Keeforce Pty Ltd. Fresh Produce Logistics Pty Ltd. Produce Services Pty Ltd. Keeforce Holdings Pty Ltd. Keeforce Services Pty Ltd. Frazerview Pty Ltd

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1 Keeforce Pty Ltd ACN Keeforce Holdings Pty Ltd ACN Keeforce Services Pty Ltd ACN Fresh Produce Logistics Pty Ltd ACN Produce Services Pty Ltd ACN Frazerview Pty Ltd ACN Keeforce Linehaul Pty Ltd ACN (All Voluntary Administrators Appointed) (Collectively referred to as the Group ) of the Corporations Act 23 February 2015

2 Table of Contents Section Page Statement by Administrators Executive summary Introduction Company information Historical financial position Statement by directors Trading by Administrators Sale of business / assets Proposal for DOCA Statutory investigations Return to creditors Administrators opinion Further information and enquiries Glossary of terms Annexure A Notice of meeting (Form 529) B Appointment of proxy form (Form 532) C D E F G H I Informal Proof of debt form Remuneration approval request report Statutory information PPSR security interest holders Summary Directors' statements ARITA creditor information sheet Estimated return to creditors \B09 23 February 2015 Page 1

3 Statement by Administrators In reviewing this Report, creditors should note: This Report is based upon our preliminary investigations to date. Any additional material issues that are identified subsequent to the issue of this Report may be the subject of a further written report and/or tabled at the Second Meeting. The statements and opinions given in this Report are given in good faith and in the belief that such statements and opinions are not false or misleading. The Administrators reserve the right to alter any conclusions reached based on any changed or additional information which may be provided to them between the date of this Report and the date of the Second Meeting (except where otherwise stated). In considering the options available to creditors and formulating our opinion and recommendation, the Administrators have necessarily made forecasts of asset realisations and total creditors claims based on their best assessment in the circumstances. These forecasts and estimates may change as asset realisations progress and they receive creditor claims and consequently the outcome for creditors might differ from the information provided in this Report. Creditors should consider seeking their own independent legal advice as to their rights and the options available to them at the Second Meeting. \B09 23 February 2015 Page 2

4 1 Executive summary 1.1 Appointment Brendan Richards, Will Colwell and Tim Michael were appointed as joint and several Administrators of the Group on 28 January 2015 pursuant to Section 436A of the Act. 1.2 Conduct of administration On appointment, the Administrators assumed control of the Group s operations and notified employees, creditors and other stakeholders of their appointment. The Administrators then conducted an urgent financial and commercial review of the Group with the assistance of the Directors and key personnel, and communicated with key stakeholders including customers suppliers, and employees. 1.3 Sale of Business On appointment, the Administrators commenced a marketing campaign seeking expressions of interest in the businesses of the Group. During the campaign, two (2) non-binding offers were received. The offers received were: Limited to five specific customers of Keeforce (the top five customers); Conditional on customer support; and Conditional on continued trading by the Administrators until settlement of a transaction. As negotiations continued it became increasingly evident that customer support would not be forthcoming to the level required by the interested parties, and consequently the Administrators formed the view that the parties would not be in a position to submit a binding offer on appropriate commercial terms. Accordingly, on 10 February 2015, after exhausting all avenues to sell both the FPL and Keeforce businesses, the Administrators commenced a controlled closure program of the entire business. 1.4 Purpose of report The purpose of this Report is to table the findings of the Administrators investigations of the Group s business, property, affairs and financial circumstances, as well as the Administrators opinion on the three options available to creditors in deciding the future of each company in the Group at the Second Meeting. 1.5 Administrators recommendation On the basis that a DOCA proposal has not been received and ending the Administration is not a viable option due to the insolvency of each company in the Group, it is the Administrators opinion that each company in the Group should be placed into liquidation. \B09 23 February 2015 Page 3

5 1.6 Second Meeting Details of the Second Meeting are as follows: Second Meeting Details Date 4 March 2015 Registration Meeting time Location 2:15pm (AEST) 2:30pm (AEST) Fleet Room, Level 1, Christie Conference Centre, 320 Adelaide Street, Brisbane QLD The Administrators intend to hold concurrent second meetings of creditors of the Group. Creditors who wish to participate in the Second Meeting must complete and submit the following forms, by 4:00pm (AEST) on 3 March 2015 to: Address: GPO Box 838, Brisbane, Queensland 4001 Tel: Fax: Liana.Childs@fh.com.au Form Appointment of proxy (form 532) Informal Proof of debt Comments Corporate creditors must appoint an individual to act on its behalf Individuals voting in person are not required to complete this form but must complete this form if a representative is appointed to vote on their behalf Proxy forms submitted for the First Meeting are not valid for the Second Meeting. A new proxy form must be submitted Creditors must submit documentation to support the amount they have claimed (i.e. unpaid invoices, payslips) Creditors who have already submitted a proof of debt are not required to resubmit a proof of debt form unless the amount claimed has changed 1.7 Summary of investigations In the absence of the Group s monthly Balance Sheets after 30 June 2014, it is difficult to assess from a balance sheet perspective when the Group may have become insolvent. However anecdotal evidence indicates the Group was capable of paying its debts as and when they fell due up to 28 January In this context, the Administrators have concluded that: Each company in the Group was insolvent or likely to become insolvent on or around 28 January No Group company traded whilst insolvent. The Administrators identified a potential breach of Section 588FDA of the Act, being an unreasonable director-related transaction in relation to the payment in January 2015 of six months wages and/or annual leave totalling $229,999. \B09 23 February 2015 Page 4

