Sovereign MF Limited (Administrators Appointed) ( the Company ) ACN

Transcription

1 15 May 2013 To the creditor as addressed Dear Sir/Madam Sovereign MF Limited (Administrators Appointed) ( the Company ) ACN I refer to the appointment of James Shady and I as joint and several Administrators of the Company on 19 April Creditors confirmed the appointment at a first meeting of creditors held on 1 May At that meeting, creditors did not resolve to appoint a Committee of Creditors. Enclosed is my report to creditors pursuant to section 439A(4)(a) of the Corporations Act You will note that there is no proposal for a Deed of Company Arrangement between the Company and its creditors. Accordingly, I have convened a meeting of creditors to consider and, if thought fit, resolve that the Company be placed into liquidation. I enclose the following regarding the meeting of creditors. 1. Notice of Meeting. Please note that the meeting commences at 10:30am. You should arrive for registration at least 15 minutes prior to the meeting. 2. Informal Claim Form for Voting Purposes. If you submitted one of these for the purposes of the first meeting of creditors, you do not need to submit another one for this meeting; A person is not entitled to vote at the meeting unless they provide particulars of the debt or claim to the Administrators before the meeting. Please note this form is for voting purposes only. All creditors must furnish full details of their claims, indicating whether they rank as secured, preferential or unsecured, and whether they claim title to any goods supplied to the company or any lien/pledge over goods in their possession which are property of the company. 3. Appointment of Proxy Form. The form enables you to appoint another person to act on your behalf at the meeting. Proxy Forms submitted for the first meeting of creditors are not valid for this meeting. The Informal Claim Form for Voting Purposes and Proxy Form should be lodged with this office before the meeting and, in any event not later than 4.00pm on the day prior to the meeting. Forms can be sent by facsimile on (03) marked to the attention of Brent Smith or scanned and ed to Brent.Smith@fh.com.au. However, Corporations Regulation A requires lodgement of the original of the Proxy Form with the Administrators office within 72 hours of lodging the faxed/ ed copy. A1/B9:DM Sovereign MF Limited

2 4 Administrators report to creditors pursuant to section 439A(4)(a) of the Corporations Act 2001 which includes: (a) An opinion, with supporting reasons, on each of the following matters: Whether it would be in the creditors' interests for the Company to be wound up. Whether it would be in the creditors' interests for the administration to end. The Administrators Remuneration The Administrators report includes a remuneration report explaining their remuneration claim setting out: (a) (b) Details of time spent by category of staff at the rates applicable for such staff; and, A summary of the work undertaken by the Administrators and their staff in the administration. Remuneration of Liquidators Where creditors resolve that the company be wound up, the Liquidators intend that their remuneration be fixed on the basis of time spent by them and their staff of an appropriate level having regard to the nature and complexity of the work and calculated by reference to the hourly rates set out in the schedule accompanying the Notice of Meeting of Creditors sent out for the purposes of the first meeting of creditors. A further copy of the schedule is included in the Administrators report to creditors together with a schedule setting out the Liquidators likely tasks. For further information concerning the Voluntary Administration process and Ferrier Hodgson, you may wish to visit our website at Queries regarding the administration should be directed to Brent Smith of this office on (03) Yours faithfully Sovereign MF Limited John Lindholm Administrator Encl A1/B9:DM Sovereign MF Limited

3 Form 529 Notice of Meeting Corporations Act 2001 Subregulation (2) Sovereign MF Limited (Administrators Appointed) ACN ( the Company ) NOTICE is given that a meeting of creditors of the Company will be held on 24 May 2013 at 10:30am at the Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria Agenda 1. To consider a statement by the Directors about the Company s business, property, affairs and financial circumstances. 2. To consider the circumstances leading to the appointment of the Administrators to the Company and the various options available to creditors. 3. To consider the report of the Administrators. 4. To resolve that: The Administration should end; or The Company be wound up. 5. If it is resolved that the Company be wound up, consider whether a Committee of Inspection is to be appointed, and if so, the members of that Committee. 6. If it is resolved that the Company be wound up, consider whether, pursuant to Section 477(2A) of the Corporations Act 2001, creditors authorise the Liquidators to compromise a debt owed to the Company of any amount. 7. If it is resolved that the Company be wound up, consider whether, subject to obtaining the approval of the Australian Securities & Investments Commission ( ASIC ) pursuant to Section 542(4), the books and records of the Company and of the Liquidators may be disposed of by the Liquidators 12 months after the dissolution of the Company or earlier at the discretion of ASIC. 8. To fix the remuneration of the Administrator. 9. If it is resolved that the Company be wound up, to fix the remuneration of the Liquidators. 10. Any other business that may be lawfully brought forward. For a person to be eligible to attend and vote at the meeting on your behalf, a Form 532, Appointment of Proxy, is to be completed and submitted by no later than 4:00pm on 23 May 2013, to: Address: Sovereign MF Limited (Administrators Appointed) c/- Ferrier Hodgson PO Box 290, Collins Street West MELBOURNE VIC 8007 A01A.03:DM Sovereign MF Limited

4 Tel: (03) Fax: (03) Note: In accordance with Regulation A of the Corporations Regulations 2001, if a proxy is submitted by facsimile, the original document must be lodged within 72 hours after lodging the faxed copy. A company may only be represented by proxy or by an attorney appointed pursuant to Corporations Regulations and respectively or, by a representative appointed under Section 250D of the Corporations Act In accordance with Subregulation (1) of the Corporations Regulations, creditors will not be entitled to vote at the meeting unless they have previously lodged particulars of their claim against the Company in accordance with the Corporations Regulations and that claim has been admitted, for voting purposes, wholly or in part. Dated: 15 May 2013 John Lindholm Administrator A01A.03:DM Sovereign MF Limited

5 INFORMAL PROOF OF DEBT FORM Regulation SOVEREIGN MF LIMITED (ADMINISTRATORS APPOINTED) ACN Name of creditor: Entity/fund: (please indicate) Sovereign MF Limited (Administrators Appointed) The Sovereign Aged Care Property Fund The Sovereign Tarneit Land Fund Amount of debt claimed: (see note) Consideration for debt: Whether debt secured or unsecured: If secured, give details of security including dates, etc: Balance, if any, after deducting value of security (see note):... Creditor (or person authorised by creditor) NOTE: Under the Corporations Regulations, a creditor is not entitled to vote at a meeting unless (Regulation ): a. his claim has been admitted, wholly or in part, by the Administrator; or b. he has lodged with the Administrator particulars of the debt or claim, or if required, a formal proof of debt. For the purposes of Part 5.3A, a secured creditor may vote (Regulation ): a. for the whole of his debt without regard to the estimated value of his security. Proxies must be made available to the Administrator C:DM Sovereign MF Limited

6 Form 532 Appointment of Proxy Corporations Act 2001 Regulation Sovereign MF Limited (Administrators Appointed) ACN ( the Company ) Instructions: Please complete Sections A, B, C and D and submit in accordance with the Section E. * Strike out if inapplicable. A. Name and Contact Details of Person or Entity Entitled to Attend Meeting (if entitled in a personal capacity, given name and surname; if a corporate entity, full name of company, etc) of (address) Tel: Fax: B. Appointment of Person to Act as Proxy Note: You may nominate the Chairperson of the meeting as your proxy (or your alternate proxy in the event that the first-named proxy is not in attendance). *I / *We, as named in Section A above, a *creditor / *contributory / *debenture holder / *member of the Company, appoint (name of person appointed as proxy) (address of person appointed as proxy) or in his / her absence (name of person appointed as alternate proxy) (address of person appointed as alternate proxy) as *my / *our proxy to vote at the meeting of creditors to be held on 24 May 2013 at 10:30am at the Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria 3000, or at any adjournment of that meeting in accordance with the instructions in Section C below. A01A:06:DM Sovereign MF Limited

7 C. Voting Instructions Note: A general proxy is entitled to vote on any resolution, subject to Regulation of the Corporations Regulations 2001, as they see fit at the meeting tick the general proxy box. A special proxy is entitled to vote only in accordance with your specific instructions tick the special proxy box and indicate your specific voting instructions by ticking one option only for each resolution for which you wish to give such instructions. Your proxy may act as both a special proxy, in accordance with your instructions in relation to specific resolutions, and as a general proxy, in relation to resolutions where you have not issued specific instructions tick both the general proxy and special proxy boxes. Your proxy will then be authorised to vote specifically in accordance with your instructions in relation to those resolutions where specific instructions have been given, and generally in relation to resolutions where no specific instructions have been given, and other business of the meeting. *My / *Our proxy, as named in Section B above, is entitled to act as *my / *our : general proxy, to vote on *my / *our behalf generally, as *he / *she determines, subject to any specific instructions below, if applicable. and / or special proxy, to vote on *my / *our behalf specifically, in accordance with the following special instructions: (for each resolution for which you wish to give specific voting instructions, please tick one option only) Resolution For Against Abstain 1. That the Administration should end. 2. That the Company be wound up. 3. That a Committee of Inspection be appointed, the members of which are to be determined by the meeting. 4. That, pursuant to Section 477(2A) of the Corporations Act 2001, creditors authorise the Liquidators to compromise a debt owed to the Company of any amount. A01A:06:DM Sovereign MF Limited

8 5. That, subject to obtaining the approval of the Australian Securities & Investments Commission ( ASIC ) 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. 6. That the remuneration of the Administrators, as set out in the Remuneration Report dated 15 May 2013, for the period from 19 April 2013 to 10 May 2013 be fixed in the amount of $211,568, plus any applicable GST, and may be paid. 7. That the remuneration of the Administrators, as set out in the Remuneration Report dated 15 May 2013, for the period from 11 May 2013 to 24 May 2013 be fixed up to a maximum amount of $40,000, plus any applicable GST, but subject to upward revision by resolution of creditors, or the Committee of Creditors Inspection should one be appointed, and that the Administrator be authorised to make periodic payments on account of such accruing remuneration as incurred. 8. That the remuneration of the Liquidators, as set out in the Remuneration Report dated 15 May 2013, for the period from the commencement of the Liquidation to completion be fixed up to a maximum amount of $300,000 plus any applicable GST, but subject to upward revision by resolution of creditors, or the Committee of Creditors Inspection should one be appointed, and that the Liquidators be authorised to make periodic payments on account of such accruing remuneration as incurred." A01A:06:DM Sovereign MF Limited

9 D. Signature Dated: Signature: Name / Capacity # : # If an individual, insert full name If a sole trader, insert in accordance with the following example: full name, proprietor If a partnership, insert in accordance with the following example: full name, partner of the firm named in Section A above If a company, pursuant to Regulations and A of the Corporations Regulations 2001, it may only be represented by proxy or attorney respectively, or by a representative appointed under Section 250D of the Corporations Act The document appointing the proxy, attorney or representative must be executed in accordance with Section 127 of the Corporations Act 2001, in which instance, insert in accordance with the following example: full name, director / secretary / director/secretary of the company named in Section A above or under the hand of some officer duly authorised in that capacity, and the fact that the officer is so authorised must be stated in accordance with the following example: full name, for the company named in Section A above (duly authorised under the seal of the company) a copy of authority / power of attorney is to be annexed. Certificate of Witness (to be completed only in special circumstances see below) This certificate is only to be completed only if the person giving the proxy is blind or incapable of writing. The certificate of the creditor, contributory, debenture holder or member must not be witnessed by the person nominated as proxy. I (name of witness) of (address of witness) certify that the above instrument appointing a proxy was completed by me in the presence of and at the request of the person appointing the proxy and read to him/her before he/she signed or marked the instrument. Dated: Signature: A01A:06:DM Sovereign MF Limited

10 E. Submitting the Proxy For a person to be eligible to attend and vote at the meeting on your behalf, this form is to be completed and submitted by no later than 4:00pm on 23 May 2013, to: Address: Sovereign MF Limited (Administrators Appointed) c/- Ferrier Hodgson PO Box 290, Collins Street West MELBOURNE VIC 8007 Tel: (03) Fax: (03) Brent.Smith@fh.com.au Note: In accordance with Regulation A of the Corporations Regulations 2001, if a proxy is submitted by facsimile, the original document must be lodged within 72 hours after lodging the faxed copy. A01A:06:DM Sovereign MF Limited

