LIQUIDATOR' REPORT TO CREDITORS PURSUANT TO SECTION 508 OF THE CORPORATIONS ACT 2001

Transcription

1 10 June 2016 Dear Sir/Madam LIQUIDATOR' REPORT TO CREDITORS PURSUANT TO SECTION 508 OF THE CORPORATIONS ACT 2001 Forge Group Limited (In Liquidation) (Receivers and Managers Appointed) ACN and certain of its subsidiaries as outlined in The Schedule (Collectively, the Group or the Companies ) I refer to my appointment as Administrator of the Group on 11 February 2014 pursuant to Section 436A of the Corporations Act 2001 (the Act) and to my subsequent appointment as Liquidator of the Group on 18 March Please note, Ben Johnson (former Liquidator) announced his resignation as a partner of Ferrier Hodgson on 16 October 2016 and resigned from his position as Liquidator of the Group on 12 October As previously foreshadowed, the consequence of the appointment of the Receivers, is that the Liquidators powers are limited and subordinate to the power of the Receivers. This report should therefore be read in this context. Annual Meetings I advise that the liquidations have been in progress for two (2) years now and pursuant to Section 508 of the Act, I am required to report to creditors outlining the conduct of the liquidation. Section 508 of the Act typically provides the Liquidator the option to either convene an annual meeting of creditors in order to table the Annual Report, or to prepare and lodge the Annual Report with the Australian Securities and Investment Commission (ASIC) and provide creditors with notice of the same. The Liquidators do not see sufficient merit to creditors in convening meetings for any of the Companies at this time for the following reasons: There are significant costs involved in convening creditors meetings. The entities are in Receivership, and are without funds at this stage of the liquidation.

2 Page 2 The Liquidators will consider the utility in convening meetings for the Companies once the Companies come into funds. I take this opportunity of reporting to you under the following headings: 1. Work Performed to Date; 2. Investigations into the Company Affairs; 3. Employee Entitlements; 4. Defence of Proceedings; 5. Samsung Examinations; 6. Statement of Position; 7. Receipts and Payments; 8. Declaration of Independence, Relevant Relationships and Indemnities; 9. Next Steps; and 10. Further Queries. As noted above, the Liquidators control of some of the entities has been subject to the appointment of the Receivers and as a result, the progress in these liquidations by the Liquidators has been impacted. 1. Work Performed to Date I advise during the course of the Liquidation the tasks which have been undertaken can be summarised under the following: Secured and entered into litigation funding with IMF Bentham Ltd (IMF) with regard to a potential insider trading claim against Clough Limited. Continued to test the market with the view to procuring additional litigation funding in order to advance other causes of action. These negotiations are substantially advanced. Assisted the Receivers with disputes in relation to retention of title claims and secured parties on the Personal Property Securities Register. Assisted the Receivers in relation to the categorisation of various assets as to whether the realisation proceeds were circulating or non-circulating.

3 Page 3 Further reporting and verification of employee claims in connection with the Fair Entitlements Guarantee Scheme. Progressed statutory investigations into the affairs of the Group. Commenced investigations and assessment of the merits of pursuing various causes of action for the benefit of creditors. Liaised with the Committee of Inspection as to the status of the liquidation. Engaged with the Group s Director and Officer insurer as to the class action commenced against the Group by Slater and Gordon and filed submissions in opposition to the plaintiffs application to commence their proceedings and obtain leave of the Court. Commenced the public examinations process against individuals at Samsung C&T Corporation (Samsung) in connection with calling bonds in the amount of $111M. Archived the Companies pre appointment books and records. Responded to ongoing unsecured creditors and investors enquiries by way of written correspondence and telephone. Ongoing compliance with all statutory requirements.

4 Page 4 2. Investigations into the Company Affairs 2.1. Claims and Litigation Funding Further to my previous annual report to creditors, we have: Entered into a Litigation Funding Agreement with IMF in relation to an insider trading action against Clough Limited. Given the commercially sensitive nature of the claim we are unable to provide creditors with any further particulars at this stage; and Continued to explore alternatives and seek litigation funding proposals with respect to the balance of the identified causes of action. We are, in this regard, substantially advanced in our discussions with one funder and anticipate progressing the same in the short term. We will update the COI in relation to this potential funding agreement in due course. The recent Bell decision in relation to the interpretation of Section 548 (and whether a meeting of contributories is required to validate the appointment of a COI) necessitated an application to the Court to i) ratify the COI and the resolutions passed to date; and ii) to approve the Liquidators entry into the proposed funding arrangement with IMF. Following the Court making orders to the above effect, the Liquidator proceeded to execute the IMF Funding Agreement and advance the cause of action. We will continue to update Creditors (and the COI) in relation to the above maters to the extent that dissemination of the information will not impact the cause of action ASIC Reporting We have been preparing our Section 533 statutory reports for lodgement with ASIC. These reports summarise our preliminary investigations into the affairs of the Group and outline: The causes of failure. Any potential breaches or offences under the Act by the directors and officers of the Group. The statement of the assets and liabilities of the Group. My recommendations to ASIC as to whether further investigations are warranted. Once these reports have been lodged with ASIC, the Liquidator may consider lodging a funding application with ASIC. In the event ASIC wishes to pursue these matters further, they will provide funding to enable the Liquidator to investigate the offences identified (if any) in further detail. I note that generally any funding from ASIC is specific to the identification and the ability to enforce penalties in relation to any offences and may not assist in commercial recoveries for the benefit of creditors.

5 Page 5 3. Employee Entitlements Upon the Group s entry into liquidation, both the current and former employees were able to claim for their unpaid entitlements through the FEG. Shortly following my appointment as Liquidator, I wrote to each former employee of the Group to inform them of the FEG claim process and provided the relevant information required to submit their claims to the Department of Employment (DoE) in respect of outstanding pre-appointment employee entitlements. The FEG process involved the Liquidator collating and verifying the FEG claims against the Group s records with DoE, receiving funds from DoE, deducting any applicable withholding tax and distributing those funds to the FEG claimants. I advise at the date of this report, a total of 1,656 former employees of the Group have lodged a FEG claim for a total gross amount of $32.78M, of which DoE have provided a total amount of $19.83M for distribution to the FEG claimants. I advise the gross difference of $12.95M between the claimed and distributed FEG amounts was a result of the FEG policies and guidelines as applied to each FEG claim during the DoE s assessment. I table below a summary of the FEG entitlements for each respective Company for your ease of reference: Entity Name Forge Group Construction Pty Ltd Est Outstanding Entitlements as at my Appointment ($) No. of Employees Total Funds Distributed by FEG ($) No. of Emp who received FEG funds No. of Emp who did not claim No. of Employees under s457 visas 27,110,337 1,277 13,646, Forge Group Ltd 6,552, ,446, Forge Group Asset Management Pty Ltd 1,238, , Forge Group Power Pty Ltd 3,088, ,523, Forge Group Minerals and Resources Pty Ltd 2,578, ,431, Total $40,568,633 1,652 $19,828,911 1,

6 Page 6 To date, I have received and processed 69% of the eligible employees claims based on the total number of employees as at appointment. I confirm that the DoE finalised their adjudication of claims on behalf of employees and that the statutory deadline by which to claim, being 18 March 2015 has now passed. Employees who failed to submit their claim by this statutory deadline are ineligible to claim through the FEG. I note the DoE is entitled to claim as a priority creditor of the Group in respect of the funds advanced through the FEG. The repayment of these funds advanced by DoE in relation to outstanding employee entitlements and those amounts not covered through the FEG will only be repaid to priority creditors should sufficient circulating assets be realised by the Receivers or the Liquidator. As you will appreciate, the timing and recovery of such amounts is uncertain. We are advised that the Receivers and Managers of the Group have made an application to the Federal Court of Australia for directions in relation to the categorisation of certain recoveries as to whether those recoveries are circulating or non-circulating assets of the Group. FEG are acting as a contradictor in the matter, which we understand has been heard by the Court with the decision reserved. The significance of the above proceedings / directions is such that employees have a priority with respect to their unpaid entitlements to circulating assets before the Group s secured creditors and if those recoveries are categorised as circulating, further funds may become available to employees (together with FEG with respect to their right of subrogation). We will continue to update creditors in relation to the above. 4. Defence of Proceedings As previously foreshadowed, there are a number of claims which have been brought against the Group and/or the former directors. The two primary actions in this regard are: Rushleigh Services proceeding or Slater and Gordon class action; and Swiss RE/ Asset Insure proceedings. Whilst the Group is not a party to the Swiss RE proceedings (and therefore, we are not in a position to comment as to its status), we have been actively involved in the defence of the Rushleigh proceedings, specifically in opposing the granting of leave for Slater & Gordon to commence proceedings against the Group pursuant to (Section 500 (2) of the Act). This matter has now been heard and Foster J has reserved his decision. We will continue to update creditors and the COI in relation to the status of the above Proceedings, to the extent possible.

7 Page 7 5. Samsung Examinations Since our last annual report to creditors, there has been no material developments in relation to the contemplated examinations of key personal at Samsung in connection with Samsung s calling of the Bonds in the order of $111M. This is a result of: Samsung s current approach to delay the examinations on the basis that: i) We are conducting the examinations on behalf of the Receivers (which ignores the Liquidators statutory right to undertake the same and that the Liquidators are unfunded); and ii) That the claims should be ventilated in the Court of arbitration in Singapore (which also ignores our statutory right to undertake examinations). There has also been a subpoena issued which prevented a substantive hearing in relation to the above matters, and on this basis the Court was required to review the documents produced for legal professional privilege. Whilst this issue has now been resolved, with a decision in the Liquidators favour, it has delayed the progression of the substantive hearing and therefore our ability to examine the key Samsung personnel and progress the claim. We will continue to update creditors and the COI with respect to this matter. 6. Statement of Position At this stage of the Liquidation, the Liquidator are not in a position to provide an updated statement of position given the ongoing realisation process being conducted by the Receivers and the preliminary status of the prospective litigation by the Liquidator. 7. Receipts and Payments A summary of receipts and payments in the liquidation for the period 1 May 2015 to 10 June 2016 is set out in Annexure A. Creditors are advised pursuant to Section 539(5) of the Act that the Liquidator account of receipts and payments can be inspected at the offices of Ferrier Hodgson, Level 28, 108 St Georges Terrace, Perth during business hours. In this regard, please contact my office should you wish to inspect the receipts and payments.

8 Page 8 8. Declaration of Independence, Relevant Relationships and Indemnities Other than the updates to the IMF funding agreement, there are no updates to the DIRRI provided in my last report to creditors. 9. Next Steps The Liquidator propose to undertake the following next steps in relation to the winding up of the Group: 10. Further Queries Should you require any further information concerning the contents of this report or the liquidation in general, please contact either William Hulmes or Sean Holmes of this office. DATED this 10 th day of June 2016 Martin Jones Liquidator Encl.

9 Page 9 THE SCHEDULE Liquidator Appointed Company ACN Forge Group Ltd Alanthus Nominees Pty Ltd Energy Maintenance Partners Pty Ltd Forge Group Asset Management Pty Ltd Forge Group Construction Pty Ltd Forge Group Minerals & Resources Ltd Forge Group Power Pty Ltd Forge International Pty Ltd Cimeco Pty Ltd CTEC Pty Ltd Abesque Engineering Pty Ltd Receivers and Managers Appointed Company ACN Forge Group Ltd Forge Group Asset Management Pty Ltd Forge Group Construction Pty Ltd Forge Group Minerals & Resources Ltd Forge Group Power Pty Ltd Forge International Pty Ltd

10 Annexure A Forge Group Limited (In Liquidation) (Receivers and Managers Appointed) ACN and certain of its subsidiaries as outlined in The Schedule (Collectively, the Group or the Companies ) Receipts and Payments

11 Summary of Receipts and Payments for the period 1 May 2015 to 10 June Forge Group Limited (ACN ) Amount Receipts and Payments ($) Opening cash at bank (1 May 2015) 3,192 Payments PAYG withholding (3,156) FEG return of funds (36) Total Payments (3,192) Closing cash at bank Nil Forge Group Construction Pty Ltd (ACN ) Receipts and Payments Amount ($) Opening Cash at Bank (1 May 2015) 310,483 Receipts Advance from FEG 71,058 Total Receipts 71,058 Payments FEG distributions (291,448) PAYG Withholding (90,093) Total Payments (381,541) Closing Cash at Bank Nil Forge Group Asset Management Pty Ltd (ACN ) Receipts and Payments Amount ($) Opening cash at bank (1 May 2015) 43,059 Payments FEG Distributions (35,675) PAYG (7,384) Total Payments (43,059) Closing cash at bank Nil Forge Group Minerals & Resources Ltd (ACN ) Amount Receipts and Payments ($) Opening cash at bank (1 May 2015) 14 Payments FEG return of funds (14) Total Payments (14) Closing cash at bank Nil Forge Group Power Pty Ltd (ACN ) Amount Receipts and Payments ($) Opening cash at bank (1 May 2015) 9,518 Payments FEG Distribution (9,518) Total Payments (9,518) Closing cash at bank Nil I note that no receipts and payments have been made for the remaining entities of the Group, being: Alanthus Nominees Pty Ltd Energy Maintenance Partners Pty Ltd Forge International Pty Ltd Cimeco Pty Ltd CTEC Pty Ltd Abesque Engineering Pty Ltd

12 Annexure B Forge Group Limited (In Liquidation) (Receivers and Managers Appointed) ACN and certain of its subsidiaries as outlined in The Schedule (Collectively, the Group or the Companies ) Declaration of Independence, Relevant Relationships and Indemnities

13 Declaration of Independence, Relevant Relationships and Indemnities This document requires the practitioner/s appointed to an insolvent entity to make declarations as to: A. their independence generally; B. relationships, including (i) the circumstances of the appointment; (ii) any relationships with the Insolvent and others within the previous 24 months; (iii) any prior professional services for the Insolvent within the previous 24 months; (iv) that there are no other relationships to declare; and C. any indemnities given, or upfront payments made, to the practitioner This declaration is made in respect of myself, the partners of Ferrier Hodgson, and my firm, Ferrier Hodgson. Declaration of independence I, Martin Jones of Ferrier Hodgson, have undertaken a proper assessment of the risks prior to accepting the appointment as Liquidator of the Group in accordance with the Act, the Australian Restructuring Insolvency & Turnaround Association (ARITA) Code of Professional Practice (the Code) and applicable professional standards. This assessment identified no real or potential risks to my independence. I am not aware of any reasons that would prevent us from accepting this appointment. Declaration of relationships (i) Circumstances of appointment I advise that the Company contacted me directly, for the first time, on 11 February 2014 in relation to a prospective appointment as Voluntary Administrators. I had one (1) meeting with the Companies directors on 11 February The purpose of the meeting was to discuss the financial position of the Companies and to make the arrangements to enable my appointment as Voluntary Administrators. Ferrier Hodgson s advice was limited to the voluntary administration process. Advice was given to the Companies only. I did not advise the directors personally or others. The Courts and the ARITA s Code of Professional Practice specifically recognise the need for practitioners to provide advice on the insolvency process and the options available and do not consider that such advice results in a conflict or an impediment to accepting the appointment. The nature of the advice is such that it would not be subject to review and challenge during the voluntary administration or liquidation. The pre-appointment advice will not influence my ability to fully comply with the statutory and fiduciary obligations associated with the voluntary administration or

14 liquidation in an objective and impartial manner. I do not consider that this meeting impacted my independence in any way. I have provided no other information or advice to the Group, its directors and its advisors prior to my appointment beyond that outlined in this DIRRI. (ii) Relevant Relationships (excluding professional services to the Insolvent) Neither of us, nor my firm, has had within the preceding 24 months, any relationships with the Companies, an associate of the Companies, a former insolvency practitioner appointed to the Companies or any other person or entity that has a charge on the whole or substantially the whole of the Companies property, other than those explicitly detailed in this declaration. (iii) Prior Professional Services to the Insolvent No prior services were provided to the insolvent. From time to time I provide professional advice, either formally or informally to ANZ, the secured creditor of the Company however I have had no involvement with ANZ in direct relation to the Group. In this respect I advise that KordaMentha have been appointed as Receivers of certain entities within the Group. There are no other prior professional relationships or engagements that should be disclosed. (iv) No other relevant relationships to disclose There are no other known relevant relationships, including personal, business and professional relationships, within the previous 24 months with the Group, an associate of the Group, a former insolvency practitioner appointed to the Group or any person or entity that has a charge on the whole or substantially the whole of the Group s property that should be disclosed.

15 (v) Indemnities and Upfront Payments Since my appointment I have been provided with the following indemnities in relation to the Group: Indemnity Provider Receivers and Managers and secured creditor of FGL Receivers and Managers and secured creditor of FGL Indemnity Provided To FGL FGL Description of Indemnity Payment of the Liquidator fees incurred in the administration of FGL and which Ire previously approved by creditors of FGL. Payment of the Liquidator fees associated with Samsung public examinations. ACE Insurance Limited FGL Payment of the Liquidator fees incurred during agitation of leave argument as to Slater and Gordon class action. IMF Bentham Limited FGL Payment of the Liquidator fees and legal costs associated with the Clough claim. Amount $330,000 (plus GST) Costs incurred basis, deferred to outcome of proceedings. Costs incurred basis. Costs incurred basis. Dated 10 June 2016 Martin Jones Liquidator NOTE: If circumstances change, or new information is identified, I am required under Section 506A(5) of the Corporations Act 2001 and the ARITA Code of Professional Practice to update this declaration and provide a copy to creditors with my next communication and I ll table a copy of any replacement declaration at the next meeting of the Company s creditors. Any relationships, indemnities or up-front payments disclosed in the declaration must not be such that the practitioner is no longer independent. The purpose of components B and C of the declaration is to disclose relationships that, while they do not result in the practitioner having a conflict of interest or duty, ensure that creditors are aware of those relationships and understand why the practitioner nevertheless remains independent.