislation and issues. Generally, 5-7 years chartered accounting or insolvency management experience. University degree; member of the ICAA and, generally, the IPA, sound knowledge of relevant insolvency legislation and issues. Generally, 4-6 years chartered accounting or insolvency management experience. University degree; member of the ICAA; completing IPA Insolvency Education Program. Good knowledge of relevant insolvency legislation and issues. Generally, 2-4 years chartered accounting or insolvency management experience. University degree; completing the ICAA s CA program. Good knowledge of basic insolvency legislation and issues. Generally, 2-3 years chartered accounting or insolvency management experience. University degree, ICAA s CA program commenced. 0 to 2 years experience. Has completed or substantially completed a degree in finance/accounting. Under supervision, takes direction from senior staff in completing administrative tasks. Senior Secretary 180 Appropriate skills including machine usage. Junior Accountant 145 Completed schooling and plans to undertake further studies. Required to assist in administration and day to day field work under the supervision of more senior staff. Computer Operator 120 Appropriate skills including machine usage. Notes: 1. The hourly rates are exclusive of GST. 2. The guide to staff experience is intended only as a general guide to the qualifications and experience of our staff engaged in the administration. Staff may be engaged under a classification that we consider appropriate for their experience. 3. Time is recorded and charged in six-minute increments. 4. Rates are subject to change from time to time. The hourly rates reflect the total cost of providing professional services and should not be compared to an hourly rate. See Part B1 for details of disbursements.

30 A2. Tasks undertaken by the Administrators and remuneration calculation for the period from 15 June 2012 to 9 July 2012 Task Area General Description Includes: Creditor Enquiries Creditors [$7,670.00] Employees [$11,491.50] Investigation [$630.00] Secured creditor reporting Creditor reports/circulars Dealing with proofs of debt Meeting of Creditors Employee enquiries GEERS Calculation of entitlements Workers compensation claims Other employee issues Conducting investigation Receive and follow up creditor enquiries via telephone and Maintaining creditor enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Correspondence with committee of creditors members Correspondence with secured creditor Responding to secured creditor s queries Initial circular to creditors. Prepare report pursuant to section 439A of the Act. Receipting and filing POD s Corresponding with OSR and ATO regarding POD s Preparation of meeting notices, proxies and advertisements Forward notice of meeting to all known creditors Preparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting. Preparation and lodgement of minutes of meetings with ASIC Respond to stakeholder queries and questions immediately following meeting Receive and follow up employee enquiries via telephone Maintain employee enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Preparation of letters to employees advising of their entitlements and options available Receive and prepare correspondence in response to employees objections to leave entitlements Correspondence with GEERS Calculating employee entitlements Reviewing employee files and company s books and records Reconciling superannuation accounts Reviewing awards Review insurance policies Receipt of claim Liaising with claimant Liaising with insurers and solicitors regarding claims Identification of potential issues requiring attention of insurance specialists Correspondence with Opencover regarding initial and ongoing workers compensation insurance requirements Correspondence with previous brokers Correspondence with Child Support Correspondence with Centrelink Collection of company books and records Correspondence with ASIC to receive assistance in obtaining reconstruction of financial statements Reviewing company s books and records and Report as to Affairs

31 Administration [$8,268.00] Correspondence Document maintenance/file review/checklist Insurance Bank account administration ASIC and other forms ATO & other statutory reporting Planning / Review Review and preparation of company nature and history Conducting and summarising statutory searches Preparation of comparative financial statements Preparation of deficiency statement Review of specific transactions and liaising with directors regarding certain transactions Preparation of investigation file General correspondence First month administration review Filing of documents File reviews Updating checklists Identification of potential issues requiring attention of insurance specialists Correspondence with Opencover regarding initial and ongoing insurance requirements Reviewing insurance policies Correspondence with previous brokers Preparing correspondence opening accounts Requesting bank statements Bank account reconciliations Preparing and lodging ASIC forms Correspondence with ASIC regarding statutory forms Notification of appointment Discussions regarding status/strategy of administration

32 A2 (cont) Tasks undertaken by the Administrators and remuneration calculation for the period 15 June 2012 to 9 July 2012 $/Hour Total Total Task Area Employee Position (ex GST) Actual ($) Creditors Employees Investigation Administration Hours hrs $ hrs $ hrs $ hrs $ R Eagle Partner , N Haslam Senior Manager , , B Walker Manager , , M Waller Assistant Manager M Hosking Assistant Manager , , , G Wong Senior Analyst D Kim Senior Analyst , , G Wong Analyst , , , D Kim Analyst , M O'Shea Accountant A Findlay Junior Accountant A Delaguiado Computer Operator TOTAL HOURS , , , TOTAL ($) GST ($) 28, , TOTAL (including GST) Average Hourly Rate (ex GST) 30,