11 Sovereign MF Limited (Administrators Appointed) ACN Report by Administrators pursuant to Section 439A(4)(a) of the Corporations Act 2001 John Lindholm James Shady 15 May 2013 FERRIER HODGSON LEVEL 29, 600 BOURKE STREET, MELBOURNE VIC 3000 PO BOX 290, COLLINS STREET WEST, MELBOURNE VIC 8007 TELEPHONE FACSIMILE [ : _1]

12 Table of Contents Glossary of terms 1 1. Executive summary 2 2. Introduction 3 3. Company information 5 4. Historical financial information Statement by directors The Administrators' actions to date Statutory investigations Creditors options, dividend estimates & cost estimates Administrators opinion Administrators remuneration report Further queries 39

13 Glossary of terms Abbreviation Description ABN Australian Business Number ACN Australian Company Number Act The Corporations Act 2001 AFSL Australian Financial Services License Agents Agents for Mortgage in Possession ASIC Australian Securities and Investments Commission ATO Australian Taxation Office CBA Commonwealth Bank of Australia CMACS CMACS Investments Pty Limited Company Sovereign MF Limited (Administrators Appointed) DOCA Deed of Company Arrangement EJC Eos Janus Capital Pty Limited EJH Eos Janus Holdings Pty Limited ERV Estimated Realisable Value GMLC Greater Melbourne Land Corporation Pty Limited IPA Insolvency Practitioners Association of Australia NAB National Australia Bank Limited SACPF Sovereign Aged Care Property Fund Sandhurst Sandhurst Trustees Limited SGC Superannuation Guarantee Charge Statement Directors Statement about the Company s Business, Property, Affairs and Financial Circumstances STLF Sovereign Tarneit Land Fund Listing of annexures Annexure 1 Annexure 2 Annexure 3 Ownership structure of the Company and its related entities Administrators Remuneration Report IPA Creditor Information Sheet Offences, Recoverable Transactions and Insolvent Trading Section 439A(4)(a) Report by Administrators 15 May 2013 Page 1

14 1. Executive summary James Shady and I were appointed joint and several Administrators of the Company on 19 April 2013 by a secured creditor, Braham Investments Pty Limited pursuant to Section 436C of the Act. The Company is the Responsible Entity for two registered Managed Investment Schemes (MIS) under Australian Financial Services License number , being: The Sovereign Aged Care Property Fund (SACPF) relating to a freehold property which is subject to a lease and operates as the Glen Waverley Private Nursing Home located at 982 High Street Road, Glen Waverly, Victoria, The Sovereign Tarneit Land Fund (STLF) relating to residential development land known as the Westbourne Fields Estate located at 145 Sayers Road, Truganina, Victoria, Gess Rambaldi and Andrew Yeo of Pitcher Partners were appointed Agents for the Mortgagee in Possession over the property located at 982 High Street Road, Glen Waverley, Victoria by Braham Investments Pty Limited on 19 April Immediately following my appointment, I conducted an urgent assessment of the Company s operations and financial position, and took control of the assets of the Company as Responsible Entity of the schemes, which included the Westbourne Fields Estate. Creditors ratified our appointment as Administrators at the first meeting of creditors held on 1 May A Committee of Creditors was not formed. Investigations undertaken are detailed in section 7 of this report. The main issues arising from these investigations are: A number of related party loan accounts remain outstanding totalling $4.97m There may be unfair preferences paid to creditors which a liquidator would seek to recover A liquidator would need to conduct further investigations into a number of transactions to determine whether they would be considered to be uncommercial transactions, unreasonable director related transactions or entered in to in breach of duties owed to the Company or scheme members My investigations are ongoing in relation to possible breaches of the law The second meeting of creditors is convened for 24 May 2013 and will be held at the Institute of Chartered Accountants, Level 3, 600 Bourke Street, Melbourne, Victoria at 10:30am. There is no proposal for a DOCA. In the absence of a proposal for a DOCA, my opinion is that, for the reasons set out in this report, the Company should be wound up. I am unable to provide creditors with a dividend estimate at this point in time as this is heavily dependent on the following: Sale and development of the Westbourne Fields Estate Any surplus funds that may become available following a sale of the property located at 982 High Street Road, Glen Waverley, Victoria by Pitcher Partners as Agents for the Mortgagee in Possession. Recovery of outstanding related party loans Possible recoveries as a result of my investigations The quantum of secured and priority creditor claims Unit holder entitlements under the MIS s Section 439A(4)(a) Report by Administrators 15 May 2013 Page 2

15 2. Introduction 2.1 Purpose of Administrators appointment and this report James Shady and I were appointed joint and several Administrators of the Company on 19 April 2013 by a secured creditor, Braham Investments Pty Limited, pursuant to Section 436C of the Act. The purpose of the Administrator s appointment is to allow for independent control and investigation of an insolvent company s affairs. During the administration period, creditors claims are put on hold. I am required to provide creditors with information and recommendations to assist creditors decide upon the Company s future. Section 439A(4) of the Act explains the purpose of an Administrator s report in providing that the notice (of second meeting) must be accompanied by a copy of: (a) (b) A report by the Administrator about the company s business, property, affairs and financial circumstances; and A statement setting out the Administrator s opinion about each of the following matters: Whether it would be in the creditors interests for the company to execute a Deed of Company Arrangement; Whether it would be in the creditors interest for the administration to end; Whether it would be in the creditors interest for the company to be wound up; His or her reasons for those opinions and provide such other information known to the Administrator as will enable the creditors to make an informed decision about each of the above matters; and (c) If a Deed of Company Arrangement is proposed a statement setting out details of the proposed deed. 2.2 First meeting of creditors and committee of creditors Creditors attended a first meeting of creditors held at my office on 1 May At that meeting, creditors ratified our appointment as Administrators of the Company. Also at that meeting, I advised that the Administrators would undertake an investigation into the affairs of the Company and its role as the Responsible Entity of the SACPF and STLF while undertaking a financial assessment of continuing with the development of the Westbourne Fields Estate in order to maximise a return to the Company s creditors. Creditors resolved not to appoint a Committee of Creditors. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 3

16 2.3 Second meeting of creditors Pursuant to Section 439A of the Act, the second meeting of creditors of the Company is convened for 24 May 2013 at the Institute of Chartered Accounts, Level 3, 600 Bourke Street, Melbourne, Victoria at 10:30am. At the second meeting, creditors will decide the Company s future in voting on one of the following options: That the Administration should end and control of the Company revert to its directors; or That the Company should be wound up. 2.4 Non-disclosure of certain information There are sections of this report wherein I considered it inappropriate to disclose certain information to creditors. Such information includes valuations of specific assets and the status of negotiations with various parties. I fully recognise the need to provide creditors with complete disclosure of all necessary information relating to the Company. However, I believe this information is commercially sensitive and it is not in creditors interests for me to disclose the information publicly at this stage. 2.5 Declaration of Independence, Relevant Relationships and Indemnities The Administrators provided a Declaration of Independence, Relevant Relationships and Indemnities to creditors with their first circular to creditors and also tabled the declaration at the first meeting of creditors. As advised in the Declaration of Independence, Relevant Relationships and Indemnities, there were no relevant prior relationships. There has been no change in the declaration since that time. James Shady and I are partners of Ferrier Hodgson. Ferrier Hodgson is Australia s and the Asia- Pacific s largest independent corporate restructuring practice with 47 partners and over 440 staff throughout Australia, New Zealand and Asia. Ferrier Hodgson does not provide accounting, audit, legal or taxation services. James Shady is a Chartered Accountant, Registered Liquidator and member of the IPA with over 20 years experience in corporate insolvency. I am also a Chartered Accountant, Registered Liquidator and member of the IPA with over 23 years experience in corporate insolvency. Further information regarding Ferrier Hodgson and the Administrators can be obtained from the firm s website at Summary of receipts and payments The Administrators have not received any funds or made any payments as at the date of this report. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 4

17 3. Company information 3.1 Statutory information Incorporation date and registered office An ASIC search discloses the Company s incorporation date as 12 May The Company s registered office is listed as Wantrup & Associates, Level 7, 160 Queen Street, Melbourne, Victoria. The Company s principal place of business is listed as Level 2, Collins Street, Melbourne, Victoria Company officers The ASIC database discloses the Company s officers over the past 12 months to be: Name Role Appointment date Cessation date Charles Wantrup Director 8/06/ /04/2013 Michael Kalidonis Director/Secretary 16/03/2010 Current Nickolas Giorgio Director 16/03/2010 Current Aldo De Luca Director 16/03/2010 8/06/2012 A search of the National Personal Insolvency Index maintained by the Insolvency Trustee Service, Australia, shows that the Company s directors are not bankrupt or subject to a Personal Insolvency Agreement under Part X of the Bankruptcy Act Shareholders The ASIC database discloses the Company s shareholders to be: Shareholder Class Shares held % Eos Janus Equity Fund No 1 Pty Ltd B Class B 201, Eos Janus Equity Fund No 1 Pty Ltd C Class C 25,000 4 Eos Janus Equity Fund No 1 Pty Ltd D Class D 99, Eos Janus Equity Fund No 1 Pty Ltd E Class E 200, Eos Janus Equity Fund No 1 Pty Ltd Ordinary 110, Total Security interests A search of the Personal Property Securities Register revealed the following general security interests: Secured party Collateral class Registration date Registration number Debt ($'000) Yin and Yang Pty Ltd General property 7/07/ Braham Investments Pty Ltd General property 14/12/ ,943 Captain s Choice Pty Ltd General property 22/12/ ,476 CMACS Superannuation Fund General property 15/07/ ,973 Winslow Constructors Pty Ltd General property 6/12/ Total 22,410 For the purpose of this report, the amounts owing to the secured creditors have been obtained from the Company s balance sheet as at 19 April Section 439A(4)(a) Report by Administrators 15 May 2013 Page 5

18 In addition, Winslow Constructors Pty Ltd, the civil contractor of the Westbourne Fields Estate, has provided my office with further particulars and calculations surrounding their outstanding debt totalling $818k (plus interest) I have also received a claim totalling $1.1m (plus interest) from Ivan and Dianne Masson as trustee of the Masson Superannuation Fund, who claim to be secured creditors over the Tarneit land. I am currently in the process of undertaking a review to determine the validity of the above security interests and the order of priority Winding up applications At the date of my appointment, there were no outstanding applications with a Court to wind up the Company Related Parties My investigations have revealed the following related parties of the Company: Related party Directors Shareholders 668 Secretariat Pty Ltd Eos Janus Capital Pty Ltd Eos Janus Equity Fund No 1 Pty Ltd Eos Janus Holdings Pty Ltd Michael Kalidonis Nickolas Giorgio Michael Kalidonis Nickolas Giorgio Michael Kalidonis Nickolas Giorgio Michael Kalidonis Nickolas Giorgio Holdings (%) Eos Janus Capital Pty Ltd 100 Landlaw Pty Ltd Michael Kalidonis Charles Wantrup Eos Janus Capital Pty Ltd Landlaw Pty Ltd Michael Kalidonis Nickolas Giorgio Eos Janus Capital Pty Ltd Landlaw Pty Ltd Michael Kalidonis Nickolas Giorgio Krema Pty Ltd Peter Anastasopoulos Eos Janus Capital 100 Landlaw Pty Ltd Nickolas Giorgio Nickolas Giorgio 100 Please refer to Annexure 1 for the ownership structure of the Company and its related entities. 3.2 Company history Incorporated on 12 May 2003, the Company holds an Australian Financial Services License which authorises it to operate two registered Management Investment Schemes as follows: The Sovereign Aged Care Property Fund (SACPF) The Sovereign Tarneit Land Fund (STLF) The Company is the Responsible Entity of the two schemes whose purpose was to invest retail client s money into real property investments which as at the date of my appointment consist of: A freehold property located at 982 High Street Road, Glen Waverley, Victoria, 3150 which is subject to a lease agreement and operates as the Glen Waverley Private Nursing Home held by SACPF. Residential development land known as the Westbourne Fields Estate located at 145 Sayers Road, Truganina, Victoria, 3029 held by STLF. Section 439A(4)(a) Report by Administrators 15 May 2013 Page

