(Administrators Appointed) (Receivers and Managers Appointed) And certain Subsidiaries. (Referred to as the Group )

Transcription

1 Forge Group Limited (Administrators Appointed) (Receivers and Managers Appointed) And certain Subsidiaries (Referred to as the Group ) Concurrent Second Meetings of Creditors Tuesday, 18 March 2014

2 Introduction Appointment of Administrators Martin Jones, Andrew Saker and Ben Johnson of Ferrier Hodgson were appointed as Joint and Several Administrators of the following entities on 11 February 2014: 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 Appointment of Receivers and Managers Mark Mentha and Scott Langdon of KordaMentha were also appointed Receivers and Managers of the following main trading entities on 11 February 2014: Forge Group- Second Meeting of Creditors Page 2

3 Introduction 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 The Receivers and Managers role is to secure and realise the property captured by the secured creditors charges. This includes debtors, contracts, plant and equipment and security bonds. The Receivers and Managers are currently negotiating to complete the Diamantina Power Station contract in Australia and realise the Group s interest in international investments which are not subject to the receivership or administration, but fall within the Receivers and Managers control by virtue of the entities shares being held by one of the above entities. Please note that the USA and West African foreign entities are not in any formal administration and are stand alone businesses that have not been effected by our Appointment. Forge Group- Second Meeting of Creditors Page 3

4 Introduction Concurrent Meetings The legal position is that there are in fact eleven (11) meetings being held concurrently today. For the purposes of any resolutions, I propose that the following will apply: The following entities are parties to a Deed of Cross Guarantee (DXG): 1. Forge Group Limited 2. Forge Group Construction Pty Ltd 3. Forge Group Power Pty Ltd 4. Forge Group Minerals & Resources Ltd The effect of the DXG is that in the event of liquidation of any or all of the entities, the assets and liabilities are effectively pooled. As such for the purposes of today s meeting, and where resolutions are proposed for any of the DXG Entities, I will not be seeking separate resolutions for each entity, but rather one joint resolution for all four entities above. Forge Group- Second Meeting of Creditors Page 4

5 Introduction In relation to the other seven (7) entities which the Administrators are appointed over and are not subject to the DXG, 1. Alanthus Nominess Pty Ltd 2. Abesque Engineering Pty Ltd 3. Cimeco Pty Ltd 4. CTEC Pty Ltd 5. Energy Maintenance Partners Pty Ltd 6. Forge Group Asset Management Pty Ltd 7. Forge International Pty Ltd each resolution proposed today will need to be passed in respect of each non DXG entity, and each creditor will be given the opportunity to vote in relation to the company for which they have a claim against. Forge Group- Second Meeting of Creditors Page 5

6 Housekeeping Please turn of all mobile phones during the meeting Media is asked to leave Please hold all questions until the end of the meeting When asking a question, please wait for a microphone attendant before directing your question to the Chairman Forge Group- Second Meeting of Creditors Page 6

7 Introduction of Meetings Meetings to be held concurrently Notice calling the meeting Admission of proxies Amount admitted- voting purposes only Determination of quorum Voting and resolutions Motions, Resolutions and Casting Vote Forge Group- Second Meeting of Creditors Page 7

8 Conduct of Meetings Purpose of Meetings To consider the Administrators report to Creditors dated 10 March 2014 in relation to the Companies affairs and any other matters raised relating to the Companies futures and then resolve either that: 1. The Companies execute Deeds of Company Arrangement (DOCA); or 2. The administrations should end; or 3. The Companies be wound up; or 4. That the meeting of creditors be adjourned for a period not exceeding 45 business days pursuant to section 438B(2) of the Corporations Act 2001 (Cth). As no DOCA has been proposed, the DOCA resolutions will fall away. Forge Group- Second Meeting of Creditors Page 8

9 Conduct of Meetings Purpose of Meetings (Continued) To consider, and if thought fit approve, the Administrators remuneration. To consider, and if thought fit approve, the remuneration of the Liquidators, if appointed. If the Companies are wound up, to consider the appointment of Committees of Inspection. Any other business that may be lawfully brought forward. Forge Group- Second Meeting of Creditors Page 9

10 Declaration of Independence, Relationships and Indemnities Pursuant to Sections 436DA(2) and (3) of the Act and the ARITA Code of Professional Practice, the Administrators enclosed a copy of the Administrators Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) for the Group in the circular to creditors dated 12 February In the DIRRI, we noted that: We, Martin Jones, Andrew Saker and Ben Johnson of Ferrier Hodgson have undertaken a proper assessment of the risks prior to accepting the appointment as Administrators of The Group in accordance with the Corporations Act 2001 (Cth) (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 our independence. We are not aware of any reasons that would prevent us from accepting this appointment. Forge Group- Second Meeting of Creditors Page 10