33 A3 Schedule of anticipated tasks and Administrators estimated prospective remuneration for the Period 10 July 2012 to 20 July 2012 Based on the following anticipated tasks, I estimate the Administrators fees for the above period will be $30,000 (excl. GST). Creditors [$10,000.00] Employees [$15,000.00] Administration [$5,000.00] Creditor Enquiries Secured creditor reporting Dealing with proofs of debt Meeting of Creditors Employee enquiries GEERS Calculation of entitlements Workers compensation claims Correspondence Document maintenance/file review/checklist Insurance Bank account administration Planning / Review Receive and follow up creditor enquiries via telephone and Maintaining creditor enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Correspondence with committee of creditors members Correspondence with secured creditor Responding to secured creditor s queries Receipting and filing POD s Corresponding with OSR and ATO regarding POD s Preparation of meeting notices, proxies and advertisements Forward notice of meeting to all known creditors Preparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting. Preparation and lodgement of minutes of meetings with ASIC Respond to stakeholder queries and questions immediately following meeting Receive and follow up employee enquiries via telephone Maintain employee enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Preparation of letters to employees advising of their entitlements and options available Receive and prepare correspondence in response to employees objections to leave entitlements Correspondence with GEERS Calculating employee entitlements Reviewing employee files and company s books and records Reconciling superannuation accounts Reviewing awards Liaising with solicitors regarding entitlements Review insurance policies Identification of potential issues requiring attention of insurance specialists Correspondence with Opencover regarding ongoing workers compensation insurance requirements Correspondence with previous brokers General correspondence Administration reviews Filing of documents Updating checklists Correspondence with Opencover regarding ongoing insurance requirements Reviewing insurance policies Requesting bank statements Bank account reconciliations Discussions regarding status/strategy of administration

34 A4 Schedule of anticipated tasks and Liquidators estimated prospective remuneration for the period 20 July 2012 to the conclusion of the liquidation Based on the following anticipated tasks of the Liquidation, I estimate the Liquidators fees will be $80,000 (excl. GST). Creditors [$10,000.00] Employees [$40,000.00] Creditor Enquiries Secured creditor reporting Creditor reports/circulars Dealing with proofs of debt Meeting of Creditors Employee enquiries GEERS Calculation of entitlements Employee dividend Workers compensation claims Receive and follow up creditor enquiries via telephone Maintaining creditor enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Correspondence with committee of creditors members Correspondence with secured creditor Responding to secured creditor s queries Preparing general reports to creditors Receipting and filing POD s Corresponding with OSR and ATO regarding POD s Preparation of meeting notices, proxies and advertisements Forward notice of meeting to all known creditors Preparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting. Preparation and lodgement of minutes of meetings with ASIC Respond to stakeholder queries and questions immediately following meeting Receive and follow up employee enquiries via telephone Maintain employee enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Preparation of letters to employees advising of their entitlements and options available Receive and prepare correspondence in response to employees objections to leave entitlements Correspondence with GEERS Preparing notification spreadsheet Preparing GEERS quotations Preparing GEERS distributions Calculating employee entitlements Reviewing employee files and company s books and records Reconciling superannuation accounts Reviewing awards Liaising with solicitors regarding entitlements Correspondence with employees regarding dividend Correspondence with ATO regarding SGC proof of debt Calculating dividend rate Preparing dividend file Advertising dividend notice Preparing distribution Receipting and adjudicating POD s Ensuring PAYG is remitted to ATO Review insurance policies Identification of potential issues requiring attention of insurance specialists Correspondence with Opencover regarding ongoing workers compensation insurance requirements Correspondence with previous brokers