19 Sandhurst Trustees Limited (Sandhurst) is the custodian of SACPF and STLF pursuant to a Custodian Agreement dated 21 July 2005 and accordingly under this agreement is the registered proprietor of the property held by the schemes. As Custodian, Sandhurst acts as an agent appointed by the Responsible Entity and is required to hold and deal with all property of the schemes. In their role as Custodian, Sandhurst may only act on the proper instructions of the Responsible Entity, Sovereign MF Limited. In or around October 2009, it was the intention of the prior management of the Company to novate its rights and management of SACPF and STLF to Lotus Securities Limited as the Responsible Entity and deregister the Company. However, Aldo De Luca, Michael Kalidonis and Nickolas Giorgio acquired the share capital of the Company which I understand from a review of the books and records in my possession was consented to by unit holders on 11 March The previous directors of the Company prior to the share capital acquisition consisted of: Name Role Appointment date Cessation date Michael Grochowski Director 12/05/2010 1/03/2011 Michael Grochowski Director/Secretary 12/05/ /03/2010 Andrey Derevianki Director 16/10/ /03/2010 James Ji Director 3/11/ /03/2010 As highlighted in the above table, the previous directors of the Company resigned on 15 March 2010 and as a result, the new directors were appointed to the Company as follows: Name Role Appointment date Cessation date Michael Kalidonis Director/Secretary 16/03/2010 Current Nickolas Giorgio Director 16/03/2010 Current Aldo De Luca Director 16/03/2010 8/06/2012 Michael Grochowski was subsequently reappointed as a director of the Company on 12 May 2010 and later resigned as a director on 1 March My investigations have revealed that ASIC found that Mr Grochowski failed to exercise the degree of care and diligence expected of a person in his position and responsible for operating the Managed Investment Schemes. Further, ASIC also found that Mr Grochowski s conduct as an officer of the Company between December 2006 and March 2010 demonstrated a lack of understanding of the obligations imposed on AFS licensees. In June 2012 Mr Grochowski was banned from providing financial services for a period of 4 years after ASIC found he did not comply with financial services laws by failing to: Ensure all assets of the fund were properly identified and registered as assets of the fund, resulting in the loss of property assets of the fund; Remedy defective disclosure documents for the fund, such that the documents did not contain information about a material change to circumstances affecting property assets of the fund; Provide members of the fund with timely ongoing disclosure about material change to circumstances affecting property assets of the fund; and Lodge annual financial reports for the Company and the funds. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 7

20 Following Aldo De Luca s resignation as director on 8 June 2012, Charles Wantrup was appointed as a director of the Company on the same date. In addition, I also understand that Wantrup and Associates acted as the Company s solicitor. I make the following comments in relation to each fund: SACPF SACPF was registered on 29 September 2006 and is a registered Management Investment Scheme domiciled in Australia. The fund acquired a freehold property in May 2008 located at 982 High Street Road, Glen Waverley, Victoria which is subject to a lease agreement and operates as the Glen Waverley Private Nursing Home The property is leased to Isomer Pty Ltd for a term of five years commencing 1 February 2006, together with four further terms each of five years. (Total possible tenure of 25 years at inception). There is a deed of assignment from Isomer Pty Ltd (Old tenant) to Autumn Care Pty Ltd (New tenant). In addition, my investigations have revealed that prior to the involvement of the current management, the Company experienced significant issues relating to a Parkdale and Keilor property. As a result of these issues, I understand that this caused the SACPF to relinquish their interest in the Keilor Aged Care Facility and the Parkdale Aged Care Facility throughout the 2008 and 2009 financial years respectively. Further, on or around 28 December 2009, Bank of Western Australia Limited as registered mortgagee over the Parkdale Aged care Facility, sold the facility with no proceeds being available to either SACPF or the Company. STLF STLF was registered on 24 June 2005 and is a registered Management Investment Scheme domiciled in Australia. The fund is responsible for an 8 stage, 281 lot residential sub division known as the Westbourne Fields Estate which is located at 145 Sayers Road, Tarneit, Victoria. I understand that the development of Westbourne Fields has suffered significant delays and as at the date of appointment, the status of the project was as follows: Stages 1 to 4 are complete and sold Stages 5 and 6 are complete and comprise of 48 residential lots. Based on a land title search I understand that: 18 of the lots were sold and settled prior to my appointment. Based on my discussions and information provided by Sandhurst Trustees and the settlement agent, Low Cost Conveyancing, I understand that there are 9 contracts of sale that were entered into prior to my appointment where settlement is due to occur in May and June The balance of 21 lots remain unsold. Construction in relation to the development of the land for stages 7 to 8 of the Westbourne Fields Estate has not commenced. This provides for the construction of 113 residential allotments. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 8

21 3.3 Decision to appoint administrators On or about 14 December 2010, the secured creditor, Braham Investments Pty Ltd entered into a loan agreement with the Company. In accordance with the terms of the loan, the secured creditor advanced $2.6m to the Company. The loan was for a term of 1 year expiring on 13 December This loan was subsequently rolled over for another year until 13 December At the expiration of the further term, the Company failed to repay the loan. On or about 10 April 2013, the secured creditor served a notice of breach of loan deed on the Company. On or about 17 April 2013, the secured creditor commenced Supreme Court Proceedings against the Company and on 18 April 2013 obtained freezing orders against the Company and EJC. On 19 April 2013, I met with the secured creditor and their legal representative. The purpose of this meeting was to discuss the financial position of the Company (in light of the defaults on the loan facility) and the options available to the secured creditor. Following this meeting, James Shady, and I were appointed joint and several Administrators of the Company on 19 April 2013 by the secured creditor pursuant to Section 436C of the Act. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 9

22 4. Historical financial information 4.1 Financial statement analysis for the Company I have been provided with the Company s financial statements for the 30 June 2010, 30 June 2011 and 30 June 2012 financial years. The financial accounts were audited by Neil Turner, Chartered Accountant who provided an unqualified opinion for the 3 year period. Profit and loss statement Set out below is a summary of the profit and loss statement for the Company for the three (3) financial years ending 30 June 2012 which show a deterioration in the net profit to total $188k in the year ending 30 June 2012 as follows: 30 June June June 2012 ($'000) ($'000) ($'000) Revenue Expenses (excluding finance costs) (233) (102) (325) Finance costs (8) (16) (18) Net profit/(loss) before income tax Revenue consists of management fees and interest charged to SACPF and STLF and decreased by approximately 68 per cent from $818k in the year ending 30 June 2010 to $257k in the year ending 30 June Revenue increased significantly from $257k in the year ending 30 June 2011 to $531k in the year ending 30 June The increase was largely due to an increase in interest payable by SACPF and STLF in relation to funds advanced by the Company to the funds throughout the 2011 and 2012 financial years. Expenses predominantly relate to occupancy costs, legal costs and compliance costs which increased significantly from $102k in the year ending 30 June 2011 to $325k in the year ending 30 June Section 439A(4)(a) Report by Administrators 15 May 2013 Page 10

23 Balance sheet A summary of the Company s balance sheet for the three (3) financial years ending 30 June 2012 details a positive net asset position as follows: 30 June June June 2012 ($'000) ($'000) ($'000) Current assets Cash and cash equivalents Trade and other receivables 935 2,778 4,636 Other current assets Total current assets 952 3,793 5,580 Noncurrent Assets Trade and other receivables 3,313 8,102 18,651 Total noncurrent assets 3,313 8,102 18,651 Current liabilities Trade and other payables Provisions Financial liabilities Total current liabilities Noncurrent Liabilities Financial liabilities 3,902 11,247 23,188 Total noncurrent liabilities 3,902 11,247 23,188 Net assets Equity Issued capital Accumulated losses (427) (288) (102) Total equity Noncurrent financial liabilities which consist of funds advanced from secured creditors have significantly increased from $3.9m in 30 June 2010 to $23.2m in 30 June 2012, representing a significant increase of $19.3m over the 2 year period. My investigations have confirmed that these funds were raised by the Company in its own right and loaned to SACPF and STLF. The loans to both SACPF and STLF are recorded in current and noncurrent assets as trade and other receivables as follows: Loans to SACPT increased by $2.6m during the 2 year period and totalled $2.6m as at 30 June Loans to STLF increased by $13m during the 2 year period and totalled $16.35m as at 30 June In addition, I note that trade and other receivables predominantly consist of related party loan accounts which totalled $3.9m as at 30 June Section 439A(4)(a) Report by Administrators 15 May 2013 Page 11

24 The collectability of the current loans to related parties has a significant impact on the financial position of the Company from a balance sheet solvency perspective. If these loans are not realisable, there will be a significant negative net asset position for the Company throughout the 3 year period. These issues are discussed in more detail under section of my report. I have prepared a funds flow analysis which identities the funds raised by the secured creditors and loaned to the funds for the period between 30 June 2010 and 30 June In addition, I have compared the movements in the balance sheet for this period to identify the utilisation of the remaining cash funds available to the Company during this time as follows: Notes ($'000) ($'000) Increase in secured creditors between 30 June 2010 and 30 June ,286 less: Loans to funds Sovereign Aged Care Property Fund 2 (2,600) Sovereign Tarneit Land Fund 2 (13,042) Unexplained 305 Total loans to funds (15,337) Net funds available to the Company 3,949 Working capital movements between 30 June 2010 and 30 June 2012 Increase in cash and cash equivalents Cash at bank 80 Deposits 15 Term deposits 812 Increase in trade and other receivables (current) Trade receivables 329 Amounts receivable from related parties 3 3,205 Other receivables 401 Provision for doubtful debts (234) Increase in other current assets 20 Increase in trade and other payables (469) Decrease in provisions 116 Increase in financial liabilities (current) (1) Increase in accumulated losses (325) Net movement 3, My calculations have confirmed that funds raised by the secured note holders in the 2 year period total $19.3m. 2. Funds totalling $15.6m were loaned to the schemes ($2.6m to SACPF and $13m to STLF). 3. In addition, amounts were loaned to related parties totalling $3.2m. These are discussed in further detail in section of this report. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 12

25 4.2 Financial statement analysis for SACPF I have been provided with the SACPF financial statements for the 30 June 2010, 30 June 2011 and 30 June 2012 financial years. The accounts were audited by CWS Sincock & Co who provided an unqualified opinion for the 3 year period. Profit and loss statement Set out below is a summary of the profit and loss statement for the fund for the three (3) financial years ending June 2012 which shows a deterioration in net profit resulting in a net loss of $220k in the year ending June June June June 2012 ($'000) ($'000) ($'000) Revenue Other income Total revenue Expenses (177) (174) (255) Finance costs (185) (352) (299) Net profit/(loss) before income tax 154 (99) (220) Revenue consists entirely of property rental income in relation to the Glen Waverley nursing home facility which is approximately $28k (plus GST) per month. Other income relates primarily to the accounting of fair value adjustments in relation to the investment property which increased by $2k in the year ending 30 June Accordingly, no fair value adjustments were made in relation to the property in the year ending 30 June 2012 Expenses relate primarily to custodian fees, legal fees, management fees and responsible entity fees payable by SACPF which increased during the 2 year period to total $255k in the year ending June Further, finance costs relate solely to interest payable in relation to the loans provided by the Company to the fund. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 13

26 Balance sheet The SACPF balance sheet for the three (3) financial years ending 30 June 2012 details a deterioration in the net asset position of the fund which is reflective of the trading losses incurred during the 2 year period. Net assets totalled $1.26m as at 30 June 2012 as follows: 30 June June June 2012 ($'000) ($'000) ($'000) Current assets Cash and cash equivalents Trade and other receivables Total current assets Noncurrent Assets Investment properties 4,000 4,103 4,103 Total noncurrent assets 4,000 4,103 4,103 Current liabilities Trade and other payables Financial liabilities 2, Total current liabilities 2, Noncurrent Liabilities Financial liabilities - 2,436 2,600 Total noncurrent liabilities - 2,436 2,600 Net assets 1,579 1,480 1,260 Equity Issued capital 7,401 7,401 7,401 Accumulated losses (5,822) (5,921) (6,141) Total equity 1,579 1,480 1,260 Noncurrent assets relate to the Glen Waverley investment property which is included in the accounts at book value and recorded $4.1m in the year ending 30 June I further note that current financial liabilities decreased by $2.4m between the 2010 and 2011 financial years. This amount relates to the finance facility with NAB used to fund the initial acquisition of the property. My investigations have confirmed that the NAB was repaid in full with funds loaned by the Company to the fund on or around August This loan was reclassified in the accounts under noncurrent liabilities which totalled $2.6m in the year ending June My investigations have confirmed that the Company refinanced this facility with funds borrowed from the secured creditor, Braham Investments Pty Ltd. Prior to this refinance, the fund raised capital after issuing product disclosure statements to a number of financial advisors who on sold units to their clients (primarily investors and self managed superannuation funds) between the period 2005 and My investigations reveal that no distributions have been made to individual unit holders for at least the previous 2 year period ending 30 June Funds owing to unit holders are recorded in the balance sheet under equity where issued capital totalled $7.4m as at June Section 439A(4)(a) Report by Administrators 15 May 2013 Page 14