11 Declaration of Independence, Relationships and Indemnities (cont.) In our report to creditors dated 10 March 2014 we included an updated declaration to include matters that have come to our attention since the first meeting of creditors, as follows: Funding request: Administrators are currently unfunded. A request has been made of the Group s secured lenders for funding. Advice to the directors of Pilbara Logistics (WA) Pty Ltd (PLWA): Ferrier Hodgson was approached by the directors of PLWA to assist with an assessment of its financial interest in a joint venture with Forge Construction, an entity that the Receivers and Managers are appointed over. Forge Group- Second Meeting of Creditors Page 11

12 Chronology of Major Events Ai construction acquires Cimeco aiconstruction begins trading as Forge Group and list on the ASX Forge Group acquires Abesque Engineering FY 2006 FY 2007 REV: $75M NPAT: $2.7M FY 2008 REV: $128M NPAT: $7.8M FY 2009 REV: $169M NPAT: $15.6M FY 2010 REV: $247M NPAT: $29.5M Clough acquires 31.3% stake in Forge Group Forge Group acquires CTEC Forge Group rebrands as One Forge Forge Group acquires Taggart Global FY 2011 REV: $425M NPAT: $38.8M FY 2012 REV: $775M NPAT: $49.3M FY 2013 REV: $1.05B NPAT: $62.9M FY 2014 Refer to Annexure 2 of the report for a summary of significant events of the Forge Group Companies from the date of listing on the ASX to the date of our appointment. Clough Divestment $1.47B Roy Hill Contract Awarded Forge Trading and Financial Update Announcement Forge Group- Second Meeting of Creditors Page 12

13 Historical Financial information Consolidated Profit and Loss Statement preliminary analysis: Summarised below are the Companies consolidated profit and loss statement for the years ended 30 June 2012, 30 June 2013 and the period ending 31 January 2014: Consolidated Profit and Loss (Unaudited) Period to 31 January 2014 Year to 30 June 2013 Year to 30 June 2012 $'000 $'000 $'000 Revenue 520,041 1,054, ,879 Cost of Sales (711,430) (656,334) (516,867) Overheads (47,599) (304,290) (194,087) Asset Recovery 22, Gross Profit/(Loss) (216,368) 93,665 64,182 Expenses (77,709) (10,495) 202 Operating Profit/(Loss) (294,077) 83,170 64,384 Other Income (30,085) 6,939 5,698 Profit/(Loss) Before Tax (324,162) 90,109 70,082 Tax (expense)/income (2,301) (27,190) (20,780) Profit/ (Loss) After Tax (326,463) 62,919 49,302 There was 198% deterioration in the contribution margin between 30 June 2013 and 31 January Income for the period to 31 January 2014 was well below what was budgeted while costs were significantly higher. Forge Group- Second Meeting of Creditors Page 13

14 Historical Financial Information (cont.) Consolidated Balance Sheet preliminary analysis: Summarised below are the Companies consolidated balance sheet prepared as at 30 June 2012, 30 June 2013 and 31 January 2014: Consolidated Balance Sheet (Unaudited) As At 31 January 2014 As At 30 June 2013 As At 30 June 2012 $'000 $'000 $'000 Current Assets Cash & Cash Equivalents 15,316 90,728 51,091 Trade and Other Receivables 103,279 83, ,884 Inventory 40, ,491 11,331 Other Assets (23,415) 6,843 74,987 Total Current Assets 135, , ,293 Current Liabilities Trade and Other Payables 299, , ,169 Inter Company Loans (161) 11,139 8,734 Other Liabilities 63,892 3,970 9,192 Current Liabilities 363, , ,095 Net Current Assets/(Liabilities) (227,844) 96,639 49,198 Non Current Assets Property, Plant and Equipment 73,293 71,546 67,736 Other Assets 90,467 61,348 76,372 Total Non Current Assets 163, , ,108 Non Current Liabilities Provisions 1,517 1,560 12,528 Other Liabilities 50,667 14,547 17,453 Total Non Current Liabilities 52,184 16,107 29,981 Net Assets/(Liabilities) (116,268) 213, ,325 Equity Contributed Equity 42,768 45,430 45,430 Reserves (159,036) 167, ,895 Total Equity (116,268) 213, ,325 Forge Group- Second Meeting of Creditors Page 14

15 Historical Financial Information (cont.) Balance Sheet preliminary analysis (cont): As at 31 January 2014: Including only the Australian entities, Net cash available was ($2.7m). Including only the Australian entities, Net receivables were $59.8m, however collectability remains uncertain at this stage. Inventory includes Work In Progress, again collectability is uncertain at this point in time. Property, plant and equipment relate to both owned and leased equipment. S443B notices have been issued. Non-current liabilities include employee entitlement provisions. Forge Group- Second Meeting of Creditors Page 15