6 With the exception of the above, the Administrators did not identify any other breaches of the Act by the Directors or officers of each company in the Group. The investigations undertaken to date in the Administration are detailed at section 9 of this report. 1.8 Return to creditors Under a liquidation scenario the Administrators estimate that the dividends payable to each class of creditor are as follows: Entity Please refer to section 10 for further information. 2 Introduction 2.1 Purpose of appointment and this report The purpose underlying an Administrator s appointment is to allow for independent control and investigation of an insolvent company s affairs. During the administration period, creditors claims are put on hold. The Administrators are required to provide creditors with information and recommendations in relation to the three options available to creditors in deciding upon the future of each company in the Group. The three options available are: Secured creditor Employee creditors Unsecured creditors Administrators' ERV (cents in $) High Low High Low High Low Keeforce Nil Keeforce Holdings n/a n/a Nil Nil Keeforce Services Nil Nil Nil Nil Keeforce Linehaul n/a n/a Nil FPL n/a n/a Nil Produce Services Nil Nil Nil Nil Frazerview n/a n/a Nil Nil Note: The Nab has cross collateralised security over the Group w ith the exception of Frazerview, Produce Services and Keeforce Services. The estimated return to creditors assumes the Nab shortfall is taken in full from all entities (subject to its charge) w hich have available funds irrespective of w hether surplus' exist in other Group entities. The Administrators have assumed that the security of each secured creditor is legally enforceable although this is subject to a comprehensive legal review. That each company in the Group be placed into liquidation; That each company in the Group execute a DOCA; Administrators' ERV (cents in $) Administrators' ERV (cents in $) The Administration of each Group company to end and control of each company in the Group revert back to its directors. \B09 23 February 2015 Page 5

7 In the available time, the Administrators have undertaken the investigations detailed in Section 9.1 of this report. These investigations have enabled the Administrators to form an opinion about the Group s future. The Administrators opinions are set out in Section 11 of this Report. 2.2 Basis of report This report has been prepared primarily from information obtained from the Group s books and records. Although the Administrators have conducted certain investigations into the affairs of the Group, there may be matters which they are unaware of as an audit of the Group has not been undertaken. In order to complete the report, the Administrators have utilised information from: The ASIC; The PPSR; The Group s book and records; The Directors statements and questionnaires; Discussions with the Directors of the Group; Discussions with key employees of the Group; Discussions with the secured creditors of the Group; Discussions with unsecured creditors of the Group; and Other public databases. 2.3 Declaration of independence, relevant relationships and indemnities The Administrators provided a DIRRI to creditors with their first circular to creditors. The DIRRI was also tabled at the First Meeting. There has been no change in the declaration since that time. 2.4 First Meeting and Committee of Creditors At the first meeting of creditors, a quorum was present for: Keeforce Keeforce Services Keeforce Holdings Produce Services FPL A quorum was not present for: Frazerview Keeforce Linehaul At the First Meeting there were no other nomination for an alternative administrator and accordingly the appointment of Brendan Richards, Will Colwell and Tim Michael as administrators was ratified. Further, creditors resolved not to appoint a Committee. \B09 23 February 2015 Page 6

8 2.5 Second Meeting Pursuant to Section 439A of the Act, the Second Meeting is convened for 4 March 2015 at Fleet Room, Level 1, Christie Conference Centre, 320 Adelaide Street, Brisbane, Queensland at 2:30pm (AEST). The Notice of Meeting of Creditors (Form 529) is attached at Annexure A along with an appointment of proxy form (Annexure B) and an informal proof of debt or claim form (Annexure C). Creditors have the opportunity to adjourn the Second Meeting for up to a period of 45 business days to, among other things, enable further investigations to be undertaken. The Administrators see no reason to adjourn the Second Meeting. 2.6 Remuneration At the Second Meeting, the Administrators will be seeking approval for their remuneration as follows: Keeforce Period Amount (ex GST) $ Voluntary Administration - 28 January 2015 to 17 February , Voluntary Administration - 18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 150, Total 826, Keeforce Services Period Amount (ex GST) $ Voluntary Administration - 28 January 2015 to 17 February , Voluntary Administration - 18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 50, Total 105, Keeforce Linehaul Period Amount (ex GST) $ Voluntary Administration -28 January 2015 to 17 February , Voluntary Administration -18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 40, Total 69, \B09 23 February 2015 Page 7

9 2.6.4 Keeforce Holdings Period Amount (ex GST) $ Voluntary Administration 28 January 2015 to 17 February , Voluntary Administration - 18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 50, Total 103, Produce Services Period Amount (ex GST) $ Voluntary Administration - 28 January 2015 to 17 February , Voluntary Administration - 18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 40, Total 80, FPL Period Amount (ex GST) $ Voluntary Administration - 28 January 2015 to 17 February , Voluntary Administration - 18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 120, Total 378, Frazerview Period Amount (ex GST) $ Voluntary Administration - 28 January 2015 to 17 February , Voluntary Administration - 18 February 2015 to 4 March , Liquidation (if applicable) - 4 March 2015 to completion of liquidation 40, Total 78, Please refer to our Remuneration Approval Request Report at Annexure D for details of the key tasks undertaken throughout the course of the administration along with a summary of the receipts and payments to date. \B09 23 February 2015 Page 8