27 4.3 Financial statement analysis for STLF I am advised that the financial accounts for the year ending 30 June 2010 were eventually signed off by the auditor, CWS Sincock & Co on 20 December The financial accounts for the 2011 and 2012 years are yet to be prepared. Given this, I have utilised the management accounts for these two periods for the purposes of my review. Profit and loss statement Set out below is a summary of the profit and loss statement for the fund for the three (3) financial years ending June This shows that the fund has continued to underperform and generated losses throughout the 3 year period. 30 June June June 2012 ($'000) ($'000) ($'000) Land Sales 381 8, Other income Total revenue 477 8, Expenses (1,100) (9,946) (407) Finance costs (284) (159) (3) Net profit/(loss) before income tax (907) (2,090) (136) Income tax expense Unknown Net profit/(loss) after income tax (636) (1,463) (136) Land sales peaked in the year ending 30 June 2011 and totalled $8m, compared to minimal land sales achieved in the year ending 30 June 2010 and 30 June 2012 of $381k and $213k respectively Expenses predominantly relate to development costs which include acquisition, holding, project and commission costs and the balance of expenses relate to custodian fees, legal fees and responsible entity fees. The following table details the breakdown in relation to these costs which confirms that development costs and legal costs increased significantly in the year ending 30 June 2011, also reflected by the increase in sales in this period, as follows. 30 June June June 2012 ($'000) ($'000) ($'000) Development costs 690 9, Custodian fees Insurance Legal fees Responsible entity fees Other expenses Total expenses 1,100 9, Further, finance costs relate solely to interest payable in relation to the loans provided by the Company to the funds. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 15

28 Balance sheet A summary of the STLF balance sheet for the three (3) financial years ending 30 June 2012 details a positive net asset position as follows: 30 June June June 2012 ($'000) ($'000) ($'000) Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets 1, Noncurrent Assets Land inventory 18,091 19,999 26,894 Trade and other receivables 1, Total noncurrent assets 19,868 19,999 26,894 Current liabilities Trade and other payables 2, ,941 Financial liabilities 8,970 - Total current liabilities 11, ,941 Noncurrent Liabilities Financial liabilities 3,311 13,238 17,003 Deferred tax liabilities 1,187 2,362 2,362 Total noncurrent liabilities 4,498 15,600 19,365 Net assets 5,448 3,987 3,852 Equity Issued capital 7,303 8,241 8,241 Accumulated losses (1,855) (4,254) (4,389) Total equity 5,448 3,987 3,852 Noncurrent assets relate to the residential development land known as the Westbourne Fields Estate which is included in the accounts at cost plus construction, holding and finance costs that have been capitalised and totalled $26.9m in the year ending 30 June I further note that the balance outstanding for noncurrent financial liabilities for the year ending June 2010 totalled $3.3m. This debt relates to an amount outstanding to Greater Melbourne Land Corporation Pty Ltd (GMLC). GMLC was the initial vendor of the land and had provided finance as part of the agreement to acquire the property development. I understand that the development suffered significant delays and required renegotiation of the finance facilities provided by GMLC. Failing to achieve a renewal of the finance facility, GMLC sought to secure its position by appointing Greg Andrews as Receiver to take possession of the entire development. Subsequent to the Receiver s appointment, the Company raised funds via the secured note holders of the Company to pay out the GMLC debt. On 15 June 2010, GMLC accepted a settlement offer put forward by the Company and sought the Receiver s retirement. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 16

29 In addition to the GMLC facility, the fund had a further facility with NAB to fund development costs. The balance outstanding for current financial liabilities totalled $8.97m as at 30 June The Company raised additional funds via the secured note holders of the Company to pay out the NAB debt. The NAB facility was settled in December Accordingly, noncurrent financial liabilities in the year ending 30 June 2011 and 30 June 2012 total $13.2m and $17m respectively and include the loans due to the Company for amounts of $12.5m and $16.4m at each year end respectively. The books and records in my possession detail that the update to investors in September 2010 allude to the fact that the NAB facility was settled with the proceeds from the sale of allotments in stages 3 and 4 of the development. My investigations have identified that this was not the case as funds were raised by the Company and loaned to the fund to repay the NAB facility. Trade and other payables increase from $721k in the year ending 30 June 2011 to $3.9m in the year ending 30 June 2012 (increase of $3.2m). The increase relates primarily to amounts payable to Winslow Constructors Pty Ltd and statutory bodies in relation to the development of the Westbourne Fields Estate. During 2005 and 2010, the fund raised capital through issuing product disclosure statements to a number of financial advisors who on sold the units to their clients (primarily investors and self managed superannuation funds). My investigations reveal that no distributions have been made to individual unit holders for at least the previous 3 year period ending 30 June Funds owing to unit holders are recorded in the balance sheet under equity where issued capital totalled $8.2m as at June Section 439A(4)(a) Report by Administrators 15 May 2013 Page 17

30 5. Statement by directors 5.1 Summary Section 438B of the Act requires the directors to give an Administrator a statement about the Company s business, property, affairs and financial circumstances. I received the directors Statement on 30 April The directors failed to fully complete the statement and only attached the Company s balance sheet at 31 March Given my appointment occurred on 19 April 2013, the following table summarises the assets and liabilities as recorded in the management accounts as at the date of appointment. In addition, the Administrators ERV is based on the management accounts as at this date. Statement as at 19 April 2013 Report Reference Balance Administrators ERV sheet 19 April 2013 High Low ($'000) ($'000) ($'000) Assets: Interest in land Nil Nil Nil Sundry debtors Nil Nil Cash at bank Nil Nil Plant & equipment Nil Nil Nil Motor vehicles Nil Nil Nil Deposits and investments Nil Related party loan accounts ,973 4,973 Nil Other assets (196) Nil Nil Sub Total 5,687 5,049 Nil Assets subject to specific charges - SACPF ,644 Commercially Commercially sensitive sensitive Less: Amounts owing under charge (2,600) (2,600) (2,600) Assets subject to specific charges - STLF ,209 Commercially Commercially sensitive sensitive Less: Amounts owing under charge (18,192) (20,110) (20,110) Assets subject to specific charges - Term Deposit Unknown Unknown Less amounts owing under charges (800) (800) (800) Total Available Assets 3,500 Unknown Unknown Liabilities: Less: Priority creditors Employee entitlements payable in advance of secured creditors Nil Unknown Unknown Secured creditors Nil Nil Nil Total Priority Creditors Nil Unknown Unknown Contingent assets Nil Unknown Unknown Contingent liabilities Nil Unknown Unknown Available to Unsecured Creditors Nil Unknown Unknown Ordinary unsecured creditor claims (2,967) Unknown Unknown Estimated Surplus/(Deficiency) 533 Unknown Unknown Section 439A(4)(a) Report by Administrators 15 May 2013 Page 18

31 I comment on the financial position of the Company as at 19 April 2013 as follows: Interest in land A property search indicates that the Company does not currently own any real property. STLF and SACPF are the beneficial owners of the Tarneit and Glen Waverley land respectively. Sandhurst is the registered proprietor of the land in its capacity as Custodian of the schemes Sundry debtors The Company s balance sheet as at 19 April 2013 identifies sundry debtors totalling $663k. The outstanding amounts relate to management fees payable by SACPF and STLF and given the financial position of the funds are unlikely to be collectable Cash at bank The Company balance sheet as at 19 April 2013 details the below bank accounts: Account Balance ($'000) Commonwealth Bank 69 Wantrup Trust Account (1) Total 68 On appointment I wrote to all of the major banks requesting that they immediately freeze any accounts and credit cards in the name of the Company. Based on the response received to date and my investigations, the Company operated a number of bank accounts with the CBA which were overdrawn on appointment. I have also written to Wantrup and Associates and have been informed that no funds remain in their trust account (refer section 6 below) Plant and equipment The Company s records did not identify any plant and equipment available to the Administrators for realisation. In addition, a review of the lease agreement between the Company and Dynasty Handbags Pty Ltd (landlord) is silent in relation to the ownership of the fixtures and fittings at the premises located at Level 2, Collins Street, Melbourne, Victoria Motor vehicles Neither the Company s records nor a VicRoads search dated 2 May 2013 identify any motor vehicles available to the Administrators for realisation. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 19

32 5.1.6 Deposits and investments The Company balance sheet at 19 April 2013 details the following deposits and investments: Account Balance ($'000) Commonwealth Bank Guarantee Account - STLF 88 Commonwealth Bank Term Deposit Collins Street, Melbourne 76 Macquarie Bank - Security Deposit 15 Total 179 I have written directly to the CBA to request further details in relation to the Bank Guarantee (STLF) for an amount of $88k. I currently await a response. The term deposit totalling $76k relates to a bank guarantee held by the CBA in relation to the leased premises at Level 2, Collins Street, Melbourne, Victoria. Following a review of the lease agreement between the Company and the landlord, Dynasty Handbags Pty Ltd and in order to secure the return of the outstanding bank guarantee, on 29 April 2013, I informed the directors that I would consent to an assignment of the lease to EOS Janus Capital Pty Limited (EJC) (a related company) on the provision that the bank guarantee would be replaced and returned to the Company and rental arrears were brought up to date. Since this date, I have been in communication with the property agent, Knight Frank who has confirmed that outstanding rental arrears for the month of April and May totalling $25k have now been paid. In addition, there are still a number of outstanding terms and conditions that need to be met (i.e. new bank guarantee, directors guarantees and a copy of the public liability insurance certificate) before the transfer of the lease is approved. I will continue to follow up the property agent on a regular basis until this matter has been finalised and the outstanding Bank Guarantee has been returned. In addition, Macquarie Bank has confirmed that there are no active accounts held by the Company. My review of the Macquarie Bank statements in my possession has confirmed that the security deposit for an amount of $15k was fully drawn down on 25 September This transaction shall be investigated further Related party loan accounts The Company s balance sheet as at 19 April 2013 details outstanding related party loan accounts as follows: Related party Balance ($'000) 668 Secretariat Pty Ltd 162 CDL Loan 398 Eos Janus Capital Pty Ltd 4,244 Krema Pty Ltd 169 Total 4,973 On 2 May 2013 I issued letters of demand to each of the related parties, (excluding the CDL Loan which I am investigating further) and enclosed a copy of the outstanding loan accounts generated from the Company s computerised accounting system. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 20

33 In response to my correspondence the directors assert that EJC acted as nominee of the Company in arranging and undertaking its banking affairs and provided funds in order that the Company (in its own right) and as Responsible Entity of the SACPF and of the STLF might operate. In the absence of receiving full particulars as to the expenses that the directors claim were paid on behalf of the Company and details surrounding the accounting treatment of these transactions, my investigations into the Company s records do not disclose any reason why these amounts should not be paid in full. This matter has been referred to my legal advisors to pursue Other assets The Company s balance sheet as at 19 April 2013 details the following other assets: Account Balance ($'000) Accrued Interest Income 4 PAYG Payable 13 Prepaid insurance 20 Provision for doubtful debts (233) Total (196) Immediately following my appointment I appointed my insurance broker, Open Cover Pty Ltd, to act as brokers and consultants in all facets of insurance. This appointment includes an authorisation to Open Cover Pty Ltd to inspect any existing policy contract(s) that the Company holds with underwriters and to arrange for alteration and/or cancellation of policies on my behalf, to collect funds relevant to those policies. In addition, I have written directly to the ATO requesting details in relation to the tax affairs of the Company. Given the balance sheet as at 19 April 2013 details a current liability in relation to tax payable for an amount of $23k, I am of the opinion that any refunds in this regard are unlikely Assets subject to specific charges SACPF Gess Rambaldi and Andrew Yeo of Pitcher Partners were appointment Agents for the Mortgagee in Possession over the property known as the Glen Waverley Private Nursing Home located at 982 High Street Road, Victoria by the secured creditor, Braham Investments Pty Limited on 19 April I understand that Pitcher Partners intend to engage Charter Keck Cramer to provide an updated valuation and will revert to me once the valuation is obtained to discuss their intentions in relation to the property. In addition, they have written directly to the tenant of the property and directed them to forward all rental payments to them. Funds received from the realisation of the property, will firstly cover the costs of preserving and realising the property and the costs of the Agents for the Mortgagee in Possession. Should there be sufficient funds to enable a full distribution to Braham Investments Pty Ltd as the registered mortgagee over the property, the balance of funds will be directed to the Administrators to distribute accordingly Assets subject to specific charges STLF As Responsible Entity of the STLF, the Company is responsible for the 281 residential sub division development known as the Westbourne Fields Estate located at 145 Sayers Road, Truganina, Victoria, Section 439A(4)(a) Report by Administrators 15 May 2013 Page 21