35 Investigation [$10,000.00] Administration [$20,000.00] Other employee issues Conducting investigation ASIC reporting Correspondence Document maintenance/file review/checklist Insurance Bank account administration ASIC Form 524 and other forms ATO & other statutory reporting Finalisation Planning / Review Books and records / storage Correspondence with Child Support Correspondence with Centrelink Collection of company books and records Correspondence with ASIC to receive assistance in obtaining books and records Reconstruction of financial statements Reviewing company s books and records and Report as to Affairs Review and preparation of company nature and history Conducting and summarising statutory searches Preparation of comparative financial statements Preparation of deficiency statement Review of specific transactions and liaising with directors regarding certain transactions Preparation of investigation file Lodgement of report with the ASIC pursuant to section 533 of the Act Preparation and lodgement of supplementary report if required Preparing statutory investigation reports Liaising with ASIC General correspondence First month, then 6 monthly administration review Filing of documents File reviews Updating checklists Identification of potential issues requiring attention of insurance specialists Correspondence with Opencover regarding ongoing insurance requirements Reviewing insurance policies Correspondence with previous brokers Preparing correspondence opening and closing accounts Requesting bank statements Bank account reconciliations Correspondence with bank regarding specific transfers Preparing and lodging ASIC forms including 505, 524, 911 etc Correspondence with ASIC regarding statutory forms Notification of appointment Preparing BAS Completing group certificates Notifying ATO of finalisation Cancelling ABN / GST / PAYG registration Completing checklists Finalising WIP Discussions regarding status/strategy of administration Dealing with records in storage Sending job files to storage Please note that the above is an estimate only. Final costs depend heavily upon the timing and resources required to finalise the matter. If costs exceed the estimate, I will advise creditors accordingly and seek further approval. A5 Remuneration approved and drawn to date Creditors have not yet approved the Liquidators remuneration.

36 A6 Resolutions to be put to creditors at the meeting convened for 20 July 2012 At the meeting of creditors convened for 20 July 2012, creditors will be asked to consider the following resolutions: "That the remuneration of the Administrators, as set out in the Administrators remuneration report dated 12 July 2012 for the period 15 June 2012 to 9 July 2012 be fixed and paid in the sum of $28, plus any applicable GST. "That the remuneration of the Administrators, as set out in the Administrators remuneration report dated 12 July 2012 for the period from 10 July 2012, to the end of the administration period 20 July 2012 be fixed and paid to a maximum amount of $30, plus any applicable GST." "The remuneration of the Liquidators, as set out in the Administrators remuneration report dated 12 July 2012 for the period from 20 July 2012 to the conclusion of the liquidation be approved up to the sum of $80, plus any applicable GST but subject to upward revision by resolution of creditors, and that the Liquidators be authorised to make periodic payments on account of such accruing remuneration."

37 PART B B1 Administrators Disbursements Disbursements are divided into three types D1, D2 and D3. D1 D2 D3 Disbursements are all externally provided professional services and are recovered at cost. An example of a D1 disbursement is legal fees. Disbursements are externally provided non professional costs such as travel, accommodation and search fees. D2 disbursements are recovered at cost. Disbursements are internally provided non professional costs such as photocopying and document storage. D3 disbursements are charged at cost except for photocopying, printing and telephone calls which are charged at a rate which is intended to recoup both variable and fixed costs. The relevant rates are set out below. Disbursements Advertising Couriers DX (Document Exchange) Mileage Reimbursement Photocopying (colour) Photocopying (mono) Photocopying (outsourced) Printing (colour) Printing (mono) Printing (outsourced) Postage Searches Storage and Storage Transit Telephone Calls Charges (Excluding GST) At cost At cost Postage equivalent or less $0.67 per kilometre $0.50 per page $0.20 per page At cost $0.50 per page $0.20 per page At cost At cost At cost At cost At cost Disbursements incurred to date are shown in the Summary of Receipts and Payments. Creditor approval for the payment of disbursements is not required. However, the Administrators must account to creditors. Creditors have the right to question the incurring of disbursements and can challenge disbursements in court. B2 Summary of Receipts and Payments for the period 15 June 2012 to 9 July 2012 There have been no Receipts and Payments for the period 15 June 2012 to 9 July 2012.

38 B3 Other creditor information on remuneration The partners of Ferrier Hodgson are, generally, members of the Insolvency Practitioners Association of Australia. Ferrier Hodgson follows the IPA Code of Professional Practice. A copy of the Code of Professional Practice may be found on the IPA website at An information sheet concerning approval of remuneration in external administrations can also be obtained from the IPA website. If you require further detail of our remuneration claim, or have other queries, please contact Alex Findlay of this office prior to the creditors meeting. Dated this 12 th day of July 2012 Ryan Eagle Administrator