10 2.7 Non-disclosure of certain information There are sections of this Report where the Administrators have considered it inappropriate to disclose certain information to creditors. Such information includes: Valuations of specific assets; Details of offers received during the sale process; and Commercially sensitive prospective financial information (for example, projections / forecasts). The Administrators recognise the need to provide creditors with complete disclosure of all necessary information relating to the Group. Where necessary in this Report, the Administrators have provided a combined figure for potential realisations of assets when comparing estimated dividends under the relevant options. 3 Company information 3.1 Group structure The Group structure is summarised below: Entity Keeforce Keeforce Linehaul Keeforce Holdings Keeforce Services FPL Produce Services Frazerview Operations This is the trading entity of the Keeforce Business All customer contracts, save for Northline are held in this entity and it incurs all of the Keeforce businesses trading liabilities Keeforce does not own any fleet assets but may own some PP&E. Investigations are continuing This entity held the Northline contract (since October 2012) Keeforce charges Keeforce Linehaul a monthly management charge in order to fulfil the terms and conditions of the Northline contract This entity owns the majority of the fleet assets and PP&E save for CBA and Macquarie financed assets and a small number of unencumbered assets This is the employing entity for the Keeforce Business It holds no assets This is the trading entity of the FPL Business which commenced in May 2014 FPL does not own any fleet assets but may own some PP&E. Investigations are continuing This is the employing entity for the FPL Business It holds no assets This entity owns all of the CBA and Macquarie financed fleet assets and a small number of unencumbered fleet assets \B09 23 February 2015 Page 9

11 3.2 Statutory information According to the searches of the ASIC database, the following information in respect of each Company within the Group is contained in Annexure E: Incorporation date; Registered office address; Principal place of business address; Company officers; and Shareholders. 3.3 Registered security interests Under the new PPSA legislation which took effect on 30 January 2012, security over property (except land and certain other asset categories) must be registered as a security interest on the PPSR. Briefly, the concept of fixed and floating charges was replaced under the PPSA by security interests over non-circulating assets and security interests over circulating assets respectively. In the case of inventory, title to any inventory will require registration as a PMSI on the PPSR. A PMSI is similar to a ROT provision in terms of trade. Unless a supplier (including a ROT supplier) registers a PMSI as a security interest on the PPSR, the goods under the ROT clause may become property of the company and amount to a windfall to the company and its creditors. The PPSR discloses that 24 parties hold current registered security interests against the Group. The Administrators understand that the security interests relate to financed equipment, rental/hire agreements and consumable goods. In addition, two of the Group companies hold security registrations over the assets of three companies in the Group (Keeforce Holdings, Frazerview and Keeforce). The Directors advised this was for the purposes of protecting ownership of the assets in the event the equipment was hired to third parties. No detriment to creditors interests is caused by these registrations. Immediately on appointment the Administrators wrote to all creditors registered on the PPSR requesting further information regarding their registration and the amounts due. To date the Administrators have received 15 responses from PPSR holders, either providing details of their claims or confirming removal of their registrations. Upon receipt of information regarding the balance of the registrations, the Administrators will complete an assessment of the validity of the registrations and deal with any claims in the ordinary course of the administration. Details of the security interest holders and the Administrators comments are set in Annexure F. Prior to any distributions to the Nab or CBA, who both hold All PAAP registrations over various companies in the Group, the Administrators will obtain independent legal advice as to the validity of their security interest. 3.4 Winding up applications At the date of the appointment of Administrators, there was no outstanding winding up application against the Group. \B09 23 February 2015 Page 10

12 3.5 Group history The Group commenced in 2002 specialising in full load B double express linehaul services for major logistics service providers. In May 2014 it expanded by acquiring the operations and equipment of Turners Refrigerated Transport, based in Bundaberg. Prior to the appointment of the Administrators, the Group employed approximately 270 employees across sites at Archerfield, Rocklea and Bundaberg in Queensland, Sunshine in Victoria and Smithfield in New South Wales. A timeline of the events leading up to the Administrators appointment is as follows: Date September 2002 March 2004 April 2011 June 2011 June 2012 October 2012 May 2014 May to September 2014 May 2014 June / November 2014 August 2014 Event Keeforce Holdings (formerly known as Keeforce) commences trading with Northline as its major customer (two trucks) Keeforce incorporated and becomes the trading entity with all employees and customer contracts transferred to this entity. Keeforce Holdings retains the Northline contract and ownership of the fleet assets and PP&E Frazerview incorporated. All CBA and Macquarie financed fleet assets are owned by this entity Keeforce Services incorporated and all employees, excluding those in administration roles, transfer from Keeforce to this entity Keeforce Linehaul incorporated On 1 October 2012, Keeforce Linehaul enters into a new customer agreement with Northline. From this date Northline is invoiced from this entity Directors purchase the equipment of Turners Refrigerated Transport (in liquidation) FPL commences trading from premises based in Bundaberg Produce Services incorporated. All Bundaberg FPL based employees are employed in this entity Repairs and maintenance expenditure increases by $350k in order to improve the standard and quality of the FPL fleet One of the Group s major customer reduces its rates with Keeforce Revenue from major customers is lower than forecast, indicating the impact of the rate reduction and a general decline in overall freight volumes The FPL Brisbane operations move into premises located in Rocklea, QLD (previously they operated from the Brisbane Markets). The site includes large cool rooms for FPL, overflow parking for the Group s fleet and office space for the Group s finance and administration teams \B09 23 February 2015 Page 11