34 Prior to my appointment, the Company engaged Winslow Constructors Pty Ltd to complete the development. As at the date of my appointment 6 stages within the development had been completed which included 168 residential allotments, parks and outdoor facilities. I confirm that all lots in relation to stages 1 to 4 and 18 lots (out of a total of 48) within stages 5 and 6 had been sold and settled prior to my appointment. Based on the information provided by Sandhurst as Custodian and the settlement agent, Low Cost Conveyancing (Low Cost) I understand that there are 9 contracts of sale that were entered into prior to my appointment where settlement is due to occur in May and June The balance of 21 lots remain unsold. The remaining stages 7 and 8 provides for the construction of 113 allotments. Whilst planning approval had been given by the Council, development of these stages has not yet begun. Status in relation to the development is summarised as follows: Stages Total Allotments Total allotments sold and settled Balance of allotments due to settle Total unsold allotments Stages 1 to Stages 5 and Stages 7 and 8 (construction not begun) Total In order to provide the best return to creditors, the Administrators have determined that there are two options available for the development, including: Continuing development of the Westbourne Fields estate (stages 7 to 8); or Sale of the development in one line on an as is basis. Feasibility study Based on the information available to me, I completed feasibility analysis to understand the ongoing viability of the development, which included an analysis of: The financial impact of continued development over a longer term against estimated proceeds of an in one line sale in the short term; The pricing of existing and future allotments; Estimated sales rate of lots in the Westbourne Fields estate; Development costs of stages 7 and 8; Costs, timing and ability to provide amenities such as parks; and Timing and ability to continue the development Based on the results of my analysis, I have determined that continuing with the development of the Westbourne Fields will most likely provide the best return to creditors. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 22

35 Sales during the Administration I am currently liaising with the settlement agent, Low Cost and Sandhurst in relation to the parties who had executed a contract of sale prior to my appointment. In addition, Bowen Buchbinder Vilensky acting on behalf of Eos Janus Holdings Pty Limited (EJH) (a related party to the Company) has notified my office to advise that an Underwriting Agreement was entered into between the Company, Sandhurst (as the Custodian) and EJH prior to my appointment on 25 February Pursuant to the terms of the underwriting agreement, EJH claim that the Company is obliged to pay an underwriting commission on settlement of each unsold lot as at the date of my appointment and holds an exclusivity agreement with ARB Real Estate Pty Ltd in relation to the land. In addition, EJH and EJC (another related party to the Company) have lodged caveats over the lots which they believe are the subject of unconditional contracts of sale which are due to settle prior to 20 May In my role as Administrator I am continuing to investigate the affairs of the Company and the circumstances of various transactions including the alleged Underwriting Agreement with EJC and the notices purportedly given under that agreement. In addition, I have sought proposals from several real estate agents regarding the sale of the development in one line as is and if it was fully developed. Secured creditors I am currently in the process of undertaking a review to determine the validity of the security interests against the fund and the order of priority Assets subject to specific charges term deposit In early July 2011, CMACS Investments Pty Ltd (CMACS) advanced funds totalling $800k to Wantrup & Associates, the Company s solicitor and CMACS registered a fixed charge over the Company s CBA bank account and any term deposit purchased with proceeds from that account. My investigations have revealed that on 18 July 2011, Wantrup & Associates transferred $800k into Sovereign s CBA bank account and on 29 July 2011 an amount totalling $710k was placed in a term deposit held with CBA. On 31 August 2012, a review of the Company s CBA bank statements has confirmed that an amount of $194k was drawn from the term deposit and transferred to an unknown account. I am currently awaiting further details regarding this transaction from CBA. The CBA have confirmed that the bank guarantee currently totals an amount of $556k and I understand that the security relates to the performance obligations under a contract relating to the development of the Westbourne Field Estate Employee entitlements My preliminary investigations confirm that as at the date of my appointment, the Company did not have any employees and its balance sheet does not detail any amounts owing in respect of employee entitlements. However, I have been contacted by a former employer of the Company who claims to be owed entitlements which I will investigate further. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 23

36 Secured creditors All secured creditors which are referred to in Section of this report and have specific charges against SACPF and/or STLF and have been included under Assets Subject to Specific Charges Contingent assets/liabilities At the date of my appointment, the Company was party to the following proceedings: Braham Investments Pty Ltd v Sovereign MF Ltd and ors the Company is defendant in proceedings in the supreme Court of Victoria in which Braham obtained freezing orders Premier Capital (China) Ltd v Sandhurst Trustees Ltd ACH and ors The Company is the Second Defendant in the proceeding, commenced in the Supreme Court of Victoria in Sovereign MF Limited in its capacity as Responsible Entity of the Sovereign Aged Care Property Fund v Compliance & Risk Services Pty Ltd (ACN ) and Murray Joseph Jones The Company is the Plaintiff in the proceeding commenced in the Supreme Court of Victoria in Compliance & Risk Services Pty Ltd (ACN ) v Sovereign MF Limited (ACN ) Sovereign MF is the Defendant in this proceeding commenced in the Magistrates Court of Victoria and transferred to the Supreme Court of Victoria in CDA Design Group Pty Ltd (ACN ) v Sovereign MF Ltd (ACN ) Sovereign MF is the Defendant in this application made in VCAT earlier this year. Please note that pursuant to Section 440D of the Act, any proceedings brought against the Company are deemed to be stayed unless the Administrators provide written consent for the proceedings to continue. I am currently reviewing the merits of continuing with these proceedings and at this stage the extent of any recoveries is unknown Ordinary unsecured creditors The Company s balance sheet identifies unsecured creditor claims totalling $2.9m. Please note that this figure does not include any amounts that may be owing to the members of SACPF and STLF directly and is subject to the receipt and adjudication of final proofs of debt from creditors. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 24

37 5.2 Explanation for current financial position The directors have failed to provide an explanation for the Company s current financial position. My preliminary view is that the Company failed because of: Poor management; Lack of control over costs and expenditure; Excessive related party management and administration fees; Excessive related party loans that may be void against a liquidator; Inability to meet further development and operational costs without the provision of additional funding; and Down turn in the property market. 6. The Administrators actions to date Following my appointment, I took control of the operations and affairs of the Company. Immediate operational and statutory actions were taken by me for the conduct of the Administration. In addition to these actions, outlined below is a high level outline of tasks undertaken to date. Property matters (The Westbourne Fields Estate - STLF) Discussions with the secured creditors (including the civil contractor) to determine their willingness to continue the development, and the extent of support regarding the ongoing funding of the development costs to complete the project. Review valuation report by Charter Keck Cramer in respect to market value and property information. Conducted various site visits Entered into discussions with the main development consultant (TGM Group Pty Ltd) Searches with the Victorian Land Titles Offices Worked with my solicitors to understand the Underwriting Agreement that the related party, EJH, claim in relation to the properties Worked with my solicitors, Sandhurst Trustees and the settlement agent, Low Cost to understand the pre appointment sales contracts in place in an attempt to realise and to settle lots. Undertook a detailed feasibility sensitivity analysis to determine whether to proceed with development of Tarneit property. Prepared detailed financial models to determine the outcome to secured creditors on a low, medium and high scenario. Liaised with several real estate agents seeking proposals for the sale of the development in one line as is or fully developed Section 439A(4)(a) Report by Administrators 15 May 2013 Page 25

38 Statutory matters Took control of cash and banking facilities together with the establishment of new banking facilities. Collection of Company s books and records (discussed in detail below). Advertised the appointment of Administrators on the ASIC website as required. Replied to creditor and unit holder queries via telephone, , facsimile and letters. Collated and registered creditor s informal proof of debt claims. Circulated creditor notices. Prepared and lodged relevant notices with ASIC. Notified statutory authorities of my appointment. Convened and held the first meeting of creditors under Section 436E of the Act on 1 May Prepared minutes of the first meeting of creditors and completed statutory lodgements where required. Prepared this report to creditors. Convened the second meeting of creditors under Section 439A of the Act. Collection of Company s books and records Since my appointment, I have sought to secure the books and records of the Company in order to investigate the affairs of the Company in accordance with Section 438A of the Act. To that end, I attended the Company s principal place of business on 19 April 2013 to collect the Company s books and record and image all computer equipment. The directors initially refused to give access to the Company s premises and stated that the assets inside the premises were not owned by the Company, despite the sign at the entrance to the premises clearly reading Sovereign MF Limited. Following further discussions with the directors and the attendance of representatives of the Victoria Police, the directors continued to refuse access to the premises, however, gave a verbal undertaking not to remove or destroy the books and records of the Company. On 24 April 2013, the directors allowed the Administrators supervised access to the premises to copy the Company s books and records and directed me to contact the office assistant, Ms Carol Mason to arrange a day and time. Upon attending the Company s premises, Ms Mason advised that she was unaware where the majority of records were located (specifically the financials of the Company) and would need to seek further instructions from the directors. On 26 April 2013, the directors finally provided me with access to collect the books and records of the Company (excluding the books and records of SACPF and STLF). At the time I was not permitted access to the data or the computers and laptops utilised by the Company. On 29 April 2013, I instructed Maddocks Lawyers to send a letter to the Company s solicitor regarding the failure of the directors to cooperate with the Administrators in relation to the provision of books and records of the Company. On 30 April 2013, the directors provided me with access to collect the books and records of the SACPF and STLF. At the time I was not permitted access to the data or the computer and laptops used by the Company. Although I had been able to obtain a large number of books and records of the Company, I had not been able to obtain copies of s sent and received by the Company. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 26

39 Accordingly, on 6 May 2013, I applied to the Supreme Court of Victoria seeking an order to image the servers, computers and laptops used by the Company. The Court ordered that the directors provide a copy of all s in the possession of the directors that relate to the Company and access to all computers, hard drives, servers and electronic storage devices in their possession located at the trading premises at Level 2, Collins Street, Melbourne. The hard drives and servers have now been digitally imaged by my firm s forensics department. In addition, the Court ordered that the digital image could not be accessed without further order of the Court. On 6 May 2013, I attended the Company s premises with the specific Court orders and once again was refused access by the directors. I reapplied to the Court to seek further orders on the evening of 6 May 2013 and imaged the Company s servers, computers and laptops that night. The proceeding was listed for further hearing at 10am on 10 May 2013 and the Court made orders allowing me to copy all s sent to and from the domain name "sovereign.mf". I am in the process of extracting these documents. The proceeding is listed for a further hearing on 21 May At this hearing I intend to seek access to all data imaged. Collection of Trust account records Shortly after my appointment, I requested that Charles Wantrup, acting in his capacity as legal advisor to the Company provide the Administrators with the details of all transactions of the Company (which includes the STLF and SAPCF) through his trust account for the two year period in a timely manner. After numerous requests an envelope including a print out of Mr Wantrup s trust account for the period 1 January 2010 to 25 March 2013 was delivered to the office of my lawyer on 10 May I am currently in the process of reviewing the trust account ledger and will report on the outcome of my findings Section 439A(4)(a) Report by Administrators 15 May 2013 Page 27

40 7. Statutory investigations 7.1 Nature and scope of review The Act requires an administrator to carry out preliminary investigations into a company s business, property, affairs and financial circumstances. Investigations centre on transactions entered into by the company that a liquidator might seek to void or otherwise challenge where the company is wound up. Investigations allow an administrator to advise creditors what funds might become available to a liquidator such that creditors can properly assess whether to accept a DOCA proposal or resolve to wind up the company. Funds recovered would be available to the general body of unsecured creditors including secured creditors but only to the extent of any shortfall incurred after realising their security. A liquidator may recover funds from each type of transaction detailed in the Creditor Information Sheet described in Annexure 3 of this report. A deed administrator does not have recourse to these voidable transactions. A liquidator may also recover funds through other avenues; for example, through action seeking compensation for insolvent trading or breach of director duties. An administrator is not obliged to carry out investigations to the same extent as a liquidator. A liquidator may require many months of investigation and conduct public examinations before forming a concluded view on recovery action. I investigated matters to the extent possible in the time available. The Administrators knowledge of the Company s affairs comes principally from the following sources: Discussions with the directors and their advisors. Communications with the secured creditors of the Company. A search of the ASIC records relating to the Company and any related entities. Searches obtained from VicRoads and the Victorian Land Titles Office. A review of independent pre-appointment valuations of SACPF s and STLF s assets. An examination of the Company s books and records including its financial statements, management accounts and investor reports An examination of various court documents filed in proceedings to which the Company is, or has been, party. 7.2 The Company s solvency Overview Often a necessary precursor to the recovery of funds by a liquidator through the voiding of certain transactions or through other legal action, such as seeking compensation from directors for insolvent trading, is establishing the Company s insolvency at the relevant time. Establishing insolvency can be a complex matter due in part to the complexity of corporate financial transactions and the lack of clear prescriptive legal authority on proof of insolvency. Notwithstanding, there are two primary tests used in determining a company s solvency, at a particular date; namely: Balance sheet test; and Cash flow or commercial test. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 28

41 The Courts have widely used the cash flow or commercial test in determining a company s solvency at a particular date. Section 95A of the Act also contains a definition of solvency. That definition reflects the commercial test in stating that a person is solvent if the person is able to pay all the person s debts as and when they become due and payable. However, the commercial test is not the sole determinant of solvency. Determining solvency derives from a proper consideration of a company s financial position in its entirety and in the context of commercial reality. Relevant issues include, but are not limited to the following: The degree of illiquidity. A temporary lack of liquidity is not conclusive; Regard should be had to: Cash resources Monies available through asset realisations, borrowings against the security of assets or equity/capital raising; All a company s assets might not be relevant when considering solvency. For example, where a company proposes selling assets which are essential to its business operations, the proceeds of those assets should not be taken into account; The voluntary and temporary forbearance by creditors not to enforce payment terms; and It is not appropriate to base an assessment of whether a company can meet its liabilities as and when they fall due on the prospect that a company might trade profitably in the future. In summary, it is a company s inability using such resources as are available to it through the use of its assets, or otherwise, to meet its debts as they fall due, which indicates insolvency Preliminary determination Set out below is a summary of my preliminary investigations and my preliminary determination as to the Company s solvency. Review of the Company s bank facilities for the 6 months leading up to appointment The Company operated several bank accounts with the CBA. During the 6 months leading up to appointment, 2 of the accounts were overdrawn on a number of occasions, by up to $6k and $5k for each respective account. In addition, the Custodian accounts for the STLF and the SACPF are in Sandhurst's name and held with Westpac Banking Corporation. On appointment the STLF had a cash at bank balance of $68 and SACPF a balance totalling $663. In order to assist with the Administrators investigations, I have requested the Bank statements for the last 6 months operated by Sandhurst Trustees Limited on behalf of the Company, STLF and SACPF. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 29

42 Aged payables review The Company The table below sets out an analysis of the aged payables for the Company as at 19 April 2013, generated from the computerised accounting system: Current 30 Days 60 Days 90+ Days Total ($'000) ($'000) ($'000) ($'000) ($'000) Trade creditors as at 19 April Percentage of total All of the Company s creditors are positioned in the 90+ day category. The aged creditors do not include any amounts owing to the ATO and SRO in relation to the Company s statutory obligations. SACPF The table below sets out an analysis of the aged payables for the SACPF as at 19 April 2013, generated from the computerised accounting system: Current 30 Days 60 Days 90+ Days Total ($'000) ($'000) ($'000) ($'000) ($'000) Trade creditors as at 19 April Percentage of total The majority of SACPF s creditors are positioned in the 90+ day category. Outstanding creditors mainly comprise of responsible entity and management fees payable to the Company, custodian fees and legal fees. STLF The table below sets out an analysis of the aged payables for the STLF as at 19 April 2013, generated from the computerised accounting system: Current 30 Days 60 Days 90+ Days Total ($'000) ($'000) ($'000) ($'000) ($'000) Trade creditors as at 19 April Percentage of total The majority of STLF s creditors are positioned in the 90+ day category. Outstanding creditors mainly comprise of monies outstanding in relation to the Westbourne Fields development, Responsible Entity and management fees payable to the Company, custodian fees and legal fees. Note, the balance sheet as at 30 June 2012 details trade payables for an amount of $3.9m. We understand that since this date, settlement monies were directed to Winslow Constructors in their capacity as secured creditor. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 30

43 Profitability, Cashflow and Working Capital The Company 30 June June June 2012 Net profit ratio Working capital ratio The Company has reported a net profit in each of the above financial years. The working capital ratio indicates the Company s ability to meet its short term debt obligations from current assets. The working capital ratio assumes all the current assets are liquid and could be easily converted into cash (including accounts receivable from related parties which the directors have advised are not payable). Should accounts receivable from related parties be excluded from the above working capital ratio, the Company would report an adjusted net working capital deficiency. This would indicate that the Company does not have sufficient current assets to extinguish its current liabilities. SACPF 30 June June June 2012 Net profit ratio 0.30 (0.23) (0.66) Working capital ratio The SACPF has been under-performing from as early as 30 June It is evident from the above analysis that from as early as 30 June 2010 the SACPF did not have sufficient current assets to meet its current liabilities. STLF 30 June June June 2012 Net profit ratio (1.90) (0.26) (0.50) Working capital ratio The STLF has been under-performing from as early as 30 June It is evident from the above analysis that from as early as 30 June 2010 the STLF did not have sufficient current assets to meet its current liabilities. Net Assets Sovereign MF Limited The below tables set out the Company net assets from 30 June 2010 to 30 June 2012: 30 June June June 2012 ($'000) ($'000) ($'000) Net assets (as per balance sheet) less: Related party loan receivables (704) (2,398) (3,909) Adjusted net assets (496) (2,051) (3,376) Letters of demand were issued in relation to accounts receivable from related parties on 2 May The directors claim that these amounts are non collectable due to a banking relationship between the parties (albeit I will need to investigate this relationship further). I have excluded the amounts receivable from related parties and accordingly the adjusted net asset position indicates a growing deficiency of assets to liabilities. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 31

44 SACPF The below table sets out the SACPF s net assets from 30 June 2010 to 30 June 2012: 30 June June June 2012 ($'000) ($'000) ($'000) Net assets (as per balance sheet) 1,579 1,480 1,260 Although the SACPF has reported a positive net asset position in the above three periods, there has been a decrease in net assets from 30 June STLF The below table sets out the STLF s net assets from 30 June 2010 to 30 June 2012: 30 June June June 2012 ($'000) ($'000) ($'000) Net assets (as per balance sheet) 5,448 3,987 3,852 Although the STLF has reported a positive net asset position in the above three periods, there has also been a decrease in net assets from 30 June Payment of statutory commitments including Superannuation Guarantee Charge To date, the following creditor correspondence has been received in relation to amounts outstanding to the below statutory bodies: Statutory body Outstanding Amount Comments ($'000) Australian Taxation Office 11 Outstanding amounts payable in relation to the SACPF State Revenue Office - Victoria 20 Land tax outstanding in relation to the STLF Total 31 Further, my investigations have confirmed that there is currently a dispute on foot with the ATO in regard to the treatment of GST in relation to the land sales at the Westbourne Fields Estate. I am currently awaiting further information from the ATO in relation to this matter. Regardless, any claim made by the ATO in relation to any outstanding GST will rank as an unsecured claim against the Company and/or STLF. Sources and Applications of Funds A review of the PPSR discloses that a number of parties hold registered general security interests against the Company. In the event that additional external funding was required, it is unlikely that another financier would provide lending facilities to the Company on the basis that, with a number of general security interests in place, it is likely that all of the Company s, SACPF s and STLF s assets would already be pledged. It is clear from my analysis that the realisable value of the current loans to related parties has a significant impact on the financial position of the Company. If these loans are not recoverable, there would be a significant deficiency in the net asset position for the Company throughout the 3 year period. Based on the above analysis, it is my preliminary view that the Company may have been insolvent from at least 30 June Section 439A(4)(a) Report by Administrators 15 May 2013 Page 32

45 A liquidator would need to conduct further investigations, and possibly conduct public examinations of relevant parties, to ultimately determine whether or not the Company became insolvent at that time or earlier Presumption of insolvency inadequate books and records Failure to keep or retain adequate books and records in accordance with Section 286 of the Act provides a rebuttable presumption of insolvency under Section 588E of the Act. A liquidator can rely on the presumption of insolvency in litigation including: Compensation claims arising from insolvent trading; and Recovery of voidable transactions from related entities. The presumption cannot be relied upon in the recovery of an unfair preference except where the recovery is sought from a related entity. An AFS Licensee has an obligation under Section 320 of the Act to lodge half yearly reports with ASIC. As at the date of my report, ASIC and CWS Sincock & Co have advised that the 30 June audits for financial year 2011 and 2012 remain outstanding in relation to the STLF. In light of this my preliminary view is that the Company may not have maintained adequate books and records in accordance with Section 286 of the Act. Accordingly, the presumption of insolvency under Section 588E may be available. 7.3 Potential liquidator recoveries - voidable transactions Unfair preferences A payment to a creditor is preferential if it is made at a time when a company is insolvent and it results in the recipient receiving a greater return than they would receive if the payment were set aside and the creditor lodged a claim in the liquidation. Should a liquidator establish any such unfair preference payments, these amounts may be recouped thereby increasing the funds available to ordinary unsecured creditors. If a creditor disgorges an unfair preference payment to a liquidator, the creditor is entitled to prove for a dividend. Therefore, whilst recovering an unfair preference increase the pool of funds available to creditors, it also increases total creditor claims. Factors which indicate these payments might be unfair preferences are: Payments in response to winding up applications, statutory demands and other pressure from the creditor; Repayment plans with the creditor; Significant round figure payments were made to the creditor. The payments would be protected if the creditor from whom the liquidator seeks to recover: Became a party to the transaction in good faith; and At the time when they became a party: They had no reasonable grounds for suspecting that the Company was insolvent at that time, or would become insolvent; and A reasonable person in that person s circumstances would have had no such grounds for so suspecting; and Section 439A(4)(a) Report by Administrators 15 May 2013 Page 33

46 Provided valuable consideration under the transaction or has changed their position in reliance on the transaction. A creditor seeking protection must prove all three elements. Further, where a creditor received a series of payments as part of a so called running account and their overall indebtedness increases over the same period, the creditor is taken not to have received an unfair preference. This is called the running account defence. A liquidator would likely seek legal advice on the strength of a claim including the applicability of these defences. It is likely any recovery action commenced by a liquidator would be defended. Therefore, costs are a major consideration. My preliminary investigation into potential unfair preference payments included the following tasks: Review correspondence with creditors Review of bank statements for the last 12 months Review of cash book records for the last 12 months Based on my preliminary analysis, payments totalling $542k would need to be further investigated by a liquidator to determine if they are preference payments and could be clawed back Uncommercial transactions A transaction is an uncommercial transaction if it is made at a time when a company is insolvent and it may be expected that a reasonable person in a company s circumstances would not have entered into the transaction have regard to: The benefits or detriment to the company of entering into the transaction The prospective benefits to other parties to the transaction upon entering into it Should a liquidator establish any such uncommercial transactions, those transactions may be set aside thereby increasing the funds available to ordinary unsecured creditors. Section of this report identifies a number of unreasonable director-related transactions. In light of these transactions, a liquidator would need to conduct further investigations into any uncommercial transactions Unfair loans Section 588FD of the Act provides that a loan to a company is unfair if the interest and charges are extortionate. In considering whether interest and charges are extortionate, regard must be had to: Risk the lender is exposed to Value of security Term Repayment schedule Amount of loan Based on my investigations to date, I am not aware of the Company being a party to any unfair loans. A liquidator would conduct further investigations into any unfair loans. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 34

47 7.3.4 Unreasonable director-related transactions Pursuant to Section 588FDA of the Act, a transaction is an unreasonable director-related transaction of a company if: The transaction is a payment, transfer of property, issue of securities or incurring of an obligation by the company; Made to the director or close associate of the director; and A reasonable person in the company s circumstances would not have entered into the transaction having regard to the benefit or detriment to the company or other parties. Should a liquidator establish any such transactions, they may set aside the transactions thereby increasing the funds available to unsecured creditors. Based on my preliminary analysis, the following outstanding balances to related party companies would need to be further investigated by a liquidator to determine if they are unreasonable and could be clawed back: Related party Balance ($'000) 668 Secretariat Pty Ltd 162 CDL Loan 398 Eos Janus Capital Pty Ltd 4,244 Krema Pty Ltd 169 Total 4,973 In addition, as detailed in section of this report, EJH claim that the Company was obligated to pay an underwriting commission on settlement of each unsold lot as at the date of my appointment. My initial review is that this agreement appears to be an unreasonable director related transaction and would be voidable as against the liquidators. A liquidator would need to conduct further investigations into any unreasonable director-related transactions Obstruction of creditors rights Section 588FE of the Act provides for the voiding of transactions designed to defeat, delay or interfere with creditors rights. My investigations did not disclose any such transactions at this stage. A liquidator would conduct further investigations into any obstructions of creditors rights. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 35

48 7.3.6 Voidable charges A search of the PPSR register has identified no security interests registered in the 6 months prior to my appointment. 7.4 Potential liquidator recoveries - insolvent trading Director liability Based on my analysis at Section of this report, I indicated the realisable value of the current loans to related parties has a significant impact on the financial position of the Company. If loans are not recoverable, the Company will have a significant deficiency in its net asset position for the preceding 3 year period. In light of this, the Company may have been insolvent from at least as early as 30 June 2010 and the directors would have had reasonable grounds for suspecting so. If it is determined that the Company traded whilst it was insolvent, in their defence, the directors could argue: A reasonable expectation that the Company was or would remain solvent due to: Significant capital injections by secured creditors throughout the 2011 and 2012 financial years Ongoing support of one of the creditors when rolling over the loan facilities for a further year Again, a liquidator would likely seek legal advice on these issues and conduct more investigations possibly including a public examination. If the directors argue that the related party loan accounts are not due and payable or the related parties do not have capacity to repay these loans, then an insolvent trading action may be an option for the Liquidator to pursue Holding company liability Eos Janus Equity Fund No 1 Pty Ltd was the holding company of the Company and in my view, the nature and extent of Eos Janus Equity Fund No 1 Pty Ltd s control over the Company s operations was such that it would be reasonable to expect Eos Janus Equity Fund No 1 Pty Ltd and its directors had knowledge of the Company s financial position. I stated at Section that the Company may have been insolvent as at 30 June Accordingly, it is arguable that Eos Janus Equity Fund No 1 Pty Ltd could be held liable under Section 588W for the debts incurred by the Company from that date. 7.5 Other potential liquidator recoveries Compensation for breach of director duties Based on my preliminary investigations, the directors may have breached their duties as directors in: Failing to act in good faith Failing to discharge their duties with reasonable care and diligence Section 439A(4)(a) Report by Administrators 15 May 2013 Page 36

49 Improperly using their position or information Failing to avoid conflicts of interest Failing to assist the Administrators Failing to provide all of the books and records of the Company In addition, the directors may have also breached their duties as officers of a responsible entity in: Failing to act in the best interests of members Failing to act in the interests of members in the event of a conflict of interest between the members interest and the interests of the responsible entity Making improper use of their position Failing to ensure the Company complied with its obligations as responsible entity As a consequence of these alleged breaches, the directors may be liable to compensate the Company or are liable under the Act s civil penalty provisions. A liquidator would conduct further investigations into the potential breaches, taking into consideration the likely costs of any recovery action Arrangements to avoid employee entitlements Based on my investigations to date, there has been no contravention of Part 5.8A of the Act by any person. 7.6 Possible offences Based on my preliminary investigations, I identified the following possible offences which will need to be further investigated. Section 180: Failure to exercise due care and diligence Section 181: Failure to exercise powers and discharge duties in good faith and bests interests of a company and for a proper purpose Section 182: Improper use of position to gain a personal advantage or cause detriment to the company Section 183: Improper use of information Section 184: Reckless or intentional breach of duties by a director or other officer of a company Section 588G: Trading whilst insolvent, including the contracting of debts when there were no reasonable grounds of expectation that the debts could be paid in full Section 438B and 438C: Failure to help administrators and provide books and records Section 439A(4)(a) Report by Administrators 15 May 2013 Page 37

50 7.7 Summary of potential liquidator recoveries Set out below is a summary of the potential recoveries by a liquidator in the event the Company is wound up: Potential Recovery Item High Low ($ 000) ($ 000) Unfair preferences 542 Unknown Unreasonable director related transactions 4,973 Unknown Compensation from directors for insolvent trading Unknown Unknown Compensation from holding company for insolvent trading Unknown Unknown Breaches of directors duties Unknown Unknown Debts incurred by Company as trustee Unknown Unknown Total 5,515 Unknown 7.8 Directors ability to pay a liquidator s claims Various searches disclose the directors own no: Real property Motor vehicles; Shares or investments; which are unencumbered. The directors have not provided a statement of their personal financial positions. My insurance broker is currently in the process of obtaining confirmation as to whether a Directors and Officers Insurance Policy existed for the Company and whether the Administrator in these circumstances could pursue a claim against the policy given the mismanagement of the funds. 8 Creditors options, dividend estimates & cost estimates Pursuant to Section 439A(4)(b) of the Act, I am required to provide creditors with a statement setting out my opinion on whether it is in the creditors interests for the: Administration to end; Company to be wound up; or, Company to execute a DOCA. There is no proposal for a DOCA, therefore this option is not available to creditors. Creditors may resolve that the administration should end if it appears the Company is solvent or, for some other reason, control of the Company should revert to its directors. Based on my preliminary investigations and analysis of the Company s financial information, the Company is insolvent. There appears to be no valid commercial reason why control of the Company should revert to its directors. If the administration were to end, there is no mechanism controlling an orderly realisation of assets and distribution to creditors. I am unable to say what the Company might ultimately pay creditors or what costs it might incur. Section 439A(4)(a) Report by Administrators 15 May 2013 Page 38

51 Therefore, my opinion is that it is not in the creditors interest for the administration to end. 9 Administrators opinion As stated in section 7.1 above, the option of the administration ending is clearly not viable. The only remaining option available to creditors is to wind up the Company. I am unable to provide creditors with a dividend estimate at this point in time as this is dependent on: Sale and development of the Westbourne Fields Estate. Any surplus funds that may become available following a sale of the property located at 982 High Street Road, Glen Waverley, Victoria by Pitcher Partners as agents for the mortgagee in possession. Recovery of the outstanding related party loans Possible recoveries as a result of my investigations The quantum of secured and priority creditor claims Unit holder entitlements under the MIS s 10 Administrators remuneration report Pursuant to Section 446E of the Act, I enclose as Annexure 2 the Administrators Remuneration Report. At the second meeting of creditors, I intend seeking approval of the remuneration set out in the remuneration report. Details of disbursements incurred are also included in the remuneration report. 11 Further queries I will advise creditors in writing, if practicable, of any additional matter that comes to my attention after the dispatch of this report that, in my view, is material to creditors deliberations. In the meantime, should creditors have any queries, please do not hesitate to contact Brent Smith of this office. DATED this 15 th day of May 2013 John Lindholm Administrator Section 439A(4)(a) Report by Administrators 15 May 2013 Page 39

52 Annexure 1 Ownership structure of the Company and its related entities Section 439A(4)(a) Report by Administrators 15 May 2013 Page 40

53

54 Annexure 2 Administrators Remuneration Report Section 439A(4)(a) Report by Administrators 15 May 2013 Page 41

55 Corporations Act 2001 Section 449E Sovereign MF Limited (Administrators Appointed) ACN ( the Company ) Remuneration Request Approval Report Part 1: Declaration I, John Lindholm of Ferrier Hodgson, have undertaken a proper assessment of this remuneration claim for my appointment as Administrator of the Company in accordance with the law and applicable professional standards. I am satisfied that the remuneration claimed is in respect of necessary work, properly performed, or to be properly performed, in the conduct of the administration. Part 2: Executive summary To date, no remuneration has been approved and paid in this administration. This remuneration report details approval sought for the following fees: Total past remuneration approved Report Reference Amount (excluding GST) Nil Current remuneration approval sought: Voluntary Administration Resolution 1: 19 April 2013 to 10 May ,4 $211,568 Resolution 2: 11 May 2013 to 24 May 2013* 5 $40,000 Total Voluntary Administration $251,568 Liquidation Resolution 3: Commencement of Liquidation to completion* 6 $300,000 * Approval for the future remuneration sought is based on an estimate of the work necessary to the completion of the administration. Should additional work be necessary beyond what is contemplated, further approval may be sought from creditors. Please refer to report section references detailed above for full details of the calculation and composition of the remuneration approval sought. B9:DM Sovereign MF Limited

56 The initial advice to creditors dated 22 April 2013 provided an initial estimate of costs for the Voluntary Administration of between $150k to $200k. The current remuneration sought differs to the initial estimate of costs for the following reasons: The unexpected volume of work required to secured and collect the Company s books and records The unexpected volume of creditor and unit holder enquiries The complexity of investigations into the Company s business, property and affairs Part 3: Description of work completed Resolution 1 Company: Sovereign MF Limited (Administrators Appointed) Administration Type: Voluntary Administration Practitioners: John Lindholm and James Shady of Ferrier Hodgson Period: 19 April 2013 to 10 May 2013 Task Area General Description Includes Assets 74.3 $ per hour (excl GST) Real property Discussions with the civil contractor to determine willingness to continue the Tarneit development, and the extent of support regarding the ongoing funding of the development costs to complete the project Review valuation report by Charter Keck Cramer in respect to market demands and property information Conducted various site visits Entered into discussions with the main development consultant (TGM Group Pty Ltd) Searches with the Victorian Land Titles Offices Worked with my solicitors to understand the Underwriting Agreement that the related party, Eos Janus Holdings Pty Ltd claim to have in place over the properties Worked with my solicitors, Sandhurst Trustees and the settlement agent, Low Cost Conveyancing to understand the pre appointment contract of sales in place in an attempt to realise and to settle lots Undertook detailed feasibility studies and sensitivity analysis to determine whether to proceed with development of property B9:DM Sovereign MF Limited

57 Task Area General Description Includes Creditors $ per hour (excl GST) Other assets Leasing Creditor / unit holder enquiries Secured creditor reporting Creditor reports Dealing with proofs of debt Meeting of creditors Prepared budgets and cash flow models in relation to continuing with the Tarneit development. Prepared detailed financial models to determine the outcome to secured creditors on a low, medium and high scenario. Liaised with several real estate agents regarding the sale of the Tarneit development in one line as is and fully developed Liaise with Agents for the Mortgagee in Possession in relation to their future strategy to realise the aged care facility located in Glen Waverley Tasks associated with realising other assets, including pre appointment bank accounts and term deposits. Reviewing leasing documents Liaising with owners / managing agents and lessors Receive and follow up creditor and unit holder enquiries via telephone and Maintaining creditor and unit holder enquiry register Review and prepare correspondence to creditors and unit holders and their representatives via facsimile, and post Responding to secured creditor s queries Preparing section 439A report, investigation, meeting and general reports to creditors Receipting and filing proofs of debt Corresponding with OSR and ATO regarding proofs of debt Preparation of meeting notices, proxies and advertisements Forward notice of meeting to all known creditors Preparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting. Preparation and lodgement of minutes of meetings with ASIC Respond to stakeholder queries and questions B9:DM Sovereign MF Limited

58 Task Area General Description Includes Investigation Collection of Company s books and records $ per hour (excl GST) Conducting investigation Attendance at the Company s principal place of business on 19 April 2013 to collect the Company s books and record and image all computer equipment (to which the directors refused to provide the Administrators with access) Attendance at the Company s principal place of business on 24 April 2013 to allow the Administrators supervised access to copy the Company s books and records. Attendance at the Company s premises on 26 April 2013 to collect the books and records of the Company (excluding the books and records of SACPF and STLF and any data or the computer and laptops) Providing instructions to my solicitor to send a letter to the Company s solicitor regarding the failure of the directors to cooperate with the Administrators in relation to the provision of books and records of the Company Attendance at the Company s principal place of business on 30 April 2013 to collect the books and records of the SACPF and STLF. Application to the Supreme Court of Victoria on 6 May 2013 seeking an order to image the servers, computers and laptops used by the Company Following my application to the Supreme Court of Victoria, attendance at the Company s principal place of business on 6 May 2013 to image the servers, computers and laptops used by the Company (to which the directors again refused to provide the Administrators with access) A subsequent application to the Court to seek further orders on the evening of 6 May 2013 and imaging of the Company s servers, computers and laptops that night. Reviewing the Company s books and records Review and preparation of Company nature and history Conducting and summarising statutory searches Preparation of comparative financial statements Preparation of deficiency statement B9:DM Sovereign MF Limited

59 Task Area General Description Includes Administration Correspondence Document maintenance / file review / checklist $ per hour Insurance (excl GST) Bank account administration ASIC forms ATO and other statutory reporting Planning / review Books and records / storage Review of specific transactions and liaising with directors regarding certain transactions Preparation of investigation file General correspondence Filing of documents File reviews Updating checklists Identification of potential issues requiring attention of insurance specialists Correspondence with insurer regarding initial and ongoing insurance requirements Reviewing insurance policies Correspondence with previous brokers Preparing correspondence opening and closing accounts Requesting bank statements Bank account reconciliations Correspondence with bank regarding specific transfers Preparing and lodging ASIC forms including 505, etc Correspondence with ASIC regarding statutory forms Notification of appointment Discussions regarding status / strategy of administration Sending job files to storage B9:DM Sovereign MF Limited

60 Part 4: Calculation of Remuneration Period: 19 April 2013 to 10 May 2013 Employee Position Rate (ex GST) Total Assets Creditors Investigation Administration ($/Hour) (Hrs) ($) (Hrs) ($) (Hrs) ($) (Hrs) ($) (Hrs) ($) Lindholm, John Partner , , , , , Shady, James Partner , , , Caldw ell, David Executive Director , , Sager, Peter Executive Director , , , , Frenis, Jennifer Senior Manager , , , , , Mazzone, David Senior Analyst , , , , McCreesh, Brendan Senior Analyst , , , Lieu, Henry Analyst , , , Smith, Brent Analyst , , , , Sw an, Greshan Analyst , , Bernarde, Gabriel Junior Accountant , , Total (excluding GST) , , , , , GST 21, Task Area Total (including GST) 232, Average Hourly Rate (excluding GST) B9:DM Sovereign MF Limited

61 Part 5: Description of work to be completed (11 May 2013 to 24 May 2013) Resolution 2 Company: Sovereign MF Limited (Administrators Appointed) Administration Type: Voluntary Administration Practitioners: John Lindholm and James Shady of Ferrier Hodgson Period: 11 May 2013 to 24 May 2013 Task Area General Description Includes Assets 26.9 $ per hour (excl GST) Creditors 34.4 $ per hour (excl GST) Real property Other assets Leasing Creditor / unit holder enquiries Secured creditor reporting Dealing with proofs of debt Meeting of creditors Various tasks relating to the continued development of the Westbourne Fields Estate, including: Feasibility analysis Meetings with the secured creditors to discuss continuing with the development Tasks associated with realising other assets Issuing demands in relation to the related party loan accounts Securing the return of the bank guarantee in relation to Level 2, Collins Street, Melbourne, Victoria Receive and follow up creditor and unit holder enquiries via telephone and Maintaining creditor and unit holder enquiry register Review and prepare correspondence to creditors and unit holders via facsimile, and post Responding to secured creditor s queries and holding meetings Receipting and filing proofs of debt when not related to a dividend Corresponding with OSR and ATO regarding proofs of debt when not related to a dividend Preparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting. Preparation and lodgement of minutes of meetings with ASIC Respond to stakeholder queries and questions immediately following meeting B9:DM Sovereign MF Limited

62 Task Area General Description Includes Investigations 15.0 $ per hour (excl GST) Conducting investigation Administration Correspondence 20 $ (excl GST) Document maintenance / file review / checklist Insurance Bank account administration ASIC forms ATO and other statutory reporting Planning / review The remuneration estimate may be summarised as follows: Review of Wantrup & Associates trust account ledger Requesting supporting documentation to substantiate the transactions Review of all s sent to and from the domain name sovereign.mf Attending the Court hearing on 21 May 2013 where I intend to seek access to all data imaged General correspondence Filing of documents File reviews Updating checklists Correspondence with insurer regarding ongoing insurance requirements Reviewing insurance policies Correspondence with previous brokers Requesting bank statements Bank account reconciliations Correspondence with bank regarding specific transfers Preparing and lodging ASIC forms Correspondence with ASIC regarding statutory forms Preparing BASs Discussions regarding status / strategy of administration Assets Creditors Investigation Administration Hours Total $ (excl. GST) 11,983 13,968 6,093 7,942 B9:DM Sovereign MF Limited

63 Part 6: Description of work to be completed (Commencement of Liquidation to completion) Resolution 3 Company: Sovereign MF Limited (Administrators Appointed) Administration Type: Liquidation Practitioners: John Lindholm and James Shady of Ferrier Hodgson Period: Commencement of Liquidation to completion Task Area General Description Includes Assets $ per hour (excl GST) Creditors $ per hour (excl GST) Real property Other assets Leasing Creditor / unit holder enquiries Secured creditor reporting Various tasks relating to the continued development of the Westbourne Fields Estate, including (but not limited to): Meetings with the secured creditors to discuss continuing with the development Feasibility analysis Finalisation of cash flow models Site visits Attend meetings with the property development team Preparation of construction contract Liaising with sales agents Review of agent sales and marketing submissions Engage agent to market and sell development Meetings with agent to discuss sale progress of development Review contracts of sale and organise settlements Preparation of monthly financial reports / updates to secured creditors Tasks associated with realising related party loan accounts Securing the return of the bank guarantee in relation to Level 2, Collins Street, Melbourne, Victoria Receive and follow up creditor and unit holder enquiries via telephone and Maintaining creditor and unit holder enquiry register Review and prepare correspondence to creditors and unit holders via facsimile, and post Preparing reports to secured creditor Responding to secured creditor s queries B9:DM Sovereign MF Limited

64 Task Area General Description Includes Investigation $ per hour (excl GST) Creditor reports Dealing with proofs of debt Meeting of creditors Conducting investigation Examinations Litigation / recoveries Preparing investigation, meeting and general reports to creditors Receipting and filing proofs of debt Corresponding with OSR and ATO regarding proofs of debt Preparation of meeting notices, proxies and advertisements Forward notice of meeting to all known creditors Preparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting. Preparation and lodgement of minutes of meetings with ASIC Respond to stakeholder Review of specific transactions and liaising with directors regarding certain transactions Further investigation into the transactions listed in Wantrup & Associates trust account Review of all s sent to and from the domain name sovereign.mf Review all data (if available following Court hearing on 21 May 2013) Preparation of investigation file Lodgement of investigation with ASIC Preparation and lodgement of supplementary report if required Preparing brief to solicitor Liaising with solicitor(s) regarding examinations Attendance at examination Reviewing examination transcripts Liaising with solicitor(s) regarding outcome of examinations and further actions available Internal meetings to discuss status of litigation Preparing brief to solicitors Liaising with solicitors regarding recovery actions Attending to negotiations Attending to settlement matters ASIC reporting Preparing statutory investigation reports Preparing affidavits seeking non-lodgement assistance Liaising with ASIC B9:DM Sovereign MF Limited

65 Task Area General Description Includes Dividend 72.5 $ per hour (excl GST) Secured creditor distributions Administration Correspondence Document maintenance / file review / checklist $ per hour (excl GST) Insurance Bank account administration ASIC Form 524 and other forms ATO and other statutory reporting Finalisation Planning / review Books and records / storage Undertake a review to determine the validity of the secured creditor claims against the Company and the order of priority Adjudicating proofs of debt received from secured creditors Distributions to secured creditors as and when monies become available Maintain register of distributions to secured creditors General correspondence First month, then six monthly administration review Filing of documents File reviews Updating checklists Identification of potential issues requiring attention of insurance specialists Correspondence with insurer regarding initial and ongoing insurance requirements Reviewing insurance policies Correspondence with previous brokers Preparing correspondence opening and closing accounts Requesting bank statements Bank account reconciliations Correspondence with bank regarding specific transfers Preparing and lodging ASIC forms including 505, 524, 911, etc Correspondence with ASIC regarding statutory forms Notification of appointment Preparing BASs Completing group certificates Notifying ATO of finalisation Cancelling ABN / GST / PAYG registration Completing checklists Finalising WIP Discussions regarding status / strategy of administration Dealing with records in storage Sending job files to storage B9:DM Sovereign MF Limited

66 The remuneration estimate may be summarised as follows: Assets Creditors Investigation Dividend Administration Hours Total $ (excl. GST) 76,396 70,246 80,220 29,435 43,681 B9:DM Sovereign MF Limited

67 Part 7: Statement of Remuneration Claim Resolutions to be put to creditors at the meeting convened for 24 May 2013 At the meeting of creditors convened for 24 May 2013 creditors will be asked to consider the following resolutions: Resolution 1: "That the remuneration of the Administrators, as set out in the Remuneration Report dated 15 May 2013, for the period from 19 April 2013 to 10 May 2013 be fixed in the amount of $211,568, plus any applicable GST, and may be paid." Please note that further approval of the Administrator s remuneration for the above period will not be sought in the future. Resolution 2: "That the remuneration of the Administrators, as set out in the Remuneration Report dated 15 May 2013, for the period from 11 May 2013 to 24 May 2013 be fixed up to a maximum amount of $40,000, plus any applicable GST, but subject to upward revision by resolution of creditors, or the Committee of Creditors Inspection should one be appointed, and that the Administrator be authorised to make periodic payments on account of such accruing remuneration as incurred." Resolution 3: "That the remuneration of the Liquidators, as set out in the Remuneration Report dated 15 May 2013, for the period from the commencement of the Liquidation to completion be fixed up to a maximum amount of $300,000 plus any applicable GST, but subject to upward revision by resolution of creditors, or the Committee of Creditors Inspection should one be appointed, and that the Liquidators be authorised to make periodic payments on account of such accruing remuneration as incurred." Please note that the above is an estimate only. If costs exceed the estimate, creditors will be advised accordingly and further approval of the /Liquidators remuneration will be sought in the future. Remuneration approved and drawn to date Creditors have not previously approved any remuneration of the Administrator. Part 8: Remuneration Recoverable from External Sources The Administrator has not received any funding from external sources in respect of Administrators remuneration. B9:DM Sovereign MF Limited

68 Part 9: Disbursements Disbursements are divided into three types: A, B1, B2. A B1 B2 Disbursements are all externally provided professional services. These are recovered at cost. An example of an A disbursement is legal fees. Disbursements are externally provided non-professional costs such as travel, accommodation and search fees. B1 disbursements are recovered at cost. Disbursements are internally provided non-professional costs such as photocopying, printing and postage. B2 disbursements, if charged to the Administration, would generally be charged at cost; though some expenses such as telephone calls, photocopying and printing may be charged at a rate which recoups both variable and fixed costs. The relevant rates are set out below. Disbursement Type Advertising Couriers Mileage Reimbursement Photocopying (colour) Photocopying (mono) Photocopying (outsourced) Printing (colour) Printing (mono) Printing (outsourced) Postage Searches Storage and Storage Transit Telephone Calls Charges (excluding GST) At cost At cost $0.67 per kilometre $0.50 per page $0.20 per page At cost $0.50 per page $0.20 per page At cost At cost At cost At cost At cost I have undertaken a proper assessment of disbursements claimed for the Company, in accordance with the law and applicable professional standards. I am satisfied that the disbursements claimed are necessary and proper. Creditor approval for the payment of disbursements is not required. However, the Administrator must account to creditors. Creditors have the right to question the incurring of disbursements and can challenge disbursements in court. B9:DM Sovereign MF Limited

69 Part 10: Report on Progress of the Administration The Remuneration Request Approval Report must be read in conjunction with the report to creditors dated 15 May 2013 which outlines the progress of the Administration. Part 11: Summary of Receipts and Payments The Administrators have not incurred any receipts and payments to date. Part 12: Queries If you require further information in respect of the above, or have other queries, please contact Brent Smith of this office on (03) Part 13: Information Sheet The partners of Ferrier Hodgson are, generally, members of the Insolvency Practitioners Association of Australia ( IPA ). Ferrier Hodgson follows the IPA Code of Professional Practice. A copy of the Code of Professional Practice may be found on the IPA website at An information sheet concerning approval of remuneration in external administrations can also be obtained from the IPA website. Dated: 15 May 2013 John Lindholm Administrator B9:DM Sovereign MF Limited

70 Annexure 3 IPA Creditor Information Sheet Offences, Recoverable Transactions and Insolvent Trading Section 439A(4)(a) Report by Administrators 15 May 2013 Page 42

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