39 Annexure B IPA Creditor Information Sheet Offences, Recoverable Transactions and Insolvent Trading 12 July 2012

40 Creditor Information Sheet Offences, Recoverable transactions and Insolvent Trading Offences A summary of offences that may be identified by the administrator: 180 Failure by officer to exercise a reasonable degree of care and diligence in the exercise of his powers and the discharge of his duties. 181 Failure to act in good faith. 182 Making improper use of position as an officer or employee, to gain, directly or indirectly, an advantage. 183 Making improper use of information acquired by virtue of his position. 184 Reckless or intentional dishonesty in failing to exercise duties in good faith for proper purpose. Use of position or information dishonestly to gain advantage or cause detriment. 206A Contravening an order against taking part in management of a corporation. 206A, B Taking part in management of corporation while being an insolvent under an administration. 206A, B Acting as a director or promoter or taking part in the management of a company within five years after conviction or imprisonment for various offences. 209(3) Dishonest failure to observe requirements on making loans to directors or related companies. 254T Paying dividends except out of profits. 286 Failure to keep proper accounting records. 312 Obstruction of auditor Failure to comply with requirements for financial statement preparation. 437C 437D(5) 438B(4) 438C(5) Performing or exercising a function or power as officer while a company is under administration. Unauthorised dealing with company's property during administration. Failure by directors to assist administrator, deliver records and provide information. Failure to deliver up books and records to administrator. 590 Failure to disclose property, concealed or removed property, concealed a debt due to the company, altered books of the company, fraudulently obtained credit on behalf of the company, material omission from Report as to Affairs or false representation to creditors. Voidable Transactions Preferences A preference is a transaction such as a payment between the company and one or more of its creditors, in which the creditor receiving the payment is preferred over the general body of creditors. The relevant time period is six months before the commencement of the liquidation. The company must have been insolvent at the time of the transaction, or become insolvent as a result of the transaction. Where a creditor receives a preferred payment, the payment is voidable as against a liquidator and is liable to be paid back to the liquidator subject to the creditor being able to successfully maintain any of the defences available to the creditor under either the Corporations Act. Uncommercial Transaction An uncommercial transaction is one that it may be expected that a reasonable person in the company's circumstances would not have entered into having regard to: the benefit or detriment to the company; the respective benefits to other parties; and, any other relevant matter. To be voidable, an uncommercial transaction must have occurred during the two years before the liquidation. However, if a related entity is a party to the transaction, the time period is four years and if the intention of the transaction is to defeat creditors, the time period is ten years. Insolvency Practitioners Association of Australia ABN Erskine Street, GPO Box 3921, Sydney NSW 2001 P F

41 The company must have been insolvent at the time of the transaction, or become insolvent as a result of the transaction. Unfair Loan A loan is unfair if and only if the interest was extortionate when the loan was made or has since become extortionate. There is no time limit on unfair loans they only have to have been entered into any time on or before the day when the winding up began. Arrangements to avoid employee entitlements If an employee suffers loss because a person (including a director) enters into an arrangement or transaction to avoid the payment of employee entitlements, the liquidator or the employee may seek to recover compensation from that person. It will only be necessary to satisfy the court that there was a breach on the balance of probabilities. There is no time limit on when the transaction occurred. Unreasonable payments to directors Liquidators have the power to reclaim "unreasonable payments" made to directors by companies prior to liquidation. The provision relates to transactions made to, on behalf of, or for the benefit of, a director or close associate of a director. To fall within the scope of the section, the transaction must have been unreasonable, and have been entered into during the 4 years leading up to a company's liquidation, regardless of its solvency at the time the transaction occurred. Voidable charges Certain charges are voidable by a liquidator: Floating charge created with six months of the liquidation unless it secures a subsequent advance; Unregistered charges; and Charges in favour of related parties who attempt to enforce the charge within 6 months of its creation. Insolvent Trading In the following circumstances, directors may be personally liable for insolvent trading by the company: a person is a director at the time a company incurs a debt; the company is insolvent at the time of incurring the debt or becomes insolvent because of incurring the debt; at the time the debt was incurred, there were reasonable grounds to suspect that the company was insolvent; the director was aware such grounds for suspicion existed; and a reasonable person in a like position would have been so aware. The law provides that the liquidator, and in certain circumstances the creditor who suffered the loss, may recover from the director, an amount equal to the loss or damage suffered. Similar provisions exist to pursue holding companies for debts incurred by their subsidiaries. A defence is available under the law where the director can establish: there were reasonable grounds to expect that the company was solvent and they actually did so expect; they did not take part in management for illness or some other good reason; or, they took all reasonable steps to prevent the company incurring the debt. The proceeds of any recovery for insolvent trading by a liquidator are available for distribution to the unsecured creditors before the secured creditors. Important note: This information sheet contains a summary of basic information on the topic. It is not a substitute for legal advice. Some provisions of the law referred to may have important exceptions or qualifications. This document may not contain all of the information about the law or the exceptions and qualifications that are relevant to your circumstances. Insolvency Practitioners Association of Australia Creditor Information Sheet s439a report (2) Page 2