16 Causes of Failure Based on our preliminary assessment, the causes of failures included: General market downturn. Cost escalations. Risks relating to the structure of the business materialising. Insufficient process and risk control measures. Limited diversification. Aggressive approach to acquisitions. Debt focused capital structure. Failed restructuring initiatives. Directors were requested to provide their outline of the causes of failure of the Companies by 17 March A number of directors have responded and outlined similar views to the points raised above. Forge Group- Second Meeting of Creditors Page 16

17 Preliminary Investigations Investigations are preliminary and limited as a result of various factors as noted within the report. We will consider all of these matters further as Liquidators. Insolvent trading. Questions remain in relation to the timing of actions of the Companies and their respective Board s. Director bonuses and other entitlements. Both short and long term incentives paid. CTEC transactions and underperformance. Cost variances and purported mismanagement concerns. Voidable transactions. Related party and other voidable transactions potentially exist and require further investigation. Forge Group- Second Meeting of Creditors Page 17

18 Update on Employee Claims Receipt of employee entitlements calculations were received from HR on 10 March The Administrators are working through the calculations and expect that our review will be completed in 3-4 weeks. A circular to employees was posted on the FH website on Friday, 14 March 2014 advising employees to start lodging their FEG claims. We have submitted preliminary information to FEG and will continue to liaise with them throughout the employee entitlement process. We continue to liaise with unions and employee representatives as updates are circulated on the Ferrier Hodgson website. Forge Group- Second Meeting of Creditors Page 18

19 Administrators Recommendation As discussed in the report, it is our recommendation that: the Companies be placed into liquidation Forge Group- Second Meeting of Creditors Page 19

20 The Next Steps Completion of our investigations. Verification and distribution of employee entitlements. Continue to liaise with the Committee of Inspection, should one be appointed, and update creditors on an ongoing basis. Continue to liaise with the Receivers and Managers in relation to the realisation of the Group s assets. Forge Group- Second Meeting of Creditors Page 20

21 Questions and Discussions All questions to be directed to Chairman. When asking a question, please clearly state your name and the name of the company or creditor you represent. Forge Group- Second Meeting of Creditors Page 21

22 Resolutions Creditors of each of the Companies are required to consider and resolve pursuant to section 439C of the Act whether: The Companies execute Deeds of Company Arrangement (DOCA); or The administrations should end; or The Companies be wound up. To date no DOCA has been proposed. As noted in my Report, it is my recommendation that the Companies be wound up. Forge Group- Second Meeting of Creditors Page 22

23 Resolutions (cont.) That the Company (or Companies) be wound up Forge Group- Second Meeting of Creditors Page 23

24 Resolutions (cont.) Remuneration requests: That the Administrators remuneration, as set out in the Remuneration Approval Request Report dated 10 March 2014, for the period from 11 February 2014 to 21 February 2014 be fixed in the amount of $(as read), plus any applicable GST, and may be paid. That a provision for the Administrators remuneration, as set out in the Administrators Remuneration Approval Request Report dated 10 March 2014, for the period from 22 February 2014 to 17 March 2014 in the amount of $(as read), plus any applicable GST be approved. Forge Group- Second Meeting of Creditors Page 24

25 Resolutions (cont.) Remuneration requests (cont.): That a provision for the Liquidators future remuneration, as set out in the Administrators Remuneration Approval Request Report dated 10 March 2014, for the period from 18 March 2014 to the completion of the Liquidation be fixed up to a maximum amount of $(as read), plus any applicable GST, but subject to upward revision by resolution of creditors, or the Committee of Inspection should one be appointed and the Liquidators be authorised to make monthly payments on account of such accruing remuneration as incurred and to increase the applicable hourly rates for each staff title by up to 5% per annum reviewable at 1 July each year. Forge Group- Second Meeting of Creditors Page 25

26 Resolutions (cont.) For the DXG entities only: That a Committee of Inspection be formed Forge Group- Second Meeting of Creditors Page 26

27 Resolutions (cont.) That, subject to obtaining the approval of the Australian Securities & Investments Commission pursuant to Section 542(4), the books and records of the Company and of the Liquidators be disposed of by the Liquidators 12 months after the dissolution of the Company or earlier at the discretion of ASIC. Forge Group- Second Meeting of Creditors Page 27

28 Close of Meeting Thank you for your attendance Any further queries may be directed to the Administrators office or to our staff at the end of the meeting. Our contact details are below: Ferrier Hodgson Level 28, 108 St Georges Terrace Perth, WA 6000 Telephone: (08) Facsimile: (08) Forge Group- Second Meeting of Creditors Page 28

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