13 Date September to December 2014 November 2014 December 2014 December 2014 January January 2015 Event Forecast freight volumes continue to be below expectations, placing financial pressure on the Group Outside of the major contracted customers, customers began reducing southbound rates with little opportunity for Keeforce to negotiate higher rates Toll requests Keeforce to submit a Linehaul Request for Proposal (RFP). The RFP is the first step for the Group to be accepted on Toll s panel of preferred suppliers (at the time Toll revenue represents 25% of turnover) The Bundaberg Regional Council issues a show cause notice in relation to the contravention of town planning conditions at the Bundaberg depot. FPL estimated the cost of compliance would be hundreds of thousands of dollars The show cause notice requires compliance or cessation of the non-compliance by 16 January An extension of one month was requested and granted The Directors approach various parties with a view to selling parts of the business Management meetings are held with shortlisted parties Negotiations continue with interested parties to purchase parts of the business, however the Directors determine that the interest is not sufficient to enable a solvent sale to occur that would clear the Group s debts After considering possible restructure options for the Group, the Directors determine that the business is not viable in the medium to long term and in order to preserve value and achieve the best outcome for all stakeholders, they appoint Voluntary Administrators to the Group 3.6 Decision to appoint Administrators The Directors decision to appoint administrators was due to: Poor recent trading; Tightening of margins due to market contraction; The inability to achieve rate increases to cover increased costs; Lack of tenure and rate certainty in respect of major customers; Increasing customer expectations of service and compliance without compensation for the cost of these requirements; Reduction in equipment values; and The inability to restructure the business to achieve a future sustainable and profitable business. As a result of these factors, the Group sought Ferrier Hodgson s advice over the period 18 December 2014 to 27 January Ferrier Hodgson s advice was limited to assessing the Group s financial position in the context of its financial performance and the consequences of insolvency and restructuring options. Ferrier Hodgson did not advise the Directors personally and received no remuneration for this advice. \B09 23 February 2015 Page 12

14 The Directors resolved to appoint Administrators on 28 January Historical financial position 4.1 Books and records Section 286 of the Act requires a company to keep written financial records that correctly record and explain the company s transactions, financial position and performance and would enable true and fair financial statements to be prepared. The failure to maintain books and records in accordance with Section 286 provides a rebuttable presumption of insolvency which might be relied upon by a liquidator in an application for compensation for insolvent trading. Based on a review of the books and records received, the Administrators are of the opinion that the Group s books and records were maintained in accordance with Section 286 of the Act. 4.2 Preparation of financial statements The Group prepared the following financial statements: Monthly consolidated profit and loss statements; Verification of monthly balance sheets for each individual entity; Quarterly consolidated management accounts for specific financiers; Daily and weekly key performance indicators; and Statutory accounts at the end of each financial year. 4.3 Profit and loss statement and preliminary analysis Set out below are the Group s consolidated profit and loss statements for the year ended 30 June 2014 and the five month period ended 30 November 2014: $000s FY14 YTD Nov 2014 Revenue 53,391 29,861 Less Expenses Direct Costs Wages (15,031) (8,958) Fuel (17,028) (8,857) Repairs & Maintenance (5,294) (3,409) Other (3,269) (1,279) Total Direct Costs (40,622) (22,503) Gross profit 12,769 7,358 Gross profit % 24% 25% Indirect Costs (7,973) (5,222) Admin Costs (4,514) (2,230) Profit / (loss) on sale of asset Net profit/(loss) for the period 659 (40) Source: Statutory and Management accounts In respect of the above, the Administrators make the following comments: The Directors purchased the equipment of Turner s Refrigerated Transport (in Liquidation) and commenced trading as Fresh Produce Logistics in May The Directors estimated the annual turnover of FPL to be between $11m to $15m. \B09 23 February 2015 Page 13

15 One-off repairs and maintenance expenses in Q4 FY14 of $350,000 were required to raise the standard of the FPL fleet. May to November 2014 results were below forecast due to a reduction in customer freight volumes. Historically, June to November generates reasonable profits and are relied upon to fund the Group through the seasonally poor months. 4.4 Balance sheet and preliminary analysis Set out overleaf is a summary of each entities balance sheets as at 30 June 2013 and In respect of the balance sheets, the Administrators make the following comments: Analysing the balance sheet positon and forming a conclusion regarding each of the entities individually is difficult as the companies formed a trading group whereby certain assets and liabilities were held in individual entities for the benefit of the Group as a whole. Further, intercompany assets and liabilities within each entity may distort the overall net asset position. Keeforce, Keeforce Linehaul and Frazerview are trustees of trusts and at the end of each financial year they distribute their retained profits in full. This results in their net assets being nil, save for immaterial paid up capital. Overall the Group s net asset position deteriorated by $441k between 30 June 2013 and 30 June \B09 23 February 2015 Page 14

16 $000s Jun-13 Jun-14 Jun-13 Jun-14 Jun-13 Jun-14 Jun-13 Jun-14 Jun-13 Jun-14 Jun-13 Jun-14 Jun-13 Jun-14 Current assets Cash Trade debtors 2,523 3,241 1,164 1, , Other current assets Employee and inter-company loans Statutory payments (5) Total current assets 3,143 4,504 1,492 1, , , Non-current assets Plant & Equipment (including fleet assets) ,798 15, ,363 3,925 Other non-current assets Total non-current assets ,798 15, ,363 3,925 Total assets 3,608 5,089 1,493 1,090 10,463 16, , ,515 3,988 Current liabilities Overdraft (61) (272) Trade creditors (1,711) (2,274) (62) (217) (265) (38) (111) (189) Employee entitlements and statutory provisions (23) (2) (24) (23) (1,010) (1,371) (95) Inter-company loans 1, (158) (40) Related party loans (1,874) (4,015) (25) (28) Other 2 (64) Total current liabilities (3,608) (5,089) (86) - (390) (536) (1,048) (1,412) - (189) - (253) 39 (17) Non-current liabilities Related party loans (1,407) (1,090) (520) (370) Inter-company loans (381) (609) (1,435) Hire purchase liability (9,294) (14,603) (4,184) (3,971) Total non-current liabilities - - (1,407) (1,090) (9,675) (15,731) (1,435) - - (4,554) (3,971) Total liabilities (3,608) (5,089) (1,493) (1,090) (10,065) (16,268) (1,048) (1,412) - (1,624) - (253) (4,515) (3,988) Net assets (523) (892) - (5) - (23) - - Source: Statutory accounts Keeforce Keeforce Linehaul Keeforce Holdings Keeforce Services FPL Produce Services Frazerview \B09 23 February 2015 Page 15

17 5 Statement by directors Section 438B of the Act requires the Directors to give an administrator a statement about the company s business, property, affairs and financial circumstances. The Administrators received the Directors Statements on 19 February In the Statements, the Directors detailed the Group s assets and liabilities at book value and ERV. Given the practical aspects of presenting all of the information in this report, the following table summarises the Directors statements and Administrators ERV at a Group level only. The Directors statements for each company is summarised further in Annexure G. $000s Ref BV Directors' ERV Administrators' ERV High Low Circulating assets (net of PMSI claims) Debtors incl. intercompany and related parties ,863 5,988 3,990 3,823 Cash at bank and on hand Stock Contingent assets Other assets Total circulating assets (net of PMSI claims) 17,134 6,124 4,552 4,352 Less: Priority creditors (employee entitlements) (877) (877) (1,690) (2,113) Balance of circulating assets (after priority claims) 16,257 5,246 2,862 2,239 Non-circulating assets (net of PMSI claims) Interest in land Unencumbered fleet assets & PP&E Unknown Unknown 1,609 1,492 Assets subject to specific charges (5,023) (5,023) Total non-circulating assets (net of PMSI claims) Unknown Unknown 2,450 2,146 Less: Secured creditors (All PAAP security interests) (51) (51) (621) (864) Net assets available for unsecured creditors Unknown Unknown 4,692 3,520 Less: Unsecured creditors (17,538) Unknown (17,593) (21,112) Less: Contingent liabilities (77) (77) (77) (92) Total creditors incl. intercompany and related parties (17,615) Unknown (17,670) (21,204) Estimated surplus / deficiency Unknown Unknown (12,978) (17,684) Note: The Nab holds cross collateral security over the Group w ith the exception of Frazerveiw, Keeforce Services and Produce Services. The Directors statement and Administrators ERV excludes any adjustment for any claim by the Nab under its cross collateral security. The Administrators have not audited the Group s records or the book values. The above schedule should not be used to determine the likely return to creditors as a number of realisable values are based on the Group s records and remain subject to the review of the Administrators and, in particular: The Administrators are not in a position to confirm (or otherwise) certain asset values as valuations commissioned by the Administrators are commercially sensitive and are not disclosed in this Report. The asset realisations exclude realisation costs. The value of creditor claims remains subject to change as further claims may be received and require adjudication. The table above does not include provisions for possible trading losses or the Administrators legal, valuation and professional costs associated with the administration process. There are a number of items for which values are unknown by the Directors within individual entities. The Administrators have undertaken additional work during their appointment to understand this information and have presented it in the annexures. \B09 23 February 2015 Page 16

18 The Administrators comments on the Directors statements are as follows: Debtors The book value of trade debtors indicated in the summary table of $16.8m includes external and internal (intercompany) debtors and does not reflect the true value of the Group s external debtors. Trade debtors In conjunction with the Directors and the responsible staff, the Administrators performed a detailed review of the debtor balances as at the date of appointment. Keeforce Keeforce Linehaul FPL* $000s High Low High Low High Low Opening debtors balance (28 January 2015) 3,129 3, ,387 1,387 Less: Known disputes (tbc) (396) (396) - - (100) (100) Provision for future doubtful debts (118) (235) (19) (58) (180) (360) Adjusted realisable balance 2,616 2, , *Debtors subject to Nab's NDF facility agreement Pre appointment debtor collections as at 18 February 2015 totalled c.$3.2m, being 60% of debtors outstanding as at the date of appointment of Administrators. Based on pre appointment debtor collections to date and discussions with the Directors and responsible staff regarding the Group s historical debtor collections, the Administrators do not anticipate the need for a significant provision for doubtful debts. Accordingly, the Administrators have applied the following provision for doubtful debts: High Low Keeforce 10% 20% Keeforce Linehaul 5% 15% FPL 20% 40% Other receivables Other receivables include: $000s Keeforce Directors' BV Keeforce Holdings Directors' BV ERV ERV GST refund and fuel rebate Prepaid WorkCover/compensation 8 Nil 49 Nil 415 Nil Deposits on equipment 4 Nil Prepaid registration Income Tax 15 Nil Insurance premiums 350 Nil Prepaid rent 16 Unknown Net proceeds of Pickles auction Total , The Administrators make the following comments with respect to the above: The GST refund and fuel rebate has been received in full. Prepaid WorkCover and workers compensation This represents prepayment of WorkCover and the estimated realisable value is nil. Deposits on equipment - The Administrators have requested further information in relation to this deposit. Prepaid registration The Group prepaid its vehicles registration, usually 12 months in advance. The Administrators have removed all of the vehicle number plates and are in BV FPL Directors' ERV Produce Services Directors' BV ERV Keeforce Services Directors' BV ERV Frazerview BV Directors' ERV \B09 23 February 2015 Page 17

19 the process of returning them to the relevant state authority for refunds. The estimated realisable value is currently unknown. Income tax refund This represents income tax instalments. It is likely that the ATO will offset this against its outstanding debt, and therefore the estimated realisable value is nil. Insurance premiums This represents the monthly insurance premium instalment. The estimated realisable value is nil. Prepaid rent The Group prepaid the Bundaberg rent until 28 March The premises was disclaimed on Friday 13 February It is likely that the landlord will apply this amount against future unpaid rent. Accordingly the estimated realisable value is nil. Net proceeds of Pickles auction On 22 January 2015 Pickles sold a number of the Group s unencumbered assets. These funds have now been received in full and are discussed further in section Intercompany loans Intercompany loans include: $000s Total Keeforce Keeforce Keeforce Keeforce FPL Produce Frazerview Linehaul Holdings Services Services Debtor BV BV BV BV BV BV BV Keeforce 1, Keeforce Linehaul 2,249-2, Keeforce Holdings 2, , Keeforce Services 1,674 1, FPL 1,544 1, Produce Services Frazerview Each of the intercompany loan entities are in Administration. Any realisable value is contingent on the declaration of a dividend to unsecured creditors within the respective entity Cash A summary of the Group s bank account balances as at the date of the appointment of Administrators are as follows: Entity $000s Keeforce 7 Keeforce Services 1 Keeforce Holdings - Keeforce Linehaul 1 FPL 50 Produce Services - Frazerview - Total 59 All funds have been transferred to the Administrators bank accounts for the respective entities, with the exception of FPL. The Administrators will shortly request the balance of the funds held in FPL Stock The Directors statement disclosed an estimate of $60,000 worth of bulk fuel located at the Group s Archerfield site. \B09 23 February 2015 Page 18

20 This fuel was consumed during the administrators trading. Accordingly, the estimated realisable value of the stock on hand is nil Contingent assets The contingent asset of $75,000 represents a bank guarantee for the Grace Court, Sunshine address. This premises was vacated on 30 January 2015 and the Administrators have agreed with the landlord to pay c.$10k of make good costs to secure the return of the bank guarantee in full Other Assets Other assets include: $000s Keeforce FPL BV Directors' Directors' BV ERV ERV Electricity deposit Chep account deposit Security deposit; Bundaberg Security deposit; Ergon Energy Total The Administrators make the following comments with respect to the above: Electricity deposit Given its immaterial value, the Administrators are yet to investigate the likelihood of any recoveries of this amount. Chep deposit A Chep deposit of $12,780 was paid by FPL. Chep s debt is greater than the deposit and therefore the estimated realisable value is nil. Security deposit, Bundaberg FPL has disclaimed the Bundaberg lease and therefore it is likely that the landlord will offset this deposit against future unpaid rent. Accordingly the estimated realisable value is nil. Ergon Energy Security deposit The Administrators received a cheque for $34, representing the balance of the security deposit although the cheque was made payable to Keeforce rather than FPL. Further investigations are required. In addition to the above, the Directors Statement excludes a bank guarantee of $470,000 in relation to Donaldson Road, Rocklea. This guarantee was returned to Nab on 2 February \B09 23 February 2015 Page 19

21 5.1.6 Priority unsecured claims A breakdown of the estimated employee entitlements as at 28 January 2015 is detailed below: $000s Employee entitlements are afforded priority of repayment pursuant to Section 556 of the Act, ahead of any return to unsecured creditors. The Act provides that excluded employees (being company directors and their relatives) are each restricted to a total maximum priority claim of $2,000 for unpaid wages and superannuation entitlements and $1,500 for leave entitlements. Amounts owed to excluded employees that exceed the statutory limit, and all payments owing in respect of redundancy and payment in lieu of notice will rank as an ordinary unsecured claim. Should the Group entities be placed into liquidation at the Second Meeting, employees may be eligible for financial assistance under the Fair Entitlements Guarantee Act Further information on FEG including eligibility for assistance can be found at Interest in land Keeforce Searches of the various land titles offices database confirm that the Group does not own any real property Unencumbered fleet assets and PP&E Keeforce Services Produce Services Outstanding Wages Superannuation Annual Leave Long Service Leave RDO PILN Redundancy Total Entitlements Outstanding 37 1, $000s High 37 1, Low 46 1, The unencumbered plant and equipment of the Group relates to various prime movers, trailers, forklifts, office equipment and mechanical workshop equipment not subject to any specific financing contracts. On appointment the Administrators engaged Pickles Auctions to conduct an independent valuation of the trucks, trailers, motor vehicles and PP&E owned by the Group. \B09 23 February 2015 Page 20

22 The valuations and estimated realisation costs are summarised below: $000s Keeforce Holdings Frazerview # High Low # High Low Prime movers Trailers Light Vehicles PP&E Office Equipment Total realisation from unencumbered assets 74 1, Assets sold prior to our appointment Total realisation from unencumbered assets 88 1,376 1, Less: Estimated realisation costs (181) (230) (41) (23) Net realisations from unencumbered assets 1,195 1, Assets subject to specific charges A review of the PPSR registrations over the Group indicates that specific charges are held by various financiers in relation to prime movers, trailers and motor vehicles. The estimated surplus/(deficiency) of their registrations are summarised below: $000s Secured creditor Nab Keeforce Est surplus/(deficiency) Frazerview Est surplus/(deficiency) High Low High Low ANZ (226) (282) - - BOQ GE Capital (505) (635) - - Macquarie (3) Mercedes Benz (426) (508) - - Paccar (451) (605) - - Toyota Finance Toyota Leasing Volvo (49) (95) - - Estimated surplus/(deficiency) (1,370) (1,932) 5 (3) Less realisation costs (271) (271) (6) (7) Estimated surplus/(deficiency) after est realisation costs (1,641) (2,203) (1) (10) Nab holds a registered All PAAP over the Group, with the exception of Frazerview, Produce Services and Keeforce Services. The estimated amount outstanding as at 28 January 2015 is $8.8m as summarised below: $000s Overdraft Equipment Bank Total facilities Loans Credit cards guarantees Keeforce (656) - - (24) (632) Keeforce Holdings (8,162) (42) (8,120) Total (8,818) (42) (8,120) (24) (632) \B09 23 February 2015 Page 21

23 The Nab s security is cross collateralised over the Group with the exception of Frazerview, Produce Services and Keeforce Services, although this is subject to legal review of Nab s security. The Nab bank guarantees are discussed further in sections 5.1.4, and CBA CBA holds a registered All PAAP over Frazerview. The estimated amount outstanding as at 28 January 2015 is $3.2m, although this is subject to legal review of CBA s security Unsecured creditors The Directors Statement identifies total Group unsecured creditor claims of $17.6m and is summarised by entity as follows: $000s Unsecured Related party Inter Total company BV Directors' ERV Keeforce 1,091 3,507 3,407 8,005 Unknown Keeforce Linehaul - 1, ,856 Unknown Keeforce Holdings ,639 3,573 Unknown Keeforce Services 1,136 1,662 2,798 Unknown FPL Unknown Produce Services Unknown Frazerview Unknown Total 2,801 5,238 9,554 17,593 Unknown Note: There is a calculation error of $62k in the Directors statement for Produce Services. Please note that the amounts due to unsecured creditors of the Group is an estimate only and is likely to change upon receipt of proofs of debt. The Administrators are yet to determine the validity of the related party or inter-company amounts. Please note that any valid inter-company debts will rank as an unsecured creditor should any dividends be declared for that individual entity Contingent liabilities A summary of the contingent liabilities are as follows: $000s Keeforce Keeforce Holdings FPL BV Directors' ERV BV Directors' ERV BV Directors' ERV Chep / Loscam Unknown Unknown Woodpark Road, Smithfield guarantee Various insurance excess Unknown Unknown Steptoe Street, Bundaberg Unknown Unknown Total Unknown Unknown Unknown Unknown Unknown Unknown The Administrators make the following comments with respect to the above: Chep / Loscam This represents a contingent liability for the return of outstanding Chep and Loscam pallets. Bank guarantee, Woodpark Road, Smithfield The landlord has called up this guarantee in full. Various insurance excess This represents insurance excesses for claims made to the respective company prior to the appointment of Administrators. Steptoe Street, Bundaberg This represents potential claims by the landlord for breaches of the lease. \B09 23 February 2015 Page 22

24 5.2 Omissions from statements The Administrators have not identified any material omissions from the Directors statement. 5.3 Explanation for current financial position The Directors explanation for the Group s current financial position is as follows: Poor recent trading history; Tightening of margins due to market contraction; Inability to achieve rate increases to cover increased costs; Lack of tenure and rate certainty in respect of major customers; Increasing customer expectations of service and compliance without compensation for the cost of these requirements; Dramatic reduction in equipment values; and Inability to determine a means to restructure the business so as to achieve a sustainable, profitable position into the future. Based on the Administrators preliminary investigations, the Administrators agree that the above factors contributed to the deterioration of the Group s financial position. 6 Trading by Administrators 6.1 Overview The Administrators assumed control of the Group s business on appointment. Appropriate controls and systems were put in place with respect to cash / banking, purchase orders, stock control and reporting. In particular, the Administrators: Met with the Group s employees notifying them of the appointment of the Administrators. Engaged Graysonline.com to conduct a Workplace Health and Safety review of the Group. Provided regular updates to employees on the progress of the administration. Conducted meetings with the Directors, senior management and staff. Established controls within the Group s businesses. Issued instructions to carry out an immediate stock take for inventories and consumables. Prepared an administration trading forecast and cash flow. Reviewed the procedures for IT services and back up processes for information on site and arranged for the Group s servers and key employees computers to be forensically imaged. Reviewed the adequacy of the insurances policies held by the Group and finalised appropriate insurance coverage for the administration period. Contacted key customers and obtained their ongoing support during the administration. Contacted major suppliers and negotiated terms for the continuation of trade. Opened new accounts with service providers, utilities and other non-stock suppliers. Conducted an expression of interest campaign, sought offers for the business and/or assets and dealt with interested parties. \B09 23 February 2015 Page 23

25 After receiving only limited interest in the Keeforce business, on 5 February 2015 commenced a controlled closure program of the parts of the Keeforce that did not support its primary customers. After exhausting all avenues to sell both the FPL and Keeforce businesses, on 10 February 2015 the Administrators commenced a controlled closure of the entire business. Secured the safe return of all fleet assets to sites controlled by Pickles, save for one trailer. Disclaimed all financed assets. 6.2 Trading Outcome Overview The Administrators worked with the Directors and the responsible staff to prepare detailed profit and loss and cash flow forecasts to project and monitor the trading performance during the administration period. The purpose of these forecasts was to enable the Administrators to benchmark the businesses performance to enable them to make timely decisions in relation to trading. A summary of the Administrators analysis of the anticipated trading outcome, including closure costs, is shown below: Week ending 3-Feb 10-Feb 13-Feb 20-Feb Trading Trading Controlled Post closure closure $000s (7 days) (7 days) (3 days) (7 days) Total Revenue Keeforce ,208 FPL Other Total operating revenue ,402 Expenses Fuel (230) (126) (11) - (367) Wages and associated costs (354) (331) (67) (79) (831) Repairs and maintenance (11) (11) (5) - (28) Equipment lease and HP charges - (49) (15) - (64) Occupancy - (20) (7) (8) (35) Other direct costs (81) (97) (15) - (193) Indirect costs (113) (76) (35) - (224) Overheads (28) (21) (6) (4) (58) Total expenses (818) (731) (161) (91) (1,801) Net trading profit/(deficit) (4) (181) (123) (91) (399) Contingency (21) (21) (9) - (51) Net profit/(loss) (25) (202) (132) (91) (450) Note: The forecast is subject to change as it relies on a range of assumptions that may change. \B09 23 February 2015 Page 24

26 6.2.2 Trading Outcome Notwithstanding the trading losses, trading the business for a short timeframe before entering into a controlled closure allowed the Administrators to: Ascertain whether there was any interest in the business and/or assets as a going concern; and Ensured short term continuity of service to the Group s customers to enable them an opportunity to transition to an alternative service provider without disruption Controlled closure In respect of the controlled closure, the Administrators make the following comments: With the view to protecting the Group s debtors including the post appointment trading debtors (c.$1.3m), customers were provided with 48 hours notice of the Administrators intention to cease trading. All of the 525 fleet assets, save for one trailer financed by the Nab, have been returned to sites secured by Pickles and all financed assets have been disclaimed. To date the Administrators have received c.$3.2m of pre appointment debtor receipts or 60% of the pre appointment debtor ledger. Post closure expenses include the costs of the retention of staff to clean up various sites, process invoices, receipt debtor payments etc. The Administrators vacated the following premises: Tullamarine, Victoria on Wednesday 11 February; Smithfield, NSW on Thursday 12 February; Bundaberg, Queensland on Friday 13 February; and Archerfield, Queensland on Wednesday 18 February. On 16 February the Administrators disclaimed the Rocklea, Queensland premises and simultaneously entered into a two month temporary licence agreement (with a 24 hour notice period) to rent the office space. This allows the Administrators to retain skeleton administration staff to complete various ad hoc tasks such as finalising invoicing, debtor collections, wages, group certificates etc. 6.3 Summary of receipts and payments A summary of the Administrators receipts and payments for the period 28 January to 19 February 2015 is included in the Administrators Remuneration Approval Request Report attached as Annexure D. 7 Sale of business / assets Immediately on their appointment, the Administrators commenced a sale of business campaign. The campaign included: Direct approaches to specific parties identified from the Ferrier Hodgson logistics database and parties advised by the Directors; and An advertisement was placed in the Australian Financial Review on Friday 30 January 2015 seeking urgent expressions of interest for the business. \B09 23 February 2015 Page 25