Nepean Hospitals Pty Ltd (Administrators Appointed)

Transcription

1 Nepean Hospitals Pty Ltd (Administrators Appointed) Section 439A Second Report to Creditors 3 April 2014 Stephen Dixon Joint and Several Administrator T E stephen.dixon@au.gt.com Andrew Hewitt Joint and Several Administrator T E andrew.hewitt@au.gt.com 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

2 Glossary ACFI Aged Care Funding Instrument The Act Corporations Act (2001) Administrators ASIC ATO Director CACES CACG Winterswyk DSS c. Circa MMVL Joint and Several Voluntary Administrators, being Stephen Dixon and Andrew Hewitt Australian Securities and Investment Commission Australian Taxation Office Mr Brendan Wood Cambridge Aged Care Employment Services Pty Ltd Cambridge Aged Care Group Winterswyk Pty Ltd Department of Social Services (formerly the Department of Health and Ageing) Mount Martha Valley Lodge, Safety Beach Alexandra House Alexandra House, Bendigo Head Office CACG head office located at Level 4, 150 Albert Road, South Melbourne, Victoria 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

3 Contents Section Page 1. Executive summary 4 2. Introduction 8 3. Background Information Trading during the Administration Extension of Convening Period Sale of Business Campaign Offences, voidable transactions and insolvent trading Estimated return from a winding up Effect on employees Accommodation Bonds Proposal for a deed of company arrangement Administrators' recommendation Remuneration Meeting 59 Appendices A. ARITA creditor information sheet 62 B. Administrators' Remuneration Report 64 C. Notice of second meeting of creditors 86 D. Informal Proof of Debt form 88 E. Proxy form Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

4 Section 1 Executive summary 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

5 Executive summary Executive summary Background Information Refer to Section 3 Trading during the Administration Refer to Section 4 Sale of Business Campaign Refer to Section 6 The Company was first established in 1980 and is a provider of Aged Care Services within Victoria. The Company operated as part of the wider Cambridge Aged Care Group, which includes five (5) aged care homes within Victoria which are owned and operated by related parties. The Company operated two (2) aged care facilities, one in Bendigo ("Alexandra House") and the second facility in Mount Martha ("Mount Martha Valley Lodge"), in Victoria with approximately 160 residents currently situated at these locations. On 12 October 2012, the Department of Social Services (formerly the Department of Health and Ageing) imposed a sanction on the Company whereby the Company was prohibited from charging accommodation bonds. The sanction was imposed due to the Company's continued non-compliance with the Prudential Standards. The Administrators continued to trade the Company's business at both facilities during the Voluntary Administration with a view to preserving the value of the business for the benefit of creditors and residents. At the beginning of the Administration, the Aged Care Standards and Accreditation Agency ("the Agency") conducted weekly site visits at both facilities to ensure that the quality of care provided to residents was being maintained. Later in the Administration the Agency visits were conducted fortnightly and then monthly as the Administrators demonstrated a history of compliance and continuous improvement. In November of 2013, the Mount Martha Valley Lodge facility was re-accredited by the Agency. The net loss incurred by the Administrations whilst trading the business for the period of the Administration is c.$1.82m. The largest contributor to the loss is due to the Company being ineligible for the Continual Adjustment Payment ("CAP") funding of 8.75% of the basic aged care subsidy for each resident. On 8 November 2013 Sale of Business contracts were executed with Elm Aged Living Pty Ltd ("Elm"). The key components of the accepted offer for the Company's business are as follows: The Sale Agreement includes the purchase of the Company's business at both facilities The Sale Agreement includes a cash component which is to be paid in three (3) instalments The Sale Agreement includes a mechanism for dealing with the Company's accommodation bond liability Employee entitlements of continuing employees will be assumed by Elm. The sale of business contracts settled on 31 March 2014 and Elm assumed control of the business on this date Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

6 Executive summary Executive Summary Offences, voidable transactions and insolvent trading Refer to Section 7 Estimated return from a winding up Refer to Section 8 Effect on employees Refer to Section 9 Accommodation Bonds Refer to Section 10 Proposal for a Deed of Company Arrangement ("DOCA") Refer to Section 11 For general information about offences under the Act, please refer to the enclosed ARITA creditor information sheet, at Appendix A of this report. Offences Our preliminary investigations have identified offences committed by the Director. Voidable transactions Our preliminary investigations have not identified any other unreasonable director related transactions that would be recoverable. Insolvent trading Our preliminary investigations to date indicate that the Company likely would have been considered insolvent from May It is unlikely that there will be sufficient realisations in the Liquidation to enable a distribution to creditors. Please note that this estimate is subject to change. Cambridge Aged Care Employment Services Pty Ltd ("CACES") is a labour hire entity within the Cambridge Aged Care Group that supplied employees to the Alexandra House and Mount Martha Valley Lodge facilities. Notwithstanding the above, where staff have continued their employment during the Administration period, their entitlements per their contract or other industrial agreement have continued to accrue. Where staff have been offered on-going employment with Elm Aged Living ("Elm"), their entitlements have transferred to Elm. As there are unlikely to be sufficient funds to enable the refund of outstanding accommodation bonds, we intend to refer this matter to the Department of Social Services which administers the Accommodation Bond Guarantee Scheme ("the Scheme"). The Scheme guarantees the repayment of aged care resident accommodation bond balances where an approved provider becomes insolvent and is unable to refund accommodation bonds. A DOCA is a mechanism for dealing with creditors claims. A DOCA, if approved by creditors, binds all creditors of the Company arising on or before the date of the appointment of the Administrators unless otherwise specified. At the date of this report, we have not received a DOCA proposal and it unlikely that a DOCA proposal will be submitted Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

7 Executive summary Executive summary Administrators' recommendation Refer to Section 12 Remuneration Refer to Section 13 Section 439A(4)(b) of the Act requires the Administrators of the Company to prepare a statement setting out their opinion on the outcome of the Company. In this report we have recommended to creditors that the Company be wound up for the following reasons: It would not be in the creditors' best interests for the Administration to end as the Company is not able to meet its commitments and therefore requires a mechanism to deal with creditors' claims A DOCA proposal has not been received, therefore a DOCA is not an option for the Company, and The Company is insolvent and creditors' claims need to be dealt with under a formal appointment. The Administrators' remuneration is to be approved by creditors at the forthcoming meeting of creditors. A Remuneration Report is enclosed at Appendix B providing details of work performed to date, estimated future remuneration up to the second meeting of creditors and estimated remuneration of the Liquidators. Remuneration being sought is summarised in the following table: Description Joint and Several Administrators remuneration for the period 18 February 2013 to 31 March 2014 Joint and Several Administrators' estimated future remuneration for the period 1 April 2014 to 11 April 2014, being the date of the second meeting Joint and Several Liquidators' remuneration for the period 12 April 2014 to completion Amount ($) $1,330, $20, $120, Meeting Refer to Section 14 The second meeting of creditors is to be held at the Institute of Chartered Accountants in Australia located at Level 3, 600 Bourke Street, Melbourne, Victoria at 11:00am on Friday, 11 April Registration will open 15 minutes prior to the meeting. The notice in regards to this meeting is enclosed at Appendix C A Proof of Debt and Proxy Form are enclosed at Appendices D and E and are to be returned to our office by 4:00 pm on the business day prior to the meeting, being Thursday, 10 April Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

8 Section 2 Introduction 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

9 Introduction Appointment and first meeting Appointment of Administrators Stephen Dixon and Andrew Hewitt were appointed Joint and Several Voluntary Administrators ("the Administrators") of Nepean Hospitals Pty Ltd ("the Company") on 18 February 2013 pursuant to the passing of a resolution by the Director of the Company in accordance with Section 436A(1) of the Corporations Act 2001 ("the Act"). The purpose of the appointment of the Administrators is to allow for independent insolvency practitioners to take control of and investigate the affairs of an insolvent company. During that time creditors' claims are put on hold. At the end of that period we are required to provide creditors with information and recommendations to assist creditors to decide upon the Company's future. First meeting Pursuant to Section 436E of the Act the Administrators are required to call a meeting of creditors of the Company within eight (8) business days of our appointment. The First Meeting of Creditors was held at the offices of the Institute of Chartered Accountants in Australia located at Level 3, 600 Bourke Street, Melbourne, Victoria on 28 February At this meeting, it was resolved to form a Committee of Creditors. The Committee of Creditors are as follows: Mr Peter Nilsson and Mr Chaz Jacobsen on behalf of Penleigh Properties Pty Ltd Ms Jean Goode as Director of Nursing at Alexandra House Mr Ian Fraser on behalf of the Estate of H. P. Gibson Mr Rodney Clarke on behalf of Rodney and Robyn Clarke. Committee of Creditors The purpose of a Committee of Creditors is to meet and consult with the Administrators on an as needed basis about matters relating to the Voluntary Administration. We note that a Committee of Creditors is not empowered to give directions to the Administrator other than to request the Administrator to report on matters relating to the Voluntary Administration in accordance with Section 436F(2) of the Act. Members are personally appointed, are not paid for their services and meet on an irregular basis usually at the Administrator s office. No formal meetings of the Committee have taken place during the during the administration. Events leading up to the Administrators' Appointment On 17 February 2013 we met with the Director to discuss the Company's financial position. The Company was facing difficulties due in part to the following: The Company had received a number of non-compliance notices from the Department of Social Services ( DSS ) during the 2012 calendar year. A number of concerns were raised by the DSS in relation to the following: The lack of an accommodation bonds register held by the Company; Refunds of bonds owing to recipients not being paid; Accreditation issues in relation to management systems, staffing and organisational development; Concerns regarding insufficient staffing numbers; and Concerns relating to the welfare of residents Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

10 Introduction Appointment and first meeting Events leading up to the Administrators' Appointment Cont'd A number of the concerns were addressed by the Company and consequently some sanctions were overturned by the DSS. However, as a result of the bond matters raised, the Company was issued with a sanction from DSS on 12 October 2012 prohibiting it from receiving any additional accommodation bonds. The Company experienced ongoing financial issues during the months leading up to our appointment, which included significant financial losses. A further meeting was held with the Director on 18 February 2013, at which time a Consent to Act was provided prior to our appointment as Administrators being executed on the same date. The Administrators took control of the Company's two (2) Victorian sites in Bendigo and Safety Beach and are responsible for the on-going trading, employee related issues and sale of the business and/or assets for these sites Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

11 Introduction Report to creditors The purpose of this report is to provide creditors with sufficient information for them to make an informed decision about the future of the Company, including: Background information about the Company The results of our investigations The estimated return to creditors, if any, and The options available to creditors and our opinion on each of these options. We have undertaken investigations into the Company's business, property, affairs and financial circumstances. The information contained in this report is based on the information available at the date of this report, however, should further information become available that may assist in our investigations, we will provide a further update to creditors at the Second Meeting of Creditors. In our opinion the above matter has not prevented us from being able to provide sufficient, meaningful information in this report or from being able to form an opinion on what is in the creditors' best interests. At the meeting of creditors to be held on 11 April 2014, creditors will be asked to make a decision by passing a resolution in respect of options available to them. In this report we have recommended to creditors that the Company be Wound Up and detailed why this option is, in our opinion, in creditors' best interests. The Administrators have relied on information provided from numerous sources to prepare the report, including: Discussions with the Director of the Company Information available from public sources, such as, the Australian Securities and Investments Commission (ASIC) and the Personal Property Securities Register (PPSR), and A review of the Company's books and records provided to date. We have some reservations about the accuracy of the information, however, we have not performed an audit and we reserve the right to alter our conclusions, should the underlying data prove to be inaccurate or change materially from the date of this report. In the event that the Company proceeds to liquidation, this report will form the basis of our further investigations. Provided that funding is available, the investigations will be more extensive than those undertaken to date. Further investigations may be supported by public examinations of the Director, officers and others who may be able to provide information about the Company's examinable affairs as that expression is defined in the Act. It is the Administrators' view that this report provides sufficient information to creditors to allow them to make an informed decision as to the Company's future and allows the Administrators to make a reasoned and fair recommendation based upon their opinions and the options available to creditors Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

12 Introduction Compliance, Independence and Communications Compliance with best practice We confirm that this report complies with the statements of best practice issued by the Australian Restructuring Insolvency & Turnaround Association ("ARITA"), with regard to content of the Administrators' report and the Code of Professional Practice with regard to remuneration. Independence The Administrators undertook a proper assessment of the risks in relation to their independence prior to accepting the appointment. Our assessment identified no real or potential risk to our independence as set out in the Declaration of Independence, Relevant Relationships and Indemnities ("DIRRI") provided in our First Notice to Creditors dated 20 February We confirm that there have not been any changes to the DIRRI as stated in the initial Notice to Creditors. Communications with various parties The Administrators have liaised with various parties during the administration, including: All known creditors (including employees) via a creditor's circular All known suppliers via a supplier's circular Director of the Company to understand the business' underlying activity, financial position and reasons for failure, and The Department of Social Services which administers the Aged Care Act 1997, with respect to the sale of business. Disclaimer In reviewing this report, creditors should note the following: This report is based on information from the books, records and other information provided by the Director. Whilst the Administrators have reviewed the information, there has been no independent verification of the information In considering the options available to creditors and formulating their recommendations, the Administrators have necessarily made forecasts of asset realisation and total creditors. These forecasts and estimates may change. Whilst the forecasts and estimates are the result of the Administrators' best assessments in the circumstances, creditors should note that the outcome for creditors may differ from the information provided in this report This report is not for general circulation, publication, reproduction or any use other than to assist creditors in evaluating their position as creditors and must not be disclosed without the prior approval of the Administrators The Administrators do not assume or accept any responsibility for any liability or loss sustained by any creditor or any other party as a result of the circulation, publication, reproduction or any use beyond that permitted above The statements and opinions given in this report are given in good faith and in the belief that such statements are not false or misleading. Except where otherwise stated, we reserve the right to alter any conclusions reached on the basis of any changed or additional information which may be provided to us between the date of this report and the date of the second meeting Neither the Administrators, nor any member or employee thereof or in the employ of Grant Thornton Australia Limited are responsible in any way whatsoever to any person in respect of any errors in this report arising from incorrect information, and Creditors must seek their own independent legal advice as to their rights and the options available to them at the second meeting of creditors Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

13 Section 3 Background Information 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

14 Background Information Organisational structure Officeholders and shareholders Directors Date appointed Date ceased Mr Brendan Wood 14 February 2013 Current Mr Anes Ceman 1 October February 2013 Mr Neil Gatta 1 October February 2013 Mr Ken Yen Cheng 18 May October 2012 Mr Yiu Cheung Lui 18 May October 2012 Mr Peter Arvanitis 31 July May 2011 Mr Areti Arvanitis 1 December May 2011 Ms Janette Kram 21 July July 2009 Mr David Coleman 10 March July 2009 Mr Ronald Coleman 10 March July 2009 Company Secretary Date appointed Date ceased Officeholders and shareholders The Company's officeholders and shareholders are detailed opposite, as identified from a search of the ASIC database. At this point, we have identified that there is a person who may be considered or deemed to be a shadow director of the Company. In the event the Company is placed into Liquidation, further investigation will be undertaken into the presence of a shadow director. According to the ASIC database, there has been two (2) changes to the officeholders in the 12 months prior to the appointment date: More specifically, Anes Ceman and Neil Gatta resigned from their directorship a short time prior to the appointment of the Administrators. Notwithstanding their resignation, their conduct will be investigated in the event the Company is placed into Liquidation, as their resignation does not relieve them of their director responsibilities pursuant to the Act. In addition, my investigation has identified that Ken Yen Cheng and Yiu Cheung Lui were removed by the Court. Mr Brendan Wood 14 February 2013 Current Mr Neil Gatta 1 October February 2013 Nr Yiu Cheung Lui 18 May October 2012 Mr Peter Aravanitis 2 November May 2011 Mr Ronald Coleman 7 December July 2009 Shareholders Shareholder class Number issued Manormay Pty Ltd Ordinary Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

15 Background Information Operational Structure 100% shareholder Cambridge Aged Care Employment Services Pty Ltd Provided labour hire services Mount Martha Valley Lodge Manormay Pty Ltd 100% shareholder Nepean Hospitals Pty Ltd (Administrators Appointed) Operated Aged Care facilities 100% shareholder Winterswyk Pty Ltd Financial Services Agreement Alexandra House Operational Structure In summary: The Company was first established in 1980 and is a provider of Aged Care Services. The Company is part of the wider Cambridge Aged Care Group ("CACG"), which included at one stage a total of five (5) Aged Care Homes within Victoria which were owned and operated by related parties, not all of which are detailed in the opposite diagram. I note that the Company operated two (2) out of the five (5) Aged Care facilities within the CACG, one in Bendigo ("Alexandra House") and the second facility in Mount Martha ("Mount Martha Valley Lodge") in Victoria, with approximately 160 residents currently situated at these locations. The Company held a financial services agreement with Winterswyk Pty Ltd ("Winterswyk") whereby Winterswyk acted in a "Head Office" role for the Company, which involved the provision of accounting and human resource management functions, among others. My investigation has identified that most suppliers to the Company's facilities were contracting with Winterswyk and not directly with the Company. Cambridge Aged Care Employment Services Pty Ltd ("CACES") was a labour hire entity within CACG which provided employees to the Company for the two (2) facilities. On 9 August 2013 we were appointed official liquidators of CACES Manormay Pty Ltd is the parent entity for the Company, Winterswyk and CACES. Cambridge Aged Care Group Related to the Company Aged Care Facilities operated by the Company 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

16 Background Information Secured Creditors and Books and Records Secured creditors It is our understanding that the Company does not have any secured creditors. Books and records Pursuant to Section 286 of the Act, a company must keep written financial records that correctly record and explain its transactions, financial position and performance and enable true and fair financial statements to be prepared and audited. Financial records must be kept for seven (7) years after the transactions covered by the records are completed. Failure to maintain books and records may give rise to a presumption of insolvency pursuant to Section 588E of the Act. This presumption may be relied upon by a Liquidator in an application for compensation for insolvent trading and other actions for recoveries pursuant to Part 5.7B of the Act. I have been advised that the majority of the Company's books and records are held by Winterswyk. As detailed previously, Winterswyk provided a "Head Office" role to the Company. I made several requests to Winterswyk to provide these books and records in accordance with its obligations pursuant to the Act. My attempts to obtain books and records from Winterswyk were unsuccessful and I consequently reported the matter to the Australian Securities and Investments Commission on 29 April On 9 May 2013, I was advised by representatives of Winterswyk that books and records were available for collection. These were collected on 10 May I am of the opinion that the books and records provided by Winterswyk are inadequate to undertake the required investigation in a Liquidation scenario. More specifically, the books and records obtained consisted of a MYOB file for Alexandra House for two (2) financial years, limited supplier and bond documentation, some bank statements and resident revenue summaries. Books and records (cont'd) I advise that a power of the Liquidator is to conduct a public examination pursuant to Sections 596A and 596B of the Act. In the event the Company is placed into Liquidation, I may consider conducting public examinations of company officers and other relevant parties to obtain the required information. Notwithstanding, I have also obtained some records from third parties that have assisted both the continued trading of the business and my investigations. As a result of the books and records obtained, our preliminary views are that the Company has failed to keep and maintain books and records in accordance with the requirements of Section 286 of the Act. Our preliminary view is that the Company has failed to keep and maintain books and records in accordance with the requirements of Section 286 of the Act Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

17 Background Information Historical financials Summarised statement of financial performance FY 12 $ YTD 13 $ Income Residents Fees 691, ,391 National Health Benefits 1,592,584 1,135,798 Total Income 2,283,927 1,697,190 Less: COGS (104,296) (390,343) Gross Profit 2,179,631 1,306,846 Gross Profit Margin 95% 77% Expenses Wages (1,460,936) (745,340) Utilities (96,119) (39,920) Rent & Rates (495,996) (178,033) Sales and Marketing Costs (682) - Management Fees (432,000) (1,136,323) Office Expenses (14,660) (832) Other (161,042) (22,751) Total Expenses (2,661,435) (2,123,199) Net Ordinary Income (481,805) (816,352) Other Income Other Income 128,248 54,611 Other Expenses Interest on Bonds (38,873) (24,768) Financial statements As detailed earlier, I have only received a MYOB file for the Alexandra House facility, therefore, the following financial statements and associated analysis pertain to Alexandra House only. I have not received any financial information for the Mount Martha Valley Lodge facility. I have reservations as to the accuracy of the information contained in the Company s MYOB and from my review, the accounts were not maintained accurately. Despite my previous comments I now make the following observations regarding the Company's financial statements as per the MYOB management accounts. Historical financial performance The Statements of Financial Performance summarised opposite, have been derived from the Company's MYOB management accounts for the financial year ending 30 June 2012 and the period 1 July 2012 to the Administrators' appointment. I note that the AH facility recorded a net loss of c. $392k and c. $786k in FY12 and YTD13 respectively. Cost of goods sold ("COGS") increased due to the inclusion of c. $373k in wages and salaries, as well as labour charges being included as ordinary expenses. Management fees had been expensed at $36k per month during FY12 and the start of YTD13, however in October, November and December the amounts incurred were c. $307k, c. $367k and c. $265k respectively. We do not have an explanation as to the nature of these management fees. Net Other Income / (Expense) 89,376 29,843 Net Income (392,429) (786,509) Net Profit Margin -17% -46% 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

18 Background Information Historical financials Summarised statement of financial position As at 30 June 2012 $ As at 18 February 2013 $ ASSETS Current Assets Cash 99, ,467 Debtors 16,423 42,920 Accrued Revenue 17,656 - GST Control 120,049 84,608 Total Current Assets 253, ,996 Non-Current Assets Rental Bond 99,825 99,825 P&E 65,008 65,008 Intercompany Receivables 3,630,910 4,485,685 Goodwill 4,690,052 4,690,052 Suspense 148, ,467 Total Non-Current Assets 8,634,294 9,544,036 Total Assets 8,887,995 10,180,033 LIABILITIES Current Liabilities Intercompany Loans 3,969,521 4,114,264 Trade Creditors 155,074 1,541,197 Accommodation Bond 5,149,044 5,458,912 Other 8,627 8,627 Total Liabilities 9,282,266 11,123,000 Net Assets (394,272) (942,967) Current Ratio Debt Ratio Historical position The Statements of Financial Position are summarised in the table to the left. These statements have been derived from the Company's MYOB management accounts for the Alexandra House facility as at 30 June 2012, and as at the Administrators' appointment. I make the following comments regarding the Company's financial position: Debtors relate to uncollected fees incurred by residents for their stay in the facility. This amount has increased from FY12 to YTD13 and indicates poor debtor collection processes. Resident fees, as well as government funding are GST free. The GST control amount relates to GST paid on supplies that would have been recoverable by the Company. The intercompany loans item refers to the amounts owed to the Company by CACES and Cambridge Aged Care Pty Ltd. I note that the majority of the receivable amount refers to the Mt Martha Valley Lodge facility, with the remainder being for other entities in the CAC group. The extension of trade creditors demonstrates the Company's inability to pay suppliers on time and contributed to a significant increase in the net asset deficiency. The Accommodation Bond liability refers to the bonds paid by low care residents of the facility. These amounts are refundable upon the resident's departure. The Company was consistently in a net asset deficiency position for all periods analysed. The Company's current ratio was significantly below one (1) since 30 June 2012 indicating there were insufficient current assets to satisfy current obligations Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

19 Background Information Directors' report as to affairs (RATA) RATA Nepean Hospitals Pty Ltd (Administrators Appointed) Description Note Alexandra House Book Value Mt Martha Book Value $ $ Total Book Value $ Alexandra House Director's ERV $ Mt Martha Director's ERV $ Director's Estimated Realisable Value $ Assets not specifically charged Sundry Debtors 1 17,500 68,264 85,765 17,500 68,264 85,765 Cash on Hand Cash at Bank 3 86, , ,293 86, , ,293 Plant and Equipment 4 43, , ,139 20, , ,000 Rental Security Bond 5 99,825 77, ,356 99,825 77, ,356 Net assets not subject to specific charge 247, , , , , ,414 Total Assets 247, , , , , ,414 Amount owing to Unsecured Creditors 6 (6,436,118) (14,727,851) (21,163,969) (6,436,118) (14,727,851) (21,163,969) Surplus / (Deficit) before Realisation and Administration costs (6,188,818) (14,150,598) (20,339,416) (6,212,376) (14,213,179) (20,425,555) Directors report as to affairs (RATA) Pursuant to Section 438B(2) of the Act, the Director of the Company is required to complete a statement about the Company's business property, affairs and financial circumstances, also known as the RATA. The RATA is a snapshot in time as at the date of our appointment of the assets and liabilities of the Company, disclosing book values and the estimated realisable value (ERV) for assets. On 8 March 2013 a written request was issued to the Director and former directors to complete the RATA for the Company. The Director requested an extension of time to prepare this information and this request was granted until 22 March I confirm that I received the RATA from the Director on 22 March The Director provided a RATA for each of the facilities operated by the Company. A RATA has not been received from the former Directors who advised they are unable to do so with their limited financial knowledge. A summary of the RATA received from the Director is detailed above Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

20 Background Information Report as to Affairs ("RATA") (cont'd) Note Item RATA Administrators' comments 1 Sundry debtors The Director has advised that c.$86k in debtors are expected to be collected. This amount relates to uncollected residents fees across both the Mt Martha and Alexandra House facilities. The accounts receivable for the Company were managed by a third party Company and the Director has supplied supporting documentation, therefore this amount appears to be accurate. 2 Cash on Hand 3 Cash at Bank 4 Plant & Equipment 5 Rental Security Bond 6 Unsecured creditors The Director advised that there was no cash on hand held at either facility. The Director advised that the Company's cash at bank balance as at appointment was c. $355k, held across multiple accounts. The Director advised that the estimated realisable value of plant and equipment was c.$120k. The Directed advised that the rental security bond amount for both facilities was c. $177k. The Director detailed in his RATA that c.$20m is owing to unsecured creditors. The Administrators have not recovered any cash on hand at the facilities. Our review indicates that the Company held four (4) trading accounts with ANZ. The combined bank balances as at our appointment was c.$341k, which is inconsistent with the RATA. The Administrators advise that the plant and equipment in the listing provided by the Director are integral to the operation of the facilities and will be included in a sale of business. The security bond is only payable in the event the facilities are vacated and therefore the security bonds will be included in the sale of business. We note that the Company's creditors' listing does not include the ATO, which requires outstanding lodgements to be completed in order for a debt, if any, to be quantified Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

21 Background Information Reasons for failure Summary of reasons for failure Reason Introduction Inadequate cash flow or high cash use Commentary This section explains the key events we have identified and key reasons we have attributed to the failure of the business. It is important to note that it was the combined effect of these reasons that caused the failure of the business rather than each individual factor. Continual Adjustment Payment ("CAP") Funding The Company had not lodged statutory accounts for FY12 and as a result, the Company was not eligible for CAP funding of 8.75%. In particular, the Company failed to meet the following requirements: Prepare a General Purpose Financial Report ("GPFR") for the relevant financial year Report at the approved provider or residential aged care service level Treat residential care as a reportable segment in their GPFR Have the GPFR audited by a Registered Company Auditor Complete the Declaration on providing GPFR to specified people' Report on all residential aged care services operated for all or part of the relevant financial year Lodge the GPFR and Declaration with the Department by 30 November, and Be assessed as eligible for CAP by the Department. Aged Care Funding Instrument ("ACFI") Funding The Company failed to adequately classify residents in order to claim appropriate ACFI funding. As a result of the Company's actions, there was inadequate cash flow in order to maintain the business. Poor financial control, including lack of records Poor strategic management of business As detailed previously, the books and records kept and maintained by the Company were not adequate. In addition, as a result of the Cambridge Aged Care Group structure, those books and records which were maintained were prepared by Head Office. These factors impacted on the Company's ability to maintain financial control and operate effectively. As a result of the Cambridge Aged Care Group structure, the Company's business suffered from an inefficient management structure. Furthermore, the sites had poor nursing management, in particular, there was no Director of Nursing present at Mount Martha Valley Lodge Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

22 Background Information Reasons for failure Summary of reasons for failure (cont'd) Reason Sanctions Commentary The Company had received a number of non-compliance notices from the Department of Social Services ("DSS") during the 2012 calendar year. A number of concerns were raised by DSS in relation to the following: The lack of an accommodation bonds register held by the Company Refunds of bonds owing to recipients not being paid Accreditation issues with respect to management systems, staffing and organisational development Concerns regarding insufficient staffing numbers, and Concerns relating to the welfare of residents. A number of the above items were addressed by the Company, and consequently some sanctions were overturned by DSS. However, as a result of the above, the Company was issued with a sanction from DSS on 12 October 2012 prohibiting it from receiving any additional accommodation bonds. The sanctions related to administrative non-compliance matters and was not related to the quality of care provided by the facilities. This sanction in particular significantly impacted on the Company's ability to maintain a financially viable business Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

23 Section 4 Trading during the Administration 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

24 Trading during the Administration Trading during the Administration Trade-on during the Administration As detailed in our first report to creditors, shortly after being appointed the Administrators undertook an analysis of the on-going financial position of the two facilities. Following this review the decision was made to continue to trade both sites while a sale campaign was undertaken. The Administrators have continued to trade each of the sites, whilst assessing the viability of the business and the potential for achieving a going concern sale of the sites. Due to the history of sanctions, coupled with the external administration, the Aged Care Standards and Accreditation Agency ("the Agency") conducted weekly site visits during the early stages of the Administration. The purpose of these visits was to ensure that the quality of care provided to residents was being maintained. Later in the Administration the Agency visits were conducted fortnightly and then monthly as the Administrators demonstrated a history of compliance and continuous improvement. Key tasks undertaken since appointment Key tasks undertaken by the Administrators since appointment have included: Undertook an Occupational Health and Safety Review of the two facilities and attended to critical recommendations Reviewed ACFI funding to ensure it was being claimed correctly and amended where necessary Improved the quality of care to achieve re-accreditation at MMVL under the Aged Care Standards and Accreditation Agency Appointed a Nurse Advisor who also acted in the Director of Nursing role at Mount Martha Valley Lodge Improved funding to lifestyle activities for residents Implemented a new staff training program to improve clinical care Stabilising resident relationships Stabilising employee relationships Liaised with the ANMF Union with regards to employment matters Stabilising supplier relationships and negotiating terms for continued supply Implemented a new rostering system to improve care levels and efficiencies Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

25 Trading during the Administration Trading during the Administration Estimated trading summary Trading Receipts and Payments: 18 February 2013 to 31 March 2014 Item Amount ($) Receipts ACFI Funding 8,740,606 Resident Fees 3,198,823 Other Income 30,938 Total Receipts 11,970,366 Payments Wages and Salaries (6,917,943) Medical Expenses (464,341) Catering (1,827,635) Cleaning (232,433) IT Costs (162,080) Repairs and Maintenance (223,751) Rent and Rates (1,865,038) Re-Accreditation Fee (16,345) Subcontractors - Nursing Staff (735,534) Utilities (321,666) Insurance (116,922) Other Expenses (580,837) PAYG Control (Trading) 831,335 GST Control (331,291) Accounts Payable (484,404) Payroll Tax (338,979) Total Payments (13,787,866) Total Operating Profit/(Loss) (1,817,500) Trading performance Detailed opposite is a summary of the sales and estimated trading expenses incurred by the Administrators since their appointment. I note that the losses are largely the result of not receiving CAP funding, the cost of continual inspections by the Aged Care Standards and Accreditation Agency and repairs and maintenance at both facilities. Employees Employees have continued to be employed in line with the terms contained in their relevant employment award or industrial agreement. Resident and relatives meetings At the request of the residents and their relatives, fortnightly meetings were held at both sites during the early stages of the Administration. During the later stages of the Administration the meetings were held on an 'as-needed' basis. These meetings have been a forum for residents and/or their relatives and other representatives to discuss the on-going trading of the respective facilities and to receive any updates as to any developments during this period. The relatives and their representatives have also been provided the opportunity to raise any queries or concerns which they may have had during the administration Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

26 Section 5 Extension of Convening Period 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

27 Extension of Convening Period Extension of Convening Period Overview As foreshadowed in my first Report to Creditors, I anticipated making an application to the Court to extend the convening period beyond the statutory twenty (20) business days as provided by the Act. An extension of the convening period would enable the Administrators further time to deal with the complexities of the Administration, including but not limited to: Stabilising the operations of the business Testing the market and seeking expressions of interest to purchase the business and assets Conduct investigations into the Company's affairs Creditors present at the first meeting of creditors held on 28 February 2013 passed a resolution in support of the Administrators seeking an extension of the convening period. An application was made to the Supreme Court of Victoria on 14 March 2013 where Orders were granted extending the convening period to 17 May On 6 May 2013, further Orders were sought and successfully obtained to extend the convening period to 22 July On 15 July 2013, Orders were again sought and successfully obtained to extend the convening period to 30 August On 16 August 2013, Orders were sought and granted to extend the convening period to 15 November On 15 November 2013 a further Order was sought and granted to extend the convening period to 26 February On 7 February 2014 an additional Order was sought and granted to extend the convening period to 28 April Overview (cont'd) These extensions were sought to provide the Administrators further time to ensure a successful sale of the two (2) facilities, which has provided the best outcome for all key stakeholders Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

28 Section 6 Sale of Business Campaign 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

29 Sale of Business Campaign Sale of Business Campaign Sale of Business Campaign Following my appointment, the Company's business and assets were advertised for sale. I provide the following details in relation to the sale of business campaign: The business was advertised for sale in the Australian Financial Review newspaper on 2 April 2013 and the Australian newspaper on 30 March 2013 Expressions of interest were required to be registered by close of business on Monday, 22 April Thirty-three (33) parties submitted an expression of interest, with several submitting a non-binding indicative offer in writing. Upon interested parties registering their interest, I provided a Confidentiality Agreement to each party. An Information Memorandum in relation to the business was provided to the parties that had executed the Confidentiality Agreement. After reviewing the indicative offers, a number of interested parties progressed to a four (4) week due diligence phase. The four (4) week due diligence phase was completed on Monday, 27 May 2013 where final binding offers from interested parties were required to be submitted. I received six (6) offers which were reviewed at the conclusion of the Administrators' sale campaign. These final offers were assessed and further clarified with relevant interested parties after intensive discussions with the Department of Social Services ("DSS"). With the support of DSS, I conducted a final assessment of the offers and identified the most suitable offer that is in the best interest of all stakeholders and in particular, the residents and staff. Sale Agreement On 12 August 2013, a terms sheet was entered into with Elm Aged Living Pty Ltd ("Elm"). On 8 November 2013 sale of business contracts were executed with Elm to purchase the Mount Martha Valley Lodge and Alexandra House Aged Care facilities. The contracts settled on 31 March 2014 and Elm now has control of the business. I advise that Elm has significant aged care industry experience within existing approved providers, and I am satisfied that Elm will be able to operate the facilities successfully. The key components of the accepted offer for the Company's business are as follows: The continued management of both facilities in their current form, enabling the 160 residents to remain in their home The retention of the current 130 staff members (subject to assessment by Elm), and acceptance of their outstanding employee entitlements A mechanism to deal with accommodation bonds owing to both current and former residents, and Cash consideration Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

30 Section 7 Offences, voidable transactions and insolvent trading 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

31 Offences, voidable transactions and insolvent trading Offences, voidable transactions and insolvent trading For general information about offences, voidable transactions and insolvent trading pursuant to the Act, please refer to the enclosed information sheet at Appendix A, published by ASIC, titled 'Creditor Information Sheet'. In accordance with the Act, as Administrators we are required to undertake investigations into the Company's business operations, financial situation, property, and other areas. The following findings will assist in the preparation of statutory reports which are required to be submitted to the ASIC as well as assist in any potential action against the Director/s for trading the Company whilst insolvent or pursuing voidable transactions when the Company is placed into liquidation. I note that pursuant to Regulation 5.3A.02 of the Corporations Regulations 2001, as Administrators, we are also required to investigate and report to creditors on any possible recovery actions which may be available to a Liquidator should the Company be placed into Liquidation. Voidable transactions The law requires an Administrator to specify whether there are any transactions that appear to the Administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Part 5.7B of the Corporations Act. The issue is relevant to creditors if they are being asked to choose between a Deed of Company Arrangement or a liquidation, because voidable transactions are only able to be challenged if a liquidation occurs. Insolvent trading Information about possible insolvent trading is relevant to creditors when making a decision about the future of a company as directors of a company may generally only be sued for insolvent trading if the company is in liquidation. As with the voidable transaction analysis, creditors have to assess the advantages to them of a Deed, which cannot include proceeds from insolvent trading actions, compared to the likely return in a liquidation, which could include the proceeds of any successful insolvent trading action. Section 588J of the Act provides that a Liquidator, and under certain circumstances a creditor, may recover from the director of an insolvent company compensation in respect of losses suffered by creditors from transactions entered into at a time when a company is insolvent. By definition, a company is insolvent when it cannot pay its debts as and when they fall due. Directors have a statutory duty to prevent insolvent trading pursuant to Section 588G of the Act. Should it be proven that the Company traded whilst insolvent, there is potentially a claim against the Director(s) of the Company either by the Liquidator or in limited circumstances a creditor. The likelihood of there being any monies available to creditors as a result of such recoveries is dependent upon the financial position of the Director(s). I note that the Director(s) may also have valid defences available to them in such circumstances as noted pursuant to Section 588H of the Act. Prior to commencement of any legal action, any defences raised by the Director(s) would first need to be assessed. I have conducted preliminary investigations and the likelihood of a claim and potential recovery will continue to be assessed if we are appointed Liquidators of the Company. If creditors have information which would assist our investigations then we request that you please provide same in writing. Additionally, if there are creditors who wish to pursue and fund such an action please contact us to discuss this in further detail Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

32 Offences, voidable transactions and insolvent trading Director Offences Summary of Offences Seciont of the Act 180 Offence Description Failure by officer to exercise a reasonable degree of care and diligence in the exercise of hi/her powers and the discharge of his/her duties. 181 Failure to act in good faith. 182 Making improper use of position as an officer or employee, to gain, directly or indirectly, an advantage. 183 Making improper use of information acquired by virture of his/her position A 206A,B Reckless or intentional dishonesty in failing to exercise duties in good faith for proper purpose. Use of position or information dishonestly to gain advantage or cause detriment. Contravening an order against taking part in management of a corporation. Taking part in management of corporation while being an insolvent under administration. Acting as a director or promoter or taking part in the management of a company within 5 years after conviction or imprisonment for various offences. 209(3) Dishonest failure to observe requirements on making loans to directors or related companies. 254T Paying dividends except out of profits. 286 Failure to keep proper accounting records. 312 Obstruction of auditor 437C 437D(5) 438B(4) 438C(5) 590 Performing or exercising a function or power as officer while company is under administration. Unauthorised dealing with company's property during administration. Failure by directors to assist administrator, deliver records and provide information. Failure to deliver books and records to adminstrator. Failure to disclose property, concealed or removed property, concealed a debt due to the company, altered books of the company, fraudulently obtained credit on behalf of the company, material omission from RATA or false representation to creditors. Other Offences The Act stipulates that a Director has a number of duties and obligations to properly fulfil their position. A summary of offences that may be identified by the Administrators is provided in the table opposite. The Director has committed offences pursuant to Sections 286, 438B(4) and 438C(5) of the Act, being: Failure to keep proper accounting records (Section 286) Failure to assist administrator, deliver records and provide information (Section 438B(4)) Failure to deliver books and records to administrator (Section 438C(5)) I note that these offences will be reported to ASIC. Report Pursuant to Section 438D Section 438D of the Act requires an Administrator to lodge a report with ASIC if it appears to the Administrator that a past or present officer, or employee, or member of the Company may have been guilty of an offence in relation to the Company. It has not been necessary to submit a report pursuant to Section 438D of the Act Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

33 Offences, voidable transactions and insolvent trading Voidable transactions Voidable transactions In circumstances where a Liquidator is appointed he or she may be able to recover certain payments or dispositions of property that appear to the Liquidator to be voidable transactions pursuant to Part 5.7B of the Act. Voidable transactions include the following: Voidable Transactions Voidable transactions (cont'd) An unsuccessful action can result in a negative return as the Liquidator may possibly be required to settle both the Company s and the defendant s legal costs. Accordingly, a Liquidator is required to fully investigate the circumstances surrounding the payment before commencing legal action. I wish to stress that by no means should you assume that each of the payments referred to are recoverable. Unfair preference payments Uncommercial transactions Unfair loans Unreasonable director related transactions The above transactions and preliminary findings are discussed in detail in the following pages. The assessment of voidable transactions is relevant to creditors in choosing between the three (3) options available at the second meeting of creditors, as they are only recoverable in a liquidation scenario. Should we be appointed as Liquidators of the Company, we will conduct a further detailed assessment of payments in order to assess whether there are any likely recoveries. Pursuing such payments may incur substantial costs by us as Liquidators and our legal advisors and there are a number of defences available to creditors in defending a preferential or uncommercial transaction action brought against them by a liquidator. Please note that recoveries of this nature are only available if the Company is placed into liquidation Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

34 Offences, voidable transactions and insolvent trading Voidable transactions (cont'd) Voidable Transaction Description Ref Indicator Commentary 2.1 Unfair Preference: Section 588FA What is an Unfair Preference To be recoverable, the following circumstances must have existed at the time the unfair preference transaction was entered into: The Company is insolvent or becomes insolvent at the time of entering into the transaction; The transaction was entered into in the six (6) months prior to the appointment of the Voluntary Administrators of the Company, the period being 19 August 2012 to 18 February 2013 ("the relation back period"); The transaction results in the creditor receiving from the Company more than the creditor would otherwise have received in respect to the debt in a winding up of the Company; A reasonable person in the creditors circumstances would have been aware the Company was insolvent; and The creditor must not have an offset for goods or services provided after the payment which remain unpaid, for an amount greater than the payment. Ordinarily, this would be investigated further in a liquidation and any payments to creditors in the six (6) months prior to the appointment of the Voluntary Administrators will be identified and considered. Certain transactions which may be pursued by a liquidator (depending on the findings regarding insolvency) and potentially recoverable under these provisions will be based on indicators including, but not limited to: Threats to suspend or stop future supply; Being paid outside of their documented or agreed trading terms; Receiving large rounded payments upon the suspension of the supply of goods; Being advised that the Company is experiencing cash flow problems and being requested to hold off on presentation of cheques; Warnings that future supply would be dependant on Cash on Delivery or payment prior to delivery i.e. altered trading terms; and/or Requests that outstanding invoices be paid or at least part paid before further future supply would be entertained Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

35 Offences, voidable transactions and insolvent trading Voidable transactions (cont'd) Voidable Transaction Description Ref Indicator Commentary 2.1 Unfair Preference: Section 588FA (cont'd) Procedures undertaken The following procedures were carried out in determining whether an unfair preference occurred: Analysis of ageing of all creditors for the six (6) months leading up to my appointment. Review of bank statements throughout the relation back date period identifying any large, round sum or regular payments. Discussions with the Director and other relevant stakeholders of the Company. Searching for evidence of payment plans, winding up applications or other changes in relationships with creditors. Analysis of the running account balance for those creditors identified as being at risk of receiving unfair preferences. Preliminary quantified values of transactions which may be considered unfair preferences. Findings Further investigations will be undertaken should the Company be placed into liquidation, however, our preliminary investigations have not identified any unfair preferences that would be recoverable. 2.2 Uncommercial Transactions: Section 588FB What is an Uncommercial Transaction These are transactions that a reasonable person would not have entered into having regard to the benefit (if any) and detriment to the Company of entering into the transaction and the benefit to other parties of entering into the transaction. Procedures undertaken The following procedures were carried out in determining whether any Uncommercial Transactions occurred: Identification of recurring payment amounts throughout the relation back date. Identification of all payments made to 'cash' and payment transactions where not allocated to a supplier code. Consideration of whether the substance of the identified transactions are on commercial terms. Specific investigations into the Company's transactions with Cambridge Aged Care Group related parties Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

36 Offences, voidable transactions and insolvent trading Voidable transactions (cont'd) Voidable Transaction Description Ref Indicator Commentary 2.2 Uncommercial Transactions: Section 588FB (cont'd) Findings Cambridge Aged Care Pty Ltd c. $163k Lakeside Care Pty Ltd c. $137k Winterswyk Pty Ltd c. $867k Unidentified c. $50k Conclusion Further investigations will be undertaken should the Company be placed into liquidation, however, our preliminary investigations have identified potential uncommerical transactions of c. $1.22m Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

37 Offences, voidable transactions and insolvent trading Voidable transactions (cont'd) Voidable Transaction Description Ref Indicator Commentary 2.3 Unfair Loans: Section 588FD What is an Unfair Loan Section 588FD(1) of the Act states a loan to a company is unfair "if and only if the interest incurred due to the loan was extortionate when the loan was made or has since become extortionate." Regard is made to the risk of the lender, the value of security (if any), the terms of the loan, amount and any other relevant matters. Procedures undertaken The following procedures were carried out in determining whether any unfair loans occurred: Review of the Company's historical loan repayment and drawings throughout the relation back-date period. Consideration of whether the interest rates on the identified financing arrangements are on commercial terms. Findings Further investigations will be undertaken should the Company be placed into liquidation, however, our preliminary investigations have not identified any unfair loans that would be recoverable. 2.4 Unreasonable Director Related Transactions: Section 588FDA What is a Director Related Transaction For a transaction to be voidable under these provisions a director or an associate of a director must have benefited from the transaction in circumstances where a reasonable person would not have entered into the transaction given the nature of the resulting benefits and detriments to the respective parties. Payments, the issue of securities, conveyances or other dispositions of property by the company in favour of a director, a relative or de facto spouse of a director may constitute an unreasonable director related transaction in accordance with Section 588FD of the Act Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

38 Offences, voidable transactions and insolvent trading Voidable transactions (cont'd) Voidable Transaction Description Ref Indicator Commentary 2.4 Unreasonable Director Related Transactions: Section 588FDA (cont'd) Procedures undertaken The following procedures were carried out in determining whether any unreasonable director related transactions occurred: Identification of related and associated parties to the Company. Identification of all significant payments to the Director and others throughout the relation back period. Identification of all significant payments to related entities throughout the relation back period. Tracing all identified payments to supporting documentation. Findings Further investigations will be undertaken should the Company be placed into liquidation regarding payments to the Director however, our preliminary investigations have not identified any other unreasonable director related transactions that would be recoverable Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

39 Offences, voidable transactions and insolvent trading Insolvent Trading Review Introduction Common law has determined that certain factors, if present, constitute reasonable grounds for suspecting insolvency. These factors make up the two (2) common tests of insolvency. The two common tests of insolvency are the Balance Sheet Test and the Cash Flow Test. The Balance Sheet Test analyses the financial performance of a company and generally a deficiency in assets is viewed as failure of this test. The second common test of insolvency, the Cash Flow Test, is more subjective and requires more pragmatic evidence such as significantly overdue creditors, previous applications to wind up the Company, statutory demands issued by creditors and the inability to obtain further funding. We reiterate that recoveries of this nature are only available if the Company is placed into liquidation. Procedures The following procedures were undertaken as part of the insolvent trading review: Insolvent Trading Investigation Procedures 1. Balance Sheet Test of insolvency 1. Review of the maintenance of books and records in accordance with Section 286 of the Act. 2. Analysis of the financial position of the Company. 3. Analysis of the financial performance of the Company. 2. Cash Flow Test of insolvency 1. Analysis of the cash flow test of insolvency. 2. Relationship with financiers, shareholders or other funders. 3. Review of the Company's history of remittance of Commonwealth and State taxes. 4. Identification of any post-dated or dishonoured cheques. 5. Review of creditor ageing and other overdue payables. 6. Review of any demands for repayment or legal action pending. In the following pages we discuss our investigations in respect of indicators of insolvency. Our investigations to date indicate that the Company likely would have been considered insolvent from May Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

40 Offences, voidable transactions and insolvent trading Insolvent Trading Review (cont'd) Indicators of insolvency: Balance Sheet Test Ref Indicator Commentary 1.1 Maintenance of proper books and records Pursuant to Section 286 of the Act, a company must keep written financial records that correctly record and explain its transactions, financial position and performance, and enable true and fair financial statements to be prepared and audited. My investigation in relation to the Company s solvency and the bond register has included a review of the following: Alexandra House MYOB File ANZ Bank Statements Other miscellaneous documents Failure to maintain books and records may give rise to a presumption of insolvency pursuant to Section 588E of the Act. The MYOB file fails to reflect both facilities operated by the Company and only consists of the Financial Year 2012 and 2013 year to date. Our preliminary view is that the books and records maintained and kept by the Company are not in accordance with the requirements of Section 286 of the Act. 1.2 Financial position Current Ratio Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Current Ratio Quick Ratio Debt Ratio FY12 YTD FY13 Current Ratio Quick Ratio Debt Ratio This ratio is used to determine a company s ability to pay back short term liabilities, being debt and creditors with its short term assets, being cash and debtors. As can been seen from the table (above), all periods have a current ratio of less than one (1), for the relation back period and two (2) financial years preceding Administration, which suggests the Company may not have been able to pay its debts as and when they fell due. This is an indicator of insolvency Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

41 Offences, voidable transactions and insolvent trading Insolvent Trading Review (cont'd) Indicators of insolvency Ref Indicator Commentary 1.2 Financial position (cont'd) Net Assets As detailed above, the Company held a net liability position in the amount of c.$1.18m as at 18 February This position is a result of related party loans and accommodation bonds. Furthermore, the Company held a net liability position for the entire relation back period. The Company has historically operated at a negative net asset position as detailed in the chart below. Net Assets Aug-12 ($) Sep-12 ($) 30/06/2011 ($) Oct-12 ($) 30/06/2012 ($) Nov-12 ($) 31/12/2012 ($) Net Assets 1,295 (394,272) (799,576) Dec-12 ($) Jan-13 ($) Feb-13 ($) (485,690) (248,125) (572,875) (745,673) (799,576) (1,006,760) (1,177,003) Working Capital Review The Company's net working capital position declined in the months prior to our appointment, as shown in the graph below. 1,000, ,000 0 (500,000) (1,000,000) (1,500,000) (2,000,000) (2,500,000) (3,000,000) (3,500,000) July September November January The reduction in working capital was due to an increase in the Company's creditors and accruals. These movements are symptomatic of the trading losses and financial difficulties the Company faced during this period Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April Credit Cards GST Accounts Receivable Accounts Payable Net Cash Residents Fees Net Working Capital

42 Offences, voidable transactions and insolvent trading Insolvent Trading Review (cont'd) Indicators of insolvency Ref Indicator Commentary 1.3 Financial performance The following information has been taken from the Company's MYOB accounting software provided to us. As highlighted in the chart below, the Company recorded a net loss for the five (5) months preceding Administration. As a result, the Company incurred a total net loss in the amount of c.$751k for the relation back period. 300, , ,000 0 (100,000) (200,000) (300,000) (400,000) Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Conclusion on the Balance Sheet Test of insolvency On the basis of our review of the Company's books and records, financial position, liquidity ratios and financial performance, it appears the Company may have been insolvent from at least May 2011 onwards based on the following: Failure to maintain adequate books and records in accordance with Section 286 of the Act Deterioration in net asset position Deterioration in liquidity ratios, and Significant deterioration in the working capital position Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

43 $ Offences, voidable transactions and insolvent trading Insolvent Trading Review (cont'd) Indicators of insolvency: Cash Flow Test Ref Indicator Commentary 2.1 Cash flow We utilised both independent third party documents such as bank statements and the Company's records to undertake the Cash Flow review. The Company maintained four (4) bank accounts with the ANZ which had the following balances as at the date of appointment: $1, $267, $77,315.24, and $9, The cash in the accounts is due to the recent deposit of ACFI. The bank accounts were used to facilitate the transfer of funds to accounts outside of the Company's control. 2.2 Relationship with financiers, shareholders or other funders The Company was financed through intergroup loans with other entities in the Cambridge Aged Care Group who provided employment and 'head office' type services to the Company. The Company had access to Government funding through the Aged Care Funding Instrument ( ACFI ). The below graph illustrates the historical ACFI levels for each facility. The level of ACFI funding varies with the level and amount of care required by residents and is therefore not a source of additional funding. There is no evidence that the Director sought additional financial support from a bank or other financiers including shareholders. 700, , , , , , ,000 0 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 MMVL AH 2.3 Statutory creditors The Australian Taxation Office ("ATO") has advised that the Company has outstanding income tax returns for all financial years since 30 June Therefore the amount owed to the ATO is unable to be quantified. Correspondence was sent to the State Revenue Office of Victoria dated 20 February 2013, however no response was received. As CACES acted as the employer of the employees at the facilities, any payroll tax debt would rest with that entity Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

44 Offences, voidable transactions and insolvent trading Insolvent Trading Review (cont'd) Indicators of insolvency Ref Indicator Commentary 2.4 Posted-dated cheques or dishonoured cheques Creditors of the Company were paid by a related party, Cambridge Aged Care Pty Ltd ( CAC ), with the Company transferring funds for the services and goods provided by the creditors. There is one instance of a post-dated cheque being dishonoured when it was presented in early February. This amount related to a refund of resident fees for a deceased estate. There were no other dishonoured cheques identified throughout the period reviewed. 2.5 Financial Information As previously mentioned, the Company did not appear to have maintained its books and records to the standard required by the Act. There was no indication of financial information being used to gauge trading performance, nor was there any indication of forecasts being utilised. 2.5 Aged creditors The Company's books and records do not contain sufficient information in order to review the Company's aged creditors. In addition, as a result of the Financing Services Agreement between Winterswyk Pty Ltd and the Company, suppliers to the Company's business did not deal directly with the Company. I do note that as at 26 February 2013, $3,323, remained outstanding to deceased estates and residents that had returned home or moved to a different provider. 2.6 Demands for repayment or legal action Investigations have discovered that most invoices relating to the Company were in the name of CACG who handled suppliers on behalf of the Company. There was a lack of information regarding suppliers and invoices to accurately determine whether suppliers demanded COD or ex gratia payments for continued supply. There was no evidence of demands being issued by creditors to pursue payment of amounts outstanding. Conclusion on the review of cash flow test On the basis of our review of the Company's cash flow and other indicators of insolvency, the Company may have been insolvent from at least May 2011, being the date that deposits were first made into the aforementioned ANZ bank accounts. All indicators of insolvency for the cash flow test have either been hampered by insufficient information (a presumption of insolvency under the Act) or provided evidence to suggest that the Company was insolvent. Insufficient data has prevented a specific date being determined in this case. In reviewing all the indicators of insolvency under both a balance sheet and cash flow test, it appears that the Company may have been insolvent from at least May Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

45 Offences, voidable transactions and insolvent trading Insolvent Trading Review (cont'd) Accommodation Bond Transaction Review A review of the four bank accounts held in the name of the Company for the period 25 May 2011 to 18 February 2013 (for accounts and 68612) and 23 May 2012 to 18 February 2013 (for accounts and 56451) (being the period for which bank statements were available) was conducted to trace the bond amounts as they were deposited into the Company s accounts and their subsequent transfer. An analysis of the data showed that as soon as the bond amounts were deposited into the Company s account, it was transferred out. In most cases the amounts match closely, however depending on the order of transactions on the bank statement, the amounts may not be exact and could be substantially different. Of the recipient accounts, only one account has been identified. The Company s MYOB records indicate that one of the recipient accounts belonged to Cambridge Aged Care. None of the other accounts are listed in the Company s MYOB records. I have written to the Australia New Zealand Banking Group Limited on 4 July 2013 and 7 March 2014 requesting that they trace the transactions of interest and to identify the owners of the remaining accounts. I am yet to receive a response. More documentation is needed in order to further investigate the bond withdrawals. I note that Companies within the group have not been forthcoming in respect of providing books and records relating to the Company Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

46 Section 8 Estimated return from a winding up 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

47 Estimated return from a winding up Estimated return from a winding up Estimated return from a winding up The table opposite provides an estimated return to creditors in a Liquidation scenario on a high and low recovery basis. In summary, the estimated return to creditors is subject to change depending on: The collectability of pre-appointment debts The quantum of the voidable transactions Further investigations into transactions during the relation back period Trading liabilities incurred but not yet invoiced or quantified. Notes to the Estimated Outcome Statement 1. Potential voidable transactions are subject to further investigation and therefore the quantum is unknown. 2. This represents that 'cash' amount of the sale of business to Elm. 3. Trading liabilities are charges that have been authorised by the Administrators but not yet paid. Estimated Outcome Statement Asset Realisations Note Liquidation Low ($) Estimated cash available at end of Administrators' trading period 1,150,000 Pre-appointment Debtors 20,000 Potential voidable transactions 1 To be quantified Sale of Business 2 1,000,000 Total estimated realisations 2,170,000 Estimated total funds available 2,170,000 Administration costs Administrators' fees (1,350,205) Administrators' disbursements (25,000) Liquidators' fees (120,000) Liquidators' disbursements (3,000) Trading Liabilities 3 (1,050,000) Total administration costs (2,548,205) Estimated funds available for distribution to priority creditors Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

48 Section 9 Effect on employees 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

49 Effect on employees Employee entitlements Employees Cambridge Aged Care Employment Services Pty Ltd ("CACES") is a labour hire entity within the Cambridge Aged Care Group that supplied employees to the Alexandra House and Mount Martha Valley Lodge facilities. We were appointed Joint and Several Official Liquidators of CACES on 9 August As previously detailed, the Administrators have continued to trade the respective sites at Alexandra House and Mount Martha. Where employment continued through the Administration period, staff have continued to accrue their entitlements per their contracts or other industrial agreements. We note that the obligations for payment of these entitlements rests with the Administrators. We confirm that any employee whose employment is not assumed by the Purchaser, may be entitled to lodge a claim with FEG for amounts owed at the date of appointment, being 18 February Employee entitlements have been calculated from the Company's payroll records, and have been calculated in line with the employee's award or other industrial agreement. The sale of business contracts provide that Elm Aged Living ("Elm") will assume all existing employee entitlements for those employees who are offered, and accept, on-going employment with Elm Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

50 Effect on employees Fair Entitlement Guarantee Scheme ("FEG") Fair Entitlement Guarantee Scheme ("FEG") It is anticipated that some employee entitlements will remain in the Company in the situation where an employee has previously resigned their employment or do not continue their employment with the purchaser. These residual entitlements will rank in priority to unsecured creditors. At this stage it is unknown if there will be sufficient funds to enable a dividend to be paid to priority creditors. Accordingly, we intend to refer this matter to the Fair Entitlement Guarantee Scheme ("FEG"). FEG is a discretionary government safety net scheme administered by the Department of Employment for unpaid employee entitlements where employees are terminated as a result of insolvency. As FEG is a discretionary fund, distributions from it cannot be guaranteed. Under FEG, where employees have a legal entitlement derived from legislation, an award, a statutory agreement or a written contract of employment, they are eligible to receive the following: Unpaid wages up to a maximum of 13 weeks All unpaid annual leave (including Annual Leave Loading) All long service leave Any pay in lieu of notice up to a maximum of five (5) weeks; and Please note that FEG does not cover amounts owed for the statutory superannuation contribution. Please note, it is the Department of Employment and not the Liquidator which administers this discretionary scheme and as such, the Department of Employment are the final arbiters in deciding: If funds are advanced to the Company in respect of your entitlements If payments are made, the quantum of payments made, and The timing of such payment Please note that should a payment to employees be made by FEG, these funds are recoverable by FEG pursuant to Section 560 of the Act. That is, FEG will take over the employee s priority position as a creditor of the Company to the extent of entitlements paid by FEG. Employees must lodge their claim with FEG to be entitled to monies. This can be done either via the FEG website at or by completing a FEG claim form and submitting via post. We recommend that employees lodge their claim forms online as this will ensure a quicker response from FEG. We stress, the employee must lodge the initial form following liquidation. Please contact Thomas Austin of this office on (03) should you have any queries in relation to this process. Redundancy payments up to a maximum of four (4) weeks redundancy pay per completed year of service Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

51 Section 10 Accommodation Bonds 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

52 Accommodation Bonds Accommodation Bonds Aged Care (Bond Security) Act 2006 ("the Bond Security Act") As there are unlikely to be sufficient funds to enable the refund of outstanding Accommodation Bonds, we intend to refer this matter to the Department of Social Services ("DSS") for the Accommodation Bond Guarantee Scheme if the Company is placed into Liquidation at the Second Meeting of Creditors. The Bond Security Act establishes a scheme to guarantee the repayment of aged care resident accommodation bond balances if an approved provider is insolvent and cannot refund accommodation bonds. The Bond Security Act enables the Australian Government to pay to a person an amount equal to the accommodation bond balance owed to them by an approved provider. Please note that should a payment to bond holders be made under the Bond Security Act, these funds are recoverable by DSS pursuant to Section 560 of the Act. That is, DSS will take over the bond holders position as a creditor of the Company to the extent of accommodation bonds paid by DSS. Bond holders must lodge their claim with DSS to be entