Makin & Luby Pty Ltd (Administrators Appointed) ACN (the Company) ATF The Makin & Luby Unit Trust

Transcription

1 Makin & Luby Pty Ltd (Administrators Appointed) ACN (the Company) ATF The Makin & Luby Unit Trust Voluntary Administrators' Report 23 October 2017 Andrew Hewitt Joint and Several Administrator T E andrew.hewitt@au.gt.com Matt Byrnes Joint and Several Administrator T E matt.byrnes@au.gt.com 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

2 Contents Section Page Appendices Page 1. Introduction 4 2. Executive summary 8 3. Background information Trading during the Administration Actions undertaken to date Offences, voidable transactions and insolvent trading 24 A. ARITA creditor information sheet 50 B. DIRRI 51 C. Administrators' Remuneration Report 52 D. Notice of second meeting of creditors 53 E. Proof of Debt form 54 F. Proxy form Proposal for a deed of company arrangement Estimated return to creditors Effect on employees Administrators' recommendation Remuneration Meeting Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

3 Glossary the Act Corporations Act 2001 Administrators ARITA ASIC ATO c. Circa the Company Deed Department Directors DIRRI Eligible Employee Creditor ERV FEG Scheme Andrew Hewitt and Matt Byrnes, Voluntary Administrators of the Company appointed under Part 5.3A of the Corporations Act 2001 Australian Restructuring Insolvency and Turnaround Association Australian Securities and Investments Commission Australian Taxation Office Makin & Luby Pty Ltd Deed of Company Arrangement under Part 5.3A of the Act Commonwealth Department of Employment Justin Cody, Bryce Phillips and Philip Riley-King Declaration of Independence, Relevant Relationships and Indemnities Meaning given by Section 9 of the Act Estimated realisable value Fair Entitlements Guarantee Scheme FY16 Financial year ended 30 June 2016 FY17 Financial year ended 30 June 2017 FY18YTD 1 July 2017 to 31 August 2017 GST Goods and Services Tax NAB Non-circulating PAYG PMSI PPSA PPSR Prospective Financial Information ROT Secured Creditors Scottish Pacific Statutory priorities Voluntary Administrators' Report WIP National Australia Bank Limited Fixed charge security interest Pay As You Go Purchase money security interest Personal Property Securities Act Personal Property Securities Register Financial information based on assumptions about events that may occur in the future and possible action by an entity. It is highly subjective in nature and its preparation requires the exercise of considerable judgement. Retention of Title Macquarie Bank Limited, Scottish Pacific (BFS) Pty Ltd Scottish Pacific (BFS) Pty Ltd The priority for the payment of unsecured creditor claims set down in Subsection 553, 560 and 561 of the Act. A report on the company's business, property, affairs and financial circumstances required to be given to creditors pursuant to Section of the Insolvency Practice Rules. A statement pursuant to section (3)(b) of the Insolvency Practice Rules, setting out the Administrators' opinion and reasons as to each of the options available under Section 439C of the Act in respect of the company's future. Work in Progress k m Macquarie Thousands Millions Macquarie Bank Limited 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

4 Section 1 Introduction 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

5 Introduction Appointment and meetings Appointment of Administrators Andrew Hewitt and Matt Byrnes were appointed Joint and Several Administrators of the Company pursuant to Part 5.3A of the Act on 25 September 2017 by the Directors. The purpose of the appointment of an administrator is to allow for an independent insolvency practitioner to take control of and investigate the affairs of an insolvent company. During that time creditors' claims are put on hold. At the end of that period we are required to provide creditors with information and recommendations to assist creditors to decide upon the Company's future. First meeting The first meeting of the Company's creditors was held on 6 October 2017 at the offices of Grant Thornton Australia Ltd, The Rialto, Level 30, 525 Collins Street, Melbourne, Victoria. At this meeting, there was no nomination for an alternate Administrator. On that basis, we continued to act as Joint and Several Administrators of the Company. Also at the meeting, creditors resolved not to appoint a Committee of Inspection. Second Meeting The Second Meeting of Creditors is to be held the offices of Grant Thornton Australia Ltd, The Rialto, Level 30, 525 Collins Street, Melbourne, Victoria at 11:00AM on 31 October At the Second Meeting, creditors will be asked to make a decision by passing a resolution with respect to the options available to them, being: The Company enter a deed of company arrangement (DOCA) The Company be placed into liquidation, or Control of the Company be returned to the Director. The meeting will be open to creditors for questions and general discussion. Should you wish to have us address any particular issue in detail please advise us prior to the meeting date. This will allow sufficient time to prepare a detailed response to your question. Please note that attendance at the meeting is not compulsory Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

6 Introduction Report to creditors Report to creditors The purpose of this report is to provide creditors with sufficient information for them to make an informed decision about the future of the Company, including: Background information about the Company. The findings from our investigations. The estimated return to creditors. The options available to creditors and our opinion on each of these. In the time available to us, we have undertaken the following investigations to prepare this report and formulate our opinion: Reviewed the Company's management accounts. Reviewed the Company's financial accounts prepared by the external accountant. Conducted a review and comparison of the Directors' RATA to other information available. Reviewed the Company's bank statements. Searched various registers for publically available information (including both the ASIC and PPSR database). Interviewed the Director, employees and other parties with knowledge of the operations of the Company. Written to all known creditors including the secured creditors of the Company seeking submissions of their claims and held discussions with a number of creditors. Due to the time constraints imposed under the Voluntary Administration regime there was insufficient time to perform a detailed analysis of all preference payments and uncommercial transactions. Should the Company be placed into liquidation these investigations will be continued. However, in our opinion the above matters have not prevented us from being able to provide sufficient, meaningful information in this report or from being able to form an opinion on what is in the creditors' best interests. At the meeting of creditors to be held on 31 October 2017, creditors will be asked to make a decision by passing a resolution in respect of options available to them. In this report we have recommended to creditors that the Company go into liquidation and detailed why this option is, in our opinion, in creditors' best interests. The Administrators have relied on information provided from numerous sources to prepare the report, including: Discussions with the Directors of the Company. Discussions with the Secured Creditors. Discussions with creditors and employees of the Company. Information available from public sources, such as ASIC and the PPSR. A review of the Company's books and records provided to date. Whilst we have no reason to doubt the accuracy of any information, we have not performed an audit and we reserve the right to alter our conclusions, should the underlying data prove to be inaccurate or change materially from the date of this report. In the event that the Company proceeds to liquidation, this report will form the basis of our further investigations. Provided that funding is available, the investigations will be more extensive than those undertaken to date, particularly due to the time constraints of the voluntary administration process. Further investigations may be supported by public examinations of the Directors, officers and others who may be able to provide information about the Company's examinable affairs as that expression is defined in the Act. It is the Administrators' view that this report provides sufficient information to creditors to allow them to make an informed decision as to the Company's future and allows the Administrators to make a reasoned and fair recommendation based upon their opinions and the opinions available to creditors Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

7 Introduction Compliance, Independence and Communications Compliance with best practice We confirm that this report complies with the statements of best practice issued by the Australian Restructuring Insolvency and Turnaround Association (ARITA), with regard to content of the Voluntary Administrators' report and the Code of Professional Practice with regard to remuneration. Independence As disclosed in our Initial Notification to Creditors dated 26 September 2017, the Administrators undertook a proper assessment of the risks in relation to their independence prior to accepting the appointment. Our assessment identified no real or potential risk to our independence. We confirm that there have not been changes to the DIRRI as stated in the initial Notification to Creditors. A copy of the DIRRI is enclosed at Appendix B for your information. Communications with various parties The Administrators have liaised with various parties during the administration, including: All known creditors (including employees) via a creditor circular. The Directors of the Company to develop an understanding of the business' underlying activity, financial position and reasons for failure. Macquarie Bank Ltd and Scottish Pacific (BFS) Pty Ltd, the Secured Creditors, to better understand the background of the Company and the financing arrangements. The Commonwealth Department of Employment (Department) which administers the Fair Entitlements Guarantee Scheme (FEG Scheme) Various other parties, including the Business Licencing Authority and VicRoads. Disclaimer In reviewing this report, creditors should note the following: This report is based on information from the books, records and other information provided by the Directors. Whilst the Administrators have reviewed the information, there has been no independent verification of the information. In considering the options available to creditors and formulating their recommendations, the Administrators have necessarily made forecasts of asset realisations and total creditors. These forecasts and estimates may change. Whilst the forecasts and estimates are the result of the Administrators' best assessments in the circumstances, creditors should note that the outcome for creditors may differ from the information provided in this report. This report is not for general circulation, publication, reproduction or any use other than to assist creditors in evaluating their position as creditors and must not be disclosed without the prior approval of the Administrators. The Administrators do not assume or accept any responsibility for any liability or loss sustained by any creditor or any other party as a result of the circulation, publication, reproduction or any use of this report beyond that permitted above. The statements and opinions given in this report are given in good faith and in the belief that such statements are not false or misleading. Except where otherwise stated, we reserve the right to alter any conclusions reached on the basis of any changed or additional information which may be provided to us between the date of this report and the date of the second meeting. Neither the Administrators, nor any member or employee thereof are responsible in any way whatsoever to any person in respect of any errors in this report arising from incorrect information. Creditors must seek their own independent legal advice as to their rights and the options available to them at the second meeting of creditors Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

8 Section 2 Executive summary 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

9 Executive summary Executive summary Background Information Refer to Section 3 Trading during the Administration Refer to Section 4 Actions undertaken to date Refer to Section 5 Offences, voidable transactions and insolvent trading Refer to Section 6 Proposal for a Deed of Company Arrangement ("DOCA") Refer to Section 7 Estimated return to creditors Refer to Section 8 The Company was incorporated on 13 March 2008 and operated primarily from Bell Street, Heidelberg Heights, Victoria. The Company acted as Trustee for the Makin & Luby Unit Trust (the Trust) which ran Hyundai and Suzuki automotive dealerships (sales and service), in addition to being a spare parts wholesaler for Hyundai, Suzuki and Subaru. Following our appointment we undertook an urgent assessment of the Company's ability to continue trading. Given there was already a sale of the Company's business in motion, with a Heads of Agreement signed prior to our appointment, the Administrators made the decision to continue to trade the business for a short period of time while the sale could be finalised. It was determined that this sale of business would provide an overall better outcome for creditors, including many employees retaining their employment. Tasks undertaken by the Administrators upon appointment are: Securing assets and statutory tasks Dealing with employees, secured creditors and unsecured creditors Trading the business. For general information about offences under the Act, please refer to the enclosed ARITA creditor information sheet, at Appendix A of this report. Offences Nothing has come to our attention at the date of this report to suggest that material contraventions of the Act have been committed. Voidable transactions Our preliminary investigations have highlighted c. $258k of potential unfair preference payments that will be investigated further should the Company be placed in liquidation. At this time, we have not otherwise identified any other voidable transactions that would be commercial to pursue. Insolvent trading Our initial analysis has indicated that the Company may have been insolvent from at least August 2017 based on the failure of a sale of business contract. Further work needs to be conducted to determine if an earlier date is applicable. A DOCA is a mechanism for dealing with creditors claims. A DOCA, if approved by creditors, binds all creditors of the Company arising on or before the date of the appointment of the Administrators unless otherwise specified. At the date of this report, we have not received a DOCA proposal. It is unlikely that there will be a return to unsecured (including non-transferring employee) creditors. Please note that this is an estimate only and is subject to change Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

10 Executive summary Executive summary (cont'd) Effect on employees Refer to Section 9 Administrators recommendation Refer to Section 10 Remuneration Refer to Section 11 Meeting Refer to Section 12 Other material information Based on the information provided, there were 54 people employed by the Company at the date of our appointment. Employees have continued with the business during the Administration, with a small number of resignations taking place. The Administrators are liaising with the Commonwealth Department of Employment (Department) to ascertain whether funding will be made available for the employees, should the Company be placed into liquidation. Please note government funding of employee entitlements is not available if the Company does not enter into liquidation. Section (3)(b) of the Insolvency Practice Schedule requires the Administrators of the Company to prepare a statement setting out their opinion on the outcome of the Company. In this report we have recommended to creditors that the Company be wound up for the following reasons: The Company is insolvent and would not be appropriate for the Administration to end No party has provided us with a DOCA proposal and therefore this is not available A Liquidation is the only remaining option. The Administrators' remuneration is to be approved by creditors at the upcoming meeting of creditors. A Remuneration Report is enclosed at Appendix C, providing details of work performed to date, estimated future remuneration up to the second meeting of creditors and estimated remuneration of the Liquidators, depending on the creditors' decision of the outcome of the Company at the second meeting. The second meeting of creditors is to be held at the offices of Grant Thornton Australia Limited at 11:00AM on 31 October 2017 Registration will open 30 minutes prior to the meeting. The notice in regards to this meeting is enclosed at Appendix D. A Proof of Debt and Proxy Form are enclosed at Appendices E and F respectively and are to be returned to our office by 4:00PM on 30 October Electronic Communication Creditors are entitled to receive future communication via electronic means. We encourage all creditors to complete the section at the bottom of the Formal Proof of Debt Form contained at Appendix E to receive same Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

11 Section 3 Background information 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

12 Background information Organisational structure History of the Company The Company was incorporated on 13 March 2008 and operated primarily from Bell Street, Heidelberg Heights, Victoria. The Company acted as Trustee for the Makin & Luby Unit Trust (the Trust) which ran Hyundai and Suzuki automotive dealerships (sales and service), in addition to being a spare parts wholesaler for Hyundai, Suzuki and Subaru. The business was purchased by the Directors in The business operated from 3 locations: Bell Street, Heidelberg Heights, Victoria Unit 1, 661 Waterdale Road, Heidelberg West, Victoria 136 Bell Street, Preston, Victoria These locations comprised the automotive dealership, spare parts warehouse and predelivery centre respectively. The Directors advised that in mid 2016, they engaged with their financial advisors to sell the business. A sale campaign was undertaken which identified a suitable buyer and progressed to executing conditional contracts. These contracts were entered into around March However, after prolonged delays, ultimately the purchaser was unable to progress to settlement and therefore the contract was terminated in August Given the previously extensive sale campaign, a second short sale campaign quickly identified an alternate purchaser for the business, however the price offered was substantially less than the previous contract. Once it became clear that the sale contract would not result in the secured creditors, landlords and financiers being paid in full in order to release security over the assets of the Company as part of the sale, the Directors made the decision to place the Company into Voluntary Administration. Officeholders and shareholders The Company officeholders and shareholders are detailed below, as identified from a search from the ASIC database. At this point, we have not identified any other person who may be considered or deemed to be a shadow director of the Company. According to the ASIC database, there have not been any changes to the shareholdings or officeholders in the 12 months prior to the appointment date. Directors, secretaries and shareholders Date appointed Date ceased Shares held Justin Cody 13 March 2008 Current 100 Bryce Phillips 13 March 2008 Current 100 Philip Riley King 13 March 2008 Current 100 Sources: Extract from ASIC Company Register Related entities Beyond the Directors' employee entitlement claims, the Administrators are not aware of any other related party creditors. Books and records Pursuant to Section 286 of the Act, a company must keep written financial records that correctly record and explain its transactions, financial position and performance and enable true and fair financial statements to be prepared and audited. Financial records must be kept for seven (7) years after the transactions covered by the records are completed. Failure to maintain books and records may give rise to a presumption of insolvency pursuant to Section 588E of the Act. This presumption may be relied upon by a Liquidator in an application for compensation for insolvent trading and other actions for recoveries pursuant to Part 5.7B of the Act. Our preliminary views are that the Company has met its obligations with respect to Section 286 of the Act Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

13 Background information Creditor information Secured creditors The charges over the Company (excluding stock and individual assets) as listed in the below table were registered on the Personal Property Securities Register (PPSR) as at the date of our appointment. Please see page 21 for details of the registrations with respect to plant and equipment and stock. We have since notified all security interest holders of our appointment and have requested details of the debts giving rise to any alleged security interests. Responses have been received from the security interest holders below and we are continuing to deal with parties to determine the validity of each secured claim and settle and/or resolve valid claims as required. Chargee Charge Date Macquarie Bank Limited All PAAP with exception 25 June 2013 Scottish Pacific (BFS) Pty Ltd All PAAP 6 June 2016 Sources: 1. PPSR Search 2. Supporting documentation from secured party Macquarie Bank Limited Macquarie hold a general security agreement over all or substantially all of the Company's assets as a result of providing floorplan financing for the purchase of new vehicles from Hyundai and Suzuki, as well as some used vehicles. Scottish Pacific (BFS) Pty Ltd Scottish Pacific provide an invoice discounting facility to the Company which advances funds to the Company against credit sales of wholesale parts. Scottish Pacific has security over all of the Company's debtors to support the funding provided to the Company. Current winding up applications There are no current winding up applications against the Company Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

14 Background information Historical financials Summarised Statement of Financial Performance $'000 FY15 FY16 FY17 Revenue Sources: 1. Company management accounts FY18YTD (Aug) Hy undai Sales 16,109 16,218 13,173 1,565 Suzuki Sales 3,459 3,708 2, Preston Parts Sales 15,012 16,788 14,454 1,699 Other Sales 17,906 14,105 10,473 1,310 Total Rev enue 52,485 50,819 40,701 4,812 Cost of Goods Sold (44,597) (42,912) (34,721) (4,113) Gross Profit 7,889 7,907 5, Gross Profit Margin 15.0% 15.6% 14.7% 14.5% Other Income Expenses Bonuses, Incentiv es and Commissions Employ ee Ex penses 3,887 3,747 3, Freight Adv ertising Administrativ e Ex penses Rental Ex pense Floorplan Charges Professional Ex penses IT Maintenance Ex penses Other Ex penses Total Ex penses 8,439 8,464 7,866 1,188 Net Profit / (Loss) 0 (185) (1,442) (455) Financial statements The statement of financial performance summarised opposite has been derived from the Company's ERA management accounts. We note that whilst financial information as at 25 September 2017 was unable to be obtained due to a software limitation, the underlying data exists. As such, our assessment of the Company's financial position is limited by the completeness of these records. Historical financial performance The statements of financial performance summarised opposite have been derived from the Company's unaudited accounts prepared by the external accountant as at 30 June 2017 and the Company's ERA management accounts as at 31 August There was a significant decrease in revenue from FY16 to FY17 of c. 20% which is attributed to all business segments. In turn, there was a reduction in bonuses, incentives and commissions. Overhead expenses were unable to be flexed to accommodate the reduction in revenue, resulting in a loss of c. $1.4m in FY17. By conducting the sale campaign in FY17, professional expenses increased by c. $195k from c. $5k to c. $200k. A number of the business' segments had a net contribution loss, including new and used cars and servicing. The segments with a net contribution to overheads were wholesale cars, finance/insurance and parts. Despite sales of new cars decreasing and inventory falling, freight expense has increased. Floorplan charges significantly decreased as the vehicles held as inventory were progressively sold without replacement. This reduction in inventory is discussed further on the following page. The significant reduction in revenue across all areas of the business has exposed the business' high level of fixed costs Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

15 Background information Historical financials Summarised Statement of Financial Position $'000 FY15 FY16 FY17 Assets FY18YTD (Aug) Current Assets Cash and Cash Equiv alents (158) (1,002) (75) (377) Accounts Receiv able 2,370 1,994 1,976 1,299 Tax Assets Inv entory 10,644 9,177 2,800 2,093 Miscellanous Debtors (264) (922) Total Current Assets 13,251 10,760 4,449 2,111 Non Current Assets Deposits Property, Plant and Equipment Goodw ill Total Non Current Assets 1,147 1,105 1,058 1,047 Total Assets 14,398 11,865 5,507 3,158 Liabilities Current Liabilities Debtor Factoring Liability - - 1, Trade Creditors 1,499 1,267 2,144 1,465 Floorplan Finance Liability 9,247 7,323 1, Tax Liabilities (1) 16 Vehicle Insurance Bonds Prov isions Reserves Accruals - 9 (23) (10) Total Current Liabilities 11,322 9,382 5,327 3,534 Non Current Liabilities Loans 1, Pay roll Liabilities Total Non Current Liabilities 1,619 1, Total Liabilities 12,941 10,669 5,941 4,094 Net Assets 1,457 1,197 (434) (936) Historical financial position The statements of financial position summarised opposite, have been derived from the Company's unaudited accounts prepared by the external accountant as at 30 June 2017 and the Company's ERA management accounts as at 31 August Despite cash being held by the business, it shows as a negative amount in the statement of financial position due to the unpresented cheques balance. The substantial reduction in accounts receivable is in line with the decrease in sales. Further, the majority of this balance relates to part sales to other businesses and is considered mostly collectable. The business has reduced its vehicle inventory holdings during FY17 due to the sale campaign conducted. Additionally, there were constraints on the floorplan finance facility which restricted the business' ability to purchase new vehicles and as existing vehicles were sold, the floorplan finance liability substantially decreased. Miscellaneous debtors include loans receivable from the Directors' family trusts (c. $503k) and an amount owing for prepayments (c. $1.4m). This results in a negative asset (liability) for this category and likely should be classified as a current liability. The business obtained an invoice discounting facility from Scottish Pacific (BFS) Pty Ltd during FY17, which resulted in a liability of c. $843k as at 31 August 2017 with the accounts receivable (c. $1.3m) as security. There were numerous pay downs of creditors during FY18YTD which is further discussed at section 6 of this report and included payments to the parts suppliers. Payroll liabilities consists of annual leave, long service leave and sick leave owed to employees. This does not include any redundancy or payment in lieu of notice which is discussed further at section 9. Net assets declined through all periods and became negative during FY17. The net asset position worsened during FY17 and was deficient by 30 June At 31 August 2017, there was a net liability position of c. $936k. Sources: 1. Company management accounts 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

16 Background information Directors' report as to affairs (RATA) $'000 Note Valuation Estimated Realisable Value Assets Interest in Land - - Sundry Debtors Cash on Hand 2 2 Cash at Bank Inv entory Work in Progress Plant and Equipment Other Assets Net Assets subject to security interests Contingent Assets Total Assets 3,385 2,238 Liabilities Secured Creditors Unsecured Creditors 4,633 4,633 Total Liabilities 5,346 5,346 Estimated Surplus (Deficiency) (1,961) (3,107) Directors' Report as to Affairs (RATA) Pursuant to Section 438B(2) of the Act, the Directors of the Company are required to complete a statement about the Company's business property, affairs and financial circumstances, also known as the RATA. The RATA is a snapshot in time as at the date of our appointment of the assets and liabilities of the Company, disclosing book values and the estimated realisable value (ERV) for assets. On 22 September 2017 a written request was issued to the Directors to complete the RATA for the Company within 5 business days of the appointment of Administrators. Comments on the Directors' Report as to Affairs (RATA) 1. Sundry debtors are loans receivable to the business from the Directors' family trusts. The Administrators will seek to recover these amounts. There appears to be a discrepancy between the figure reported on the RATA and that in the management accounts which would be investigated further in a Liquidation scenario. 2. This represents cash on hand as at 25 September 2017, the date Administrators were appointed. However, the business' bank has partially used these funds to offset an outstanding credit card liability. The Administrators are reviewing this matter. 3. Spare parts for vehicles are listed as inventory on the RATA, with a discount applied for aged stock. 4. Plant and equipment as per the statement of financial position. 5. Other assets consists of security deposits and goodwill. It is unlikely that these amounts will be realisable due to the Administration and termination of contracts. 6. Net assets subject to security interests includes the vehicles financed by the floorplan facility provided by Macquarie Bank Limited, as well as the accounts receivable financed by the invoice discounting facility with Scottish Pacific (BFS) Pty Ltd. It is expected that there will be equity in the accounts receivable after the pay-out of Scottish Pacific (BFS) Pty Ltd's claim. 7. Contingent assets include bonuses, rebates, holdbacks and warranty claims from Hyundai, Subaru and Suzuki. It is unclear whether these amounts are realisable given that those parties are substantial creditors in the Administration. Explanation for difficulties Directors' explanation The Directors have stated the following reasons for the Company's financial difficulties and the need to appoint Voluntary Administrators. Economic difficulty in the industry compounded by a loss of support from key suppliers. Failure by purchaser to complete the sale contract arising from the first sale campaign. Administrators' opinion Our investigations have not given us reason to disagree with the Director's explanation, in particular regarding the prolonged and ultimately unsuccessful sale. In addition, we also note that Subaru terminated the wholesale parts agreement on 19 September 2017 which meant the loss of a significant portion of their parts business Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

17 Section 4 Trading during the Administration 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

18 Trading during the Administration Trading during the Administration Rationale for continuing to trade Prior to and upon our appointment we undertook an urgent assessment of the Company's financial ability to continue trading as well as the benefits to creditors in maintaining the going concern value of the business by trading. Following this assessment, the Administrators made the decision to continue trading the business. While the financial forecast showed trading losses, it was important to consider the going concern value of the business as compared to the value of assets realised in a shut down scenario. Given there was already a sale of the Company's business in motion, with a Heads of Agreement signed prior to our appointment, the Administrators made the decision to continue to trade the business for a short period of time while the sale could be finalised. It was determined that this sale of business would provide an overall better outcome for creditors, including employees retaining their employment. Summary of trading Upon determination of continued trading of the business, the Administrators set up new accounts with suppliers, new ordering and other trading procedures and have continued to employ all staff for a period of time until the known outcome of the sale. We have also engaged with various other key stakeholders including landlords, VicRoads, the Business Licencing Authority and franchisors to ensure the business continued trading as smoothly as possible. As a result of trading, the Administrators have wound down stock holdings for both parts and vehicles achieving better prices for stock than would have been achieved in a shut down scenario, however sales of the Company dropped significantly in the lead up to and post appointment of the Administrators as a result of terminated agreements. From 23 October 2017, trading of the business has been licenced out to the purchaser while the sale of business is finalised. The Administrators will be contacting the relevant parties with details of this as required. Administrators' Receipts and Payments to 17 October 2017 Notes Amount ($) Cash at bank upon appointment 148,472 Receipts Cash sales - parts and service 136,966 Pre-appointment debtor receipts 1 353,676 Vehicle sales 258,656 Other income 14,076 Total Receipts 763,375 Payments Inv entory purchases (1,803) Employ ee w ages (128,006) Floorplan finance pay outs (115,215) Other ov erheads (23,028) NAB debt repay ment 2 (83,236) Total Pay ments (351,288) Net Receipts / (Payments) 412,088 Administrators' Receipts and Payments The above table details the Administrators' cash receipts and payments from the date of appointment to 17 October Please note that this does not represent the trading performance of the Company but is a representation of cash transactions. Pease see notes below for additional comments: 1. Book debts at the date of appointment are not an asset of the Company as they had been assigned to Scottish Pacific under the Invoice Discounting Agreement (the Agreement). Accordingly, the amounts received are to be repaid to Scottish Pacific and only after they are repaid will any equity in the debtor book flow to the Company. 2. The Company operated a bank account and credit cards with NAB prior to our appointment. Before transferring credit funds in the account to the Administrators, NAB offset c.$83.2k of the opening balance against the outstanding credit card debt. This offset is currently in dispute as the fuds in the account upon appointment were not Company funds but in fact were owed to Scottish Pacific under the Agreement Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

19 Section 5 Actions undertaken to date 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

20 Actions undertaken to date Actions undertaken to date Overview Tasks undertaken by the Administrators upon appointment are summarised below. Securing assets Corresponding with Arthur J Gallagher regarding initial and ongoing insurance requirements. Conducting VicRoads searches. Writing to the Sheriff to identify any assets. Writing to all major banks requesting the details of all accounts held by the Company and arranging transfer of those funds into the Administrators' account. Arranging independent valuations of the Company's property, plant and equipment items. Conducting a stocktake of all parts, consumables and vehicles. Progressing the sale of business with the identified purchaser, including negotiating the sale contract and preparing a licencing agreement. Dealing with landlords in relation to their intention regarding the sites. Employees Writing to all employees of the Company advising of our appointment and the status of the claim against the Company for unpaid entitlements. Providing regular updates to employees on site regarding trading, the status of employee entitlements and the sale of business. Calculating employee entitlements owed at the date of appointment. Unsecured creditors Notifying and liaising with potential statutory creditors as required. Corresponding with all creditors with respect to our appointment and responding to queries and information requests as required. Secured creditors Conducting PPSR searches. Corresponding with creditors registered on the PPSR, including advising them of our appointment and requesting supporting evidence of their security interest. Reviewing and investigating potential secured creditors' claims. Statutory tasks Issuing the first Circular to Creditors advising of our appointment, providing general information regarding our appointment and details of the first meeting of creditors, including Proof of Debt and Proxy Forms for voting purposes at the meeting. Holding the First Meeting of Creditors. Preparing and lodging the minutes of the First Meeting of Creditors. Conducting investigations into the Company's affairs and circumstances leading to the winding up. Preparing the Voluntary Administrators' Report to creditors. Trading tasks Corresponding with key suppliers and stakeholders to establish trading procedures during the Voluntary Administration. Implementing new purchase order process to control ordering and reviewing orders. Preparing forecasts and reporting mechanisms to monitor trading performance. Reviewing and making payment of wages and supplier accounts. Engaging Arthur J Gallagher to perform a Workplace Health and Safety assessment Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

21 Actions undertaken to date Stock and Debtors Stock At the commencement of the Administration, the book value of the Company's stock was c. $1.79m. Stock consists of: Wholesale parts which are either on sold to other dealers/repair centres as is or used during servicing New and used vehicles held for sale. A schedule of the stock identified is detailed below: Category Book value Stocktake Vehicles 1,092,614 1,092,614 Parts 698, ,488 Total 1,791,338 1,764,102 Stock subject to PPSR claims The charges over stock and individual assets of the Company as listed in the below table were registered on the Personal Property Securities Register (PPSR) as at the date of our appointment. Please see page 13 for details of the registrations with respect to secured creditors holding general security agreements. For completeness, registration against the Company's ACN and the Trust's ABN are shown. We have since notified all security interest holders of our appointment and have requested details of the debts giving rise to any alleged security interests. Responses have been received from security interest holders and we are continuing to deal with parties to determine the validity of each secured claim and settle and/or resolve valid claims as required. Chargee Goods PMSI Date A.P. Eagers Limited Other goods Yes 14/2/2012 Castrol Australia Pty Limited Other goods Yes 29/1/2015 Book Debts At the commencement of the Administration, the book value of the Company's debtors were c. $1.25m. As at 17 October 2017, the Administrators have realised c.$493k in pre-appointment debtors, c.$156k of which was paid directly to Scottish Pacific and c.$337k received by the Administrators and is currently payable to Scottish Pacific. After an analysis into historical provisioning and ageing of the debtor book, we note that 93% of total debtors are August and September 2017 invoices, aged within agreed terms and are expected to be received in the ordinary course. Scottish Pacific has security over all debtors and we anticipate their debt being paid in full, with any equity in the debtor book being payable back to the Company. GPC Asia Pacific Pty Ltd Other goods Yes 19/4/2016 Subaru (Aust) Pty Ltd Other goods Yes 29/8/2013 Suzuki Australia Pty Ltd Other goods Yes 30/1/2012 Tyremax Pty Ltd Other goods Yes 29/11/ Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

22 Actions undertaken to date Sale of business/assets Pre-appointment sale process overview As indicated at page 12, the Company has undertaken 2 sale campaigns in the lead up to the Voluntary Administration. 1 st sale campaign The Directors of the Company began a sale campaign run by their financial advisors, Fordham, and a contract was entered into at a favourable price. However, the purchaser reneged on the contract and subsequently reduced the price to 25% of the original amount agreed by both parties. With no faith that the purchaser would be able to complete the sale, the contract was terminated and a 2 nd sale campaign was started. 2 nd sale campaign The 2 nd sale campaign was short and targeted those parties previously identified in the 1 st sale campaign. A suitable purchaser was identified, however when it became clear that insufficient funds would be obtained from the sale to secure a release of all the securities over the Company and the claims of the financiers and landlords, it was put on hold pending the Company entering Administration. Administrators' actions The Administrators are working with the purchaser identified in the 2 nd sale campaign to finalise the sale. Contracts have been drafted and are well advanced, however further details are commercially sensitive and cannot be disclosed at this time Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

23 Section 6 Offences, voidable transactions and insolvent trading 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

24 Offences, voidable transactions and insolvent trading Offences, voidable transactions and insolvent trading Overview For general information about offences, voidable transactions and insolvent trading under the Act, please refer to the enclosed information sheet at Appendix A, published by ARITA, titled 'Creditor Information Sheet'. In accordance with the Act, as Administrators we are required to undertake investigations into the Company's business operations, financial situation, property, and other areas. The following findings will assist in the preparation of statutory reports which are required to be submitted to ASIC as well as assist in any potential action against the Directors for trading the Company whilst insolvent or pursuing voidable transactions should the Company be placed into liquidation. I note that pursuant to Regulation 5.3A.02 of the Corporations Regulations 2001, as Administrators, we are also required to investigate and report to creditors on any possible recovery actions which may be available to a Liquidator should the Company be placed into liquidation. Voidable transactions The law requires an Administrator to specify whether there are any transactions that appear to the Administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a Liquidator under Part 5.7B of the Corporations Act. The issue is relevant to creditors if they are being asked to choose between a DOCA or a liquidation, because voidable transactions are only able to be challenged if a liquidation occurs. Insolvent trading Information about possible insolvent trading is relevant to creditors when making a decision about the future of a company as director(s) of a company may generally only be sued for insolvent trading if the company is in liquidation. As with the voidable transaction analysis, creditors have to assess the advantages to them of a DOCA, which cannot include proceeds from insolvent trading actions, compared to the likely return in a liquidation, which could include the proceeds of any successful insolvent trading action. Section 588J of the Act provides that a Liquidator, and under certain circumstances, a creditor, may recover from the director of an insolvent company compensation with respect to losses suffered by creditors from transactions entered into at a time when a company is insolvent. By definition, a company is insolvent when it cannot pay its debts as and when they fall due. Directors have a statutory duty to prevent insolvent trading pursuant to Section 588G of the Act. Should it be proven that the Directors traded the Company whilst insolvent, there is potentially a claim against the Directors of the Company either by the Liquidator, or in limited circumstances, a creditor. The likelihood of there being any monies available to creditors as a result of such recoveries is dependent upon the financial position of the Directors. We note that a director may also have valid defences available to them pursuant to Section 588H of the Act. Prior to commencement of any legal action, any defences raised by the Directors would first need to be assessed. We have conducted preliminary investigations, the findings of which are detailed later in this report, and the likelihood of a claim and potential recovery will continue to be assessed should we be appointed Liquidators of the Company. If creditors have information which would assist our investigations then we request that you please provide same in writing. Additionally, if there are creditors who wish to fund or purchase such an action please contact us to discuss this in further detail Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

25 Offences, voidable transactions and insolvent trading Offences, voidable transactions and insolvent trading (cont'd) Director offences The Act stipulates that a director has a number of duties and obligations to properly fulfil their position. A summary of offences that may be identified by the Administrators is provided in the table opposite. Our investigations to date have not revealed any contraventions of the Act. Should the Company be placed into liquidation further investigations will be undertaken in this regard. Report pursuant to Section 438D Section 438D of the Act requires an Administrator to lodge a report with ASIC if it appears to the Administrator that a past or present officer, or employee, or member of the Company may have been guilty of an offence in relation to the Company. At this stage, we do not intend to prepare a report pursuant to Section 438D of the Act. However I note that, subject to the Company being placed into liquidation, the Liquidators will report to ASIC for any identified offences pursuant to Section 533 of the Act. Summary of Director offences Section Reference Offence Description 180 Failure by officer to ex ercise a reasonable degree of care and diligence in the ex ercise of his/her pow ers and the discharge of his/her duties. 181 Failure to act in good faith. 182 Making improper use of position as an officer or employ ee, to gain, directly or indirectly, an adv antage. 183 Making improper use of information acquired by v irtue of his/her position. 184 Reckless or intentional dishonesty in failing to ex ercise duties in good faith for proper purpose. Use of position or information dishonestly to gain adv antage or cause detriment. 206A Contrav ening an order against taking part in management of a corporation. 206A,B Taking part in management of a corporation w hilst being an insolv ent under administration. Acting as a director or promoter or taking part in the management of a company w ithin fiv e (5) y ears after conv iction or imprisonment for v arious offences. 209(3) Dishonest failure to observe requirements on making loans to directors or related companies. 254T Pay ing div idends ex cept out of profits. 286 Failure to keep proper accounting records. 312 Obstruction of auditor. 437C Performing or ex ercising a function or pow er as officer w hilst company is under administration. 437D(5) Unauthorised dealing w ith company 's property during administration. 438B(4) Failure by directors to assist administrator, deliv er records and prov ide information. 438C(5) Failure to deliv er books and records to administrator. 590 Failure to disclose property, concealed or remov ed property, concealed a debt due to the company, altered books of the company, fraudulently obtained credit on behalf of the company, material omission from RATA or false representation to creditors 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

26 Offences, voidable transactions and insolvent trading Insolvent trading review Overview The definition of Common law has determined that certain factors, if present, constitute reasonable grounds for suspecting insolvency. These factors make up the two (2) common tests of insolvency. The two common tests of insolvency are the Balance Sheet Test and the Cash Flow Test : The Balance Sheet Test analyses the financial performance of a company and generally a deficiency in assets is viewed as failure of this test; and The second common test of insolvency, the Cash Flow Test, is more subjective and requires more pragmatic evidence such as significantly overdue creditors, previous applications to wind up the Company, statutory demands issued by creditors and the inability to obtain further funding. In the following pages we discuss our investigations in respect of indicators of insolvency. We reiterate that recoveries of this nature are only available if the Company is placed into liquidation. Procedures The following procedures were undertaken as part of the insolvent trading review: Balance Sheet Test of insolvency Review of the maintenance of books and records in accordance with Section 286 of the Act; Analysis of the financial position of the Company; and Analysis of the financial performance of the Company. Cash Flow Test of insolvency Analysis of the Company's cash flow; Relationship with financiers, shareholders or other funders; Review of the Company's history of remittance of Commonwealth and State taxes; Identification of any post-dated or dishonoured cheques; Review of creditor ageing and other overdue payables; and Review of any demands for repayment or legal action pending. Conclusion on insolvency Our investigations to date indicate that the Company may have been insolvent from at least August Further investigations will be undertaken should the Company be placed in Liquidation Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

27 Offences, voidable transactions and insolvent trading Insolvent trading review (cont'd) Indicators of Insolvency Indicator Balance Sheet Test Overview The balance sheet test considers whether a company may be insolvent if total liabilities exceed the value of assets held. Maintenance of proper books and records Pursuant to section 286 of the Act, a company must keep written financial records that correctly record and explain its transactions, financial position and performance, and enable true and fair financial statements to be prepared and audited. Our preliminary investigations in relation to the Company s solvency has included a review of the following books and records: The Company's management accounts for the periods FY15 through FY18YTD, as of 31 August 2017 Bank statements for the period 17 December 2015 to 24 September 2017; and Miscellaneous documents and records provided by the Company. Failure to maintain books and records may give rise to a presumption of insolvency pursuant to Section 588E of the Act. The Company's financial statements were prepared to 30 June 2017 and the management accounts are last reconciled to 31 August After requesting financial data for September, we were advised it would be difficult to prepare partial accounts due to a software limitation. We are of the preliminary opinion that there is sufficient data to enable true and fair financial statements to be prepared and audited. Therefore, the books and records maintained by the Company appear to be in accordance with the requirements of section 286 of the Act. Financial position Liquidity ratios We have undertaken a review of key liquidity ratios based on the Company's balance sheet. The table below summarises our findings: FY15 FY16 FY17 FY18YTD (Aug) Current Assets 13,251 10,760 4,449 2,111 Current Liabilties 11,322 9,382 5,327 3,534 Current Ratio Quick Ratio Current ratio: The current ratio is used to determine a company's ability to meet short term liabilities with its current assets. A ratio of less than one indicates an inability to meet current obligations as and when they fall due. The Company s current fell below 1 in FY17 due to a sharp decline in inventory, which formed the majority of the Company's current assets. A continued decrease in inventory in FY18YTD coupled with increasing prepaid liabilities has further worsened the current ratio to Quick ratio The quick ratio is used to determine a company's ability to meet present obligations with sufficient liquid assets. A ratio below one indicates a company lacks sufficient liquid assets to cover its obligations as they fall due. The Company's quick ratio was below 1 in all periods reviewed, signalling an ongoing deficiency of liquid assets. Of note is that the current ratio decreased to 0.01 in FY18YTD as current assets halved from their FY17 position, an accelerated decline given that FY18YTD only reflects a two month period Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

28 Offences, voidable transactions and insolvent trading Insolvent trading review (cont'd) Indicators of Insolvency Indicator Financial position (cont'd) Financial performance Balance Sheet Test Net assets We present below an extract of the Company's net assets for the periods FY15 through FY18YTD: $'000 FY15 FY16 FY17 (Aug) Assets 14,398 11,865 5,507 3,158 Sources: 1. Management Accounts As can be seen, the Company possessed a net asset position in both FY15 and FY16. However, in FY17, the Company's assets significantly decreased and thus posted a net deficiency of c. $434k. This was primarily due to a sharp decline in inventory in FY17. This position worsened in FY18YTD, with the net deficiency more than doubling in a period of two months. The Company's debtor book was acquired by Scottish Pacific in FY17, creating a secured liability to same that stood at c. $1.2m in FY17, further deteriorating the Company's asset position. Not included in the management accounts is the Company's tax liabilities to the ATO which totalled c. $1.49m as at the date of our appointment for GST and PAYG liabilities. Accordingly, the net deficiency for FY17 and FY18YTD should be significantly worse than that reflected in the Company's management accounts. Key metrics We present below a summary of some key financial performance metrics for the period FY15 through to 31 August 2017: Sources: 1. Management Accounts FY18YTD Liabilities 12,941 10,669 5,941 4,094 Net Assets 1,457 1,197 (434) (936) FY18YTD FY15 FY16 FY17 (Aug) Rev enue 53,036 51,191 41,144 4,846 Ex penses 53,035 51,376 42,587 5,301 Net Profit / (Loss) 0 (185) (1,442) (455) Gross Profit Margin 15.0% 15.6% 14.7% 14.5% As can be seen, the Company posted net losses in both FY16 and FY17, with the Company's profitability substantially declining in FY17 to a net loss of c. $1.4m due to a decrease in gross profit of c. $1.93m. Associated decreases in expenditure were not sufficient to counteract this. To date, the Company has posted a c. $455k loss for FY18YTD. On an annualised basis, this would equate to a loss that is nearly twice as bad as that recorded in FY17. Historically, the Company's low gross profit margins of approximately 15% require high sales volume in order to generate profit. Therefore declining sales has driven the Company's reduction in profitability. For some sales departments, their net contributions to the business were negative in each year of review. Accordingly, this creates pressure on other departments to generate enough individual profit to cover these losses Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

29 Offences, voidable transactions and insolvent trading Insolvent trading review (cont'd) Indicators of Insolvency Conclusion on the Balance Sheet Test of Insolvency On the basis of our review of the Company's books and records, financial position, liquidity ratios and financial performance, it appears the Company may have been insolvent from at least 30 June This is based on the following key factors: A net asset deficiency of c. $434k, noting that tax liabilities of c. $1.4m were not recorded, Ongoing trading losses that substantially increased to c. $1.4m in FY17, A gross profit decrease of c. $1.9m from FY16 to FY17, and An increase of c. $850k in trade creditors in FY17, indicating an inability to repay creditors in a timely manner. Further investigations will be undertaken should the Company be placed into liquidation Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

30 Offences, voidable transactions and insolvent trading Insolvent trading review (cont'd) Indicators of Insolvency Indicator Cash Flow Test Overview The test for solvency and consequently insolvency is prescribed by Section 95A of the Act which states that: "(1) a company is solvent if, and only if, the company is able to pay all the company's debts, as and when they become due and payable; and (2) a company who is not solvent is insolvent." This translates into the "cash flow test" of insolvency however analysis of the balance sheet is also important in forming an overall view as to solvency. Cash flow The chart below reports the movement in the cash balance between 17 December 2015 and 25 September 2017 on a monthly basis, based on the Company's bank statements. 1,200,000 1,000, , , , ,000 0 (200,000) (400,000) Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 The Company maintained a bank account and credit card facility with National Australia Bank. At the date of appointment of the Administrators, cash at bank totalled $148, While on occasion the Company's bank account fell into a negative cash balance, this was often a matter and timing and was rectified. However, as can be seen, the Company's cash balance from February 2017 began to continually decline, reflecting the decrease in sales reported in the statement of financial performance. Relationship with financiers, shareholders and other funders The Company s major financiers were Macquarie Bank Limited (provided floorplan finance facility) and Scottish Pacific BFS Pty Ltd (provided invoice discounting facility). Despite the debts, we have sighted no evidence to indicate that the Company held a poor relationship with either of these parties. However we are aware that Macquarie requested a review of the Company by an investigating accountant and were seeking reduction of the principal Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

31 Offences, voidable transactions and insolvent trading Insolvent trading review (cont'd) Indicators of Insolvency Indicator Cash Flow Test Statutory creditors We wrote to the State Revenue Office of Victoria on 26 September 2017 and are yet to receive a response. The Company s records do not indicate that there was a debt owed to the State Revenue Office of Victoria. We wrote to the ATO on our appointment and were granted access to client records on the ATO Business Portal. A review of the running balance account indicates a debt of c. $1.49 million as of September The Company last paid its tax liabilities in full on 21 July 2016, with only minor payments made since. The Company also has a Superannuation Guarantee Charge liability of c. $223k, which began to accrue in March I note that the ATO have not yet submitted a claim for SGC as of the date of this memorandum. Post-dated and/or dishonoured cheques There is no evidence of any dishonoured payments. However, I note that the Company s management accounts outline a history of significant unpresented cheques in excess of c. $900k in both FY15 and FY16. For FY17, the Company recorded c. $477k in unpresented cheques. Aged Creditors The following graph represents aged creditor balances of the Company between 30 June 2016 and 24 September Jun Jun Sep Days 99% 45% 28% Days (1)% 55% 54% Days 1% 0% 18% Days 0% 0% 0% 121+ Days 0% 0% 1% Total 100% 100% 100% Sources: 1. Management Accounts As can be seen, the Company appears to have faced no issues in meeting creditor obligations in a timely manner in FY16. In FY17, the Company's creditors began to age, with a majority of creditors aged beyond 30 days. By the date of the Administrators' appointment, 18% of creditors were aged beyond 60 days and well outside of standard credit terms Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

32 Offences, voidable transactions and insolvent trading Insolvent trading review (cont'd) Indicators of Insolvency Indicator Demands for repayment or legal action Cash Flow Test We have not sighted any legal documents from creditors demanding repayment or commencement of legal claims to recover amounts owed. The Company received a warning letter from the ATO regarding its outstanding tax liabilities however this did not reach the stage of a legal demand and we understand that the Company attempted to enter into negotiations with the ATO. On 18 September 2017, Subaru (Aust) Pty Ltd provided a formal notice of termination to the Company to end the stockist agreement as a result of a claimed c. $962k liability. Our discussions with a Director of the Company indicated they were not aware of any creditors pursuing payment via legal channels. Sale of business The Company first commenced a sale campaign in July 2016 to sell the Company's business. Given the Company's circumstances, it was expected the proceeds of sale would otherwise assist in extinguishing liabilities. An interested party was identified and an initial sale contract was drafted in March However due to disagreement, the contract was unable to be settled and the sale to this party was terminated in August Accordingly, the Company could be considered insolvent as of the date this contract was terminated as the Company no longer had an ability to meet its obligations as and when they fell due and there was not a realistic expectation of receiving sufficient funds from the sale of the business to settle all liabilities. Conclusion on the Cash Flow Test of Insolvency On the basis of our review of the Company's ability to pay its debts as and when they fall due, it appears the Company may have been insolvent from as early as August This is based on the following key factors: Significant liabilities owed to the Australian Taxation Office without any substantial repayments A gradually worsening aged creditors position The failure to execute a sale of business contract with the first interested purchaser of the business in August Due to ongoing trading losses, the Company were hopeful that this sale would otherwise satisfy outstanding obligations. Further investigations will be undertaken should the Company be placed into liquidation. Following a preliminary review of the indicators of insolvency in both the balance sheet and cash flow tests, we are of the opinion that the Company became insolvent from at least August Should the Company be placed into liquidation further investigations will be undertaken in this regard Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

33 Offences, voidable transactions and insolvent trading Voidable transactions review Overview In circumstances where a Liquidator is appointed he or she may be able to recover certain payments or dispositions of property that appear to the Liquidator to be voidable transactions pursuant to Part 5.7B of the Act. Voidable transactions include the following: Unfair preference payments Uncommercial transactions Unfair loans Unreasonable director related transactions The above transactions and preliminary findings are discussed in detail in the following pages. The assessment of voidable transactions is relevant to creditors in choosing between the three (3) options available at the second meeting of creditors, as they are only recoverable in a liquidation scenario. Should we be appointed as Liquidators of the Company, we will conduct a further detailed assessment of payments in order to assess whether there are any likely recoveries. Pursuing such payments may incur substantial costs by us as Liquidators and our legal advisors and there are a number of defences available to creditors in defending a preferential or uncommercial transaction action brought against them by a liquidator. An unsuccessful action can result in a negative return as the Liquidator may possibly be required to settle both the Company s and the defendant s legal costs. Accordingly, a Liquidator is required to fully investigate the circumstances surrounding the payment before commencing legal action. I wish to stress that by no means should you assume that each of the payments referred to are recoverable. Summary of findings A summary of our preliminary investigations are provided below however, further investigations will be undertaken should the Company be placed into liquidation. Unfair preference Approximately $258k in round-sum payments have been identified during the relationback period that may potentially constitute unfair preference payments. As noted above, these would be investigated further should the Company be placed in liquidation. Uncommercial transactions Our preliminary investigations have not yet identified any uncommercial transactions that would be commercial to pursue. Unfair loans Our preliminary investigations have not yet identified any unfair loans that would be commercial to pursue. Unreasonable director related transactions Our preliminary investigations have not yet identified any unreasonable director related transactions that would be commercial to pursue. Please note that recoveries of this nature are only available if the Company is placed into liquidation Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

34 Offences, voidable transactions and insolvent trading Voidable transactions review (cont'd) Voidable Transaction Description Indicator Unfair Preference: Section 588FA Commentary What is an Unfair Preference To be recoverable, all of the following circumstances must have existed at the time the unfair preference transaction was entered into: The Company is insolvent or becomes insolvent at the time of entering into the transaction. The transaction was entered into in the six (6) months prior to commencement of the administration, being 26 March 2017 to 25 September 2017 ("the relation back period"). The transaction resulted in the creditor receiving from the Company more than they would otherwise have received in a liquidation scenario. A reasonable person in the creditors circumstances would have been aware the Company was insolvent;. The creditor must not have an offset for goods or services provided after the payment which remain unpaid, for an amount greater than the payment. Ordinarily, this would be investigated further in a liquidation and potential unfair preference payments will be identified and recovery action considered. Certain transactions which may be pursued by a liquidator and potentially recoverable under these provisions will be based on indicators including, but not limited to: Threats to suspend or stop future supply or being paid outside of their agreed trading terms. Receiving large rounded payments upon the suspension of the supply of goods. Being advised that the Company is experiencing cash flow problems or entering into payment arrangements to reduce outstanding debt. Warnings that future supply would be dependant on altered trading terms (i.e. cash on delivery or payment prior to delivery). Requests that outstanding invoices be paid or at least part paid before further future supply would be entertained. Procedures undertaken The following procedures were carried out in determining whether an unfair preference occurred: Analysis of ageing of all creditors for the six (6) months leading up to my appointment. Review of bank statements throughout the relation back date period identifying any large, round sum or regular payments. Discussions with the Director and other relevant stakeholders of the Company. Searching for evidence of payment plans, winding up applications or other changes in relationships with creditors. Analysis of the running account balance for those creditors identified as being at risk of receiving unfair preferences Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

35 Offences, voidable transactions and insolvent trading Voidable transactions review (cont'd) Voidable Transaction Description Indicator Unfair Preference: Section 588FA (continued) Uncommercial Transactions: Section 588FB Commentary Findings Our preliminary investigations have identified c. $258k in round sum payments that may constitute unfair preferences pursuant to Section 588FA of the Act. However, further investigations will be undertaken should the Company be placed into liquidation to determine whether they would be commercially recoverable. What is an Uncommercial Transaction These are transactions that a reasonable person would not have entered into having regard to the benefit (if any) and detriment to the Company of entering into the transaction and the benefit to other parties of entering into the transaction. Typically such transactions relate to the sale or purchase of Company assets that disadvantage the Company. Procedures undertaken The following procedures were carried out in determining whether any Uncommercial Transactions occurred: Identification of recurring payment amounts throughout the relation back date. Identification of all payments made to 'cash' and payment transactions where not allocated to a supplier code. Consideration of whether the substance of the identified transactions are on commercial terms. Specific investigations into the Company's transactions with related parties. Findings Further investigations will be undertaken should the Company be placed into liquidation, however, our preliminary investigations have not yet identified any uncommercial transactions that would be commercial to pursue. Unfair Loans: Section 588FD What is an Unfair Loan Section 588FD(1) of the Act states a loan to a company is unfair "if and only if the interest incurred due to the loan was extortionate when the loan was made or has since become extortionate". Regard is made to the risk of the lender, the value of security (if any), the terms of the loan, amount and any other relevant matters Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

36 Offences, voidable transactions and insolvent trading Voidable transactions review (cont'd) Voidable Transaction Description Indicator Unfair Loans: Section 588FD (continued) Commentary Procedures undertaken The following procedures were carried out in determining whether any unfair loans occurred: Review of the Company's historical loan repayment and drawings throughout the relation back-date period. Consideration of whether the interest rates on the identified financing arrangements are on commercial terms. Findings Further investigations will be undertaken should the Company be placed into liquidation, however, our preliminary investigations have not yet identified any unfair loans provided. Unreasonable Director Related Transactions: Section 588FDA What is a Director Related Transaction For a transaction to be voidable under these provisions a director or an associate of a director must have benefited from the transaction in circumstances where a reasonable person would not have entered into the transaction given the nature of the resulting benefits and detriments to the respective parties. Payments, the issue of securities, conveyances or other dispositions of property by the company in favour of a director, a relative or de facto spouse of a director may constitute an unreasonable director related transaction in accordance with Section 588FD of the Act. Procedures undertaken The following procedures were carried out in determining whether any unreasonable director related transactions occurred: Identification of related and associated parties to the Company. Review of any sale or dissipation of assets. Identification of all significant payments to the Director and others throughout the relation back period. Identification of all significant payments to related entities throughout the relation back period. Findings Further investigations will be undertaken should the Company be placed into liquidation, however, our preliminary investigations indicate that while there were the presence of Director related transactions, we are not of the view at this time that these would be unreasonable director related transactions under Section 588FDA of the Act Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

37 Section 7 Proposal for a deed of company arrangement 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

38 Proposal for a deed of company arrangement Proposal for a deed of company arrangement Overview The provisions of Part 5.3A of the Act allow the Company and its creditors to negotiate a proposal to deal with the Company s affairs and in such circumstances execute a Deed of Company Arrangement (DOCA). A DOCA is a flexible arrangement which is available to a Company in Voluntary Administration. At the date of writing this report, neither the Director nor any other party have submitted a DOCA proposal Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

39 Section 8 Estimated return to creditors 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

40 Estimated return to creditors Estimated return to creditors Estimated return to creditors The estimated return to creditors in both a 'high' and 'low' liquidation scenario is summarised in the table opposite. 1. A number of the asset realisation amounts have been withheld as they are still subject to sale and therefore commercially sensitive. Following finalisation of the sale of assets, the Administrators' will provide an update creditors with respect to realisation values achieved. 2. Some potential preferential payments have been identified, however further investigations will take place should the Company be placed into liquidation in order to determine the recoverability of these amounts. Creditors may have valid defences which we are not privy to and therefore a nil amount is provided in the low scenario. 3. NAB have offset c.$83k from the Company's opening bank balance to settle an amount owed under a pre-appointment credit card facility. The Administrators have requested supporting documentation from NAB to validate their claim, however currently the offset remains in dispute. 4. Potential PMSI claims relate to amounts claimed by creditors with retention of title claims. The Administrators are in the process of reviewing the validity of these claims. 5. This represents the total floorplan finance debt (excluding interest and charges) owed to Macquarie as secured creditor. 6. This represents the amount of the invoice discounting facility drawn down by the Company as at the date of our appointment (excluding interest and charges), payable to Scottish Pacific as secured creditor. 7. Due to the significant secured creditor claims, the costs of the Administration and the transfer of employee entitlements to the purchaser in the sale it is unlikely that there will be a distribution to unsecured (including non-transferring employee) creditors. Given it is unlikely there will be a distribution to any class of creditor, there will be no impact of related party creditor claims on the estimated return to creditors. Approval for remuneration in the liquidation will be sought on a time cost basis and the amounts are detailed in Section 11 of this report. Notes Liquidation Liquidation (Low ) ($) (High) ($) Asset realisations Cash at bank upon appointment 148, ,472 Pre-appointment debtor receipts 1,027,746 1,209,113 Parts stock 1 Withheld Withheld Vehicle sales 1 Withheld Withheld Plant and equipment 1 Withheld Withheld Preference claims 2-258,000 Insolv ent trading claim 2 - Unknown Total asset realisations 1,176,218 1,615,585 Payments NAB offset claim 3 (83,236) - Potential PMSI claims 4 (139,455) - Secured creditor pay ment - Macquarie (ex cl interest and charges) Secured creditor pay ment - Scottish Pacific (ex cl interest and charges) 6 (893,010) (893,010) Net trading ex penses Ref Section 4 (291,396) (233,117) Voluntary Administrators' fees Ref Section 12 (161,870) (161,870) Liquidators' fees Ref Section 12 (50,000) (50,000) Legal fees (50,000) (20,000) Total payments (1,668,967) (1,357,997) Net asset realisations Withheld Withheld Unsecured creditors 7 Claim value Est. return Employ ees - outstanding superannuation 196,808 Unknown Employ ees - leav e entitlements 518,485 Unknown Employ ees - retrenchment entitlements 615,813 Unknown Unsecured creditors 3,771,486 Nil It is unlikely that there will be a distribution to unsecured creditors (including non-transferring employees). However, the sale of business has resulted in a better overall outcome for creditors as the majority of employees have retained employment and higher values for certain assets are able to be achieved Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

41 Section 9 Effect on employees 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

42 Effect on employees Effects on employees Overview Upon appointment, the Administrators continued to trade the business and paid employee wages. Pursuant to Section 556 of the Act any unpaid wages, superannuation, leave and other such entitlements arising out of employment with the Company will ordinarily rank as a priority claim against certain assets of the Company. In the event the Company is placed into liquidation, employees are advised to complete and lodge with the Administrators a Proof of Debt for all outstanding entitlements owed as at the date of appointment. Estimate of entitlements Please see below a summary of the outstanding employee entitlements as at the date of my appointment. Employees should note that the summary below is a preliminary estimate only and each employee will be provided with a schedule of their entitlements. This preliminary estimate of entitlements is based on management accounts and the National Employment Standards. The Administrators will pay for any employee entitlements accrued during the Administration. Annual leave Superannuation Long service leave Redundancy Payment in lieu of notice 304, , , , ,263 Estimated return to employees At this stage, it is unclear whether there will be a return to employees. This will depend on investigations and recoveries in liquidation. Fair Entitlements Guarantee Scheme (FEG Scheme) Should the Company be placed into liquidation following the Second Meeting of Creditors, employees may lodge a claim through the FEG Scheme which covers outstanding employee entitlements for eligible employees (excluding superannuation). Further information in respect of the FEG Scheme can be found at: Under the FEG Scheme, where employees have a legal entitlement derived from legislation, an award, a statutory agreement or a written contract of employment, they may be eligible to receive the following (based on earnings capped at $127,452 per annum): Unpaid wages (for up to 13 weeks) Long service leave Annual leave Payments in lieu of notice (up to a maximum of 5 weeks) Up to four (4) weeks redundancy pay per completed year of service Eligibility of each claim is determined by the Commonwealth Department of Employment (Department) who administer the FEG Scheme. For further information, please visit or call the FEG hotline on between 9am and 5pm (Canberra time). Please note that should a payment to employees be made via the FEG Scheme, these funds are recoverable from the Company pursuant to Section 560 of the Act. The Department will assume the employee's priority position as a creditor of the Company to the extent of amounts paid under the FEG Scheme. Accordingly, the payment of employee entitlements through the FEG Scheme does not improve the quantum of potential recoveries available for distribution to ordinary unsecured creditors. It should be noted that the FEG Scheme is only available to employees if the Company is placed into liquidation Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

43 Section 10 Administrators' recommendation 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

44 Administrators' recommendation Administrators' recommendation Administrators' recommendation In accordance with Section of the Insolvency Practice Rules, the Administrators are required to make a recommendation to creditors as to which of the options available to them is in their best interests. The following options are available for creditors to vote on at the meeting pursuant to Section 439C of the Act: That the administration should end. That the company execute the proposed DOCA. That the company be wound up. 1. The administration should end It is possible that creditors may consider ending the Administration which would return the Company to the control of its Director. Ordinarily, the Director would resume control of the Company's assets and be able to deal with them as they deem appropriate. Administrators' recommendation: It would not be in the creditors' best interests for the Administration to end as the Company is insolvent and therefore requires a mechanism to deal with creditors' claims. 3. The Company be wound up (liquidation) Creditors may resolve to wind up the Company which would result in the Company being placed into liquidation. If creditors do not nominate a different person to be Liquidator, Matt Byrnes and I will be taken as having been nominated as Joint and Several Liquidators of the Company. A more detailed review of the Company s financial affairs would be conducted and as a consequence a report on its affairs and the conduct of its officers would be prepared and the findings conveyed to ASIC. Further investigations in relation to voidable transactions and insolvent trading would be made as well as a determination to proceed with such claims, if any. In the event sufficient funds are recovered, monies would be distributed in accordance with the provisions of Section 556 of the Act. Administrators' recommendation: It is in creditors' best interest for the Company to be wound up as it is insolvent and creditors' claims need to be dealt with under a formal appointment. 2. The Company executes a Deed Of Company Arrangement The provisions of Part 5.3A of the Act allow the Company and its creditors to negotiate a proposal to deal with the Company s affairs and in such circumstances execute a DOCA. I advise that neither the Director or any other party have submitted a DOCA, and it is unlikely for one to be submitted. Administrators' recommendation: It would not be in the creditors' best interest for the Company to execute a Deed of Company arrangement as no DOCA proposal has been submitted. Recommendation: It is in creditors' best interest for the Company to be wound up as it is insolvent and creditors' claims need to be dealt with under a formal appointment Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

45 Section 11 Remuneration 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

46 Remuneration Remuneration Voluntary Administrators' remuneration (excl GST and disbursements) Description Joint and Several Administrators remuneration for the period 25 September 2017 to 20 October 2017 Joint and Several Administrators' estimated future remuneration for the period 21 October 2017 to 31 October 2017, being the date of the second meeting Amount ($) 141,870 20,000 Remuneration Enclosed at Appendix C is the Administrators' Remuneration Report, which provides details of: Voluntary Administrators' remuneration and disbursements to be approved; and Liquidators' future remuneration and disbursements to be approved. Creditors should note that all works has, and will be, performed by the appropriate level of staff in order to optimise any potential realisations which may be available to unsecured creditors Joint and Several Administrators' internal disbursements for the period 25 September 2017 to 31 October 2017 Liquidators' future remuneration (excl GST and disbursements) Description Joint and Several Liquidators' remuneration for the period 31 October 2017 to Finalisation Joint and Several Liquidators' internal disbursements for the period 31 October 2017 to Finalisation 1,000 Amount ($) 50,000 1,000 Voluntary Administrators' remuneration The remuneration has been split between actual fees incurred for the period 25 September 2017 to 20 October 2017 and the estimated future fees to be incurred for the period 21 October 2017 to 31 October 2017, being the date the of the second meeting. Liquidators' future remuneration It will be necessary for the creditors to approve the drawing of remuneration for the Liquidators, should creditors vote that the Company be placed into liquidation. At the forthcoming meeting of creditors on 31 October 2017, the creditors will be requested to approve our remuneration as provided in the tables opposite Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

47 Section 12 Meeting 01. Introduction 02. Executive summary 03. Background information 04. Trading during the Administration 05. Actions undertaken to date 06. Offences, voidable transactions and insolvent trading 07. Proposal for a deed of company arrangement 08. Estimated return to creditors 09. Effect on employees 10. Administrators' recommendation 11. Remuneration 12. Meeting 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

48 Meeting Second meeting of creditors Second meeting of creditors The second meetings of creditors is to be held at the offices of Grant Thornton Australia Limited at The Rialto, Level 30, 525 Collins Street, Melbourne VIC 3000 at 11:00AM on 31 October Please arrive 30 minutes before hand to allow sufficient time for registration. The notice in regards to the meeting is enclosed as Appendix D. The meeting will be open to creditors for questions and general discussion. Should you wish to have us address any issue in detail please advise us prior to the meeting date. This will allow sufficient time to prepare a detailed response to your question. Please note that attendance at the meeting is not compulsory. Telephone attendance Should you not be able to attend the second meeting of creditors in person, creditors are invited to attend via telephone. In order to do so, you will be required to submit a proof of debt and proxy in favour of the party attending via telephone as detailed below. Please contact Mr Nathan Nikolai of this office at nathan.nikolai@au.gt.com by no later than 4:00PM on the business day prior to the meeting, being 30 October 2017 to obtain dial in details. Lodging of proofs of debt Should you not have already lodged a proof of debt, you are required to complete the proof of debt as attached as Appendix E in order to participate in voting at the meeting. Lodging of proxies Proxy Forms lodged for the previous meeting are not valid for this meeting and therefore, new proxies need to be lodged to enable voting at the second meeting. Please ensure that the proxies are signed under seal, where appropriate (if you are a company) and if the proxy is executed by a power of attorney, that a copy of the power of attorney is enclosed with the proxy form. The proxy form is enclosed as Appendix F. Proxies for the meeting can be lodged in the following ways: Post: to arrive no later than 4:00PM on the business day prior to the meeting, being 30 October Facsimile: to (03) no later than 4:00PM on the business day prior to the meeting, being 30 October In Person: by person with a person attending the meeting. by to nathan.nikolai@au.gt.com by no later than 4:00PM on the business day prior to the meeting, being 30 October If proxies are lodged by facsimile or , the law requires that the original proxy must be lodged with the Voluntary Administrators within 72 hours of lodging the faxed or ed copy. Contact details Should you have any queries in relation to any matter raised in this report then please do not hesitate to contact Nathan Nikolai on (03) Yours faithfully Andrew Hewitt Joint and Several Administrator 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

49 Appendices A. ARITA creditor information sheet B. DIRRI C. Administrators' Remuneration Report D. Notice of Second Meeting of Creditors E. Proof of Debt Form F. Proxy Form 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October 2017

50 Appendices A. ARITA creditor information sheet 2017 Grant Thornton Australia Ltd Makin & Luby Pty Ltd (Administrators Appointed) ATF The Makin & Luby Unit Trust 23 October

51 Creditor Rights in Voluntary Administrations As a creditor, you have rights to request meetings and information or take certain actions: Right to request information Right to give directions to voluntary administrator Right to appoint a reviewing liquidator Right to replace voluntary administrator Right to request information Information is communicated to creditors in a voluntary administration through reports and meetings. In a voluntary administration, two meetings of creditors are automatically held. You should expect to receive reports and notice of these meetings: The first meeting is held within 8 business days of the voluntary administrator s appointment. A notice of meeting and other information for this meeting will be issued to all known creditors. The second, or decision, meeting is usually held within 6 weeks of the appointment, unless an extension is granted. At this meeting, creditors will get to make a decision about the company s future. Prior to this meeting the voluntary administrator will provide creditors with a notice of the meeting and a detailed report to assist in making your decision. Requests must be reasonable. They are not reasonable if: (a) complying with the request would prejudice the interests of one or more creditors or a third party (b) the information requested would be privileged from production in legal proceedings (c) disclosure would found an action for breach of confidence (d) there is not sufficient available property to comply with the request (e) the information has already been provided Important information will be communicated to creditors prior to and during these meetings. Creditors are unable to request additional meetings in a voluntary administration. (f) the information is required to be provided under law within 20 business days of the request Creditors have the right to request information at any time. A voluntary administrator must provide a creditor with the requested information if their request is reasonable, the information is relevant to the voluntary administration, and the provision of the information would not cause the voluntary administrator to breach their duties. A voluntary administrator must provide this information to a creditor within 5 business days of receiving the request, unless a longer period is agreed. If, due to the nature of the information requested, the voluntary administrator requires more time to comply with the request, they can extend the period by notifying the creditor in writing. (g) the request is vexatious If a request is not reasonable due to (d), (e) or (f) above, the voluntary administrator must comply if the creditor meets the cost of complying with the request. Otherwise, a voluntary administrator must inform a creditor if their information request is not reasonable and the reason why. ARITA ACN Level 5, 191 Clarence Street, Sydney NSW 2000 Australia GPO Box 4340, Sydney NSW 2001 t e admin@arita.com.au arita.com.au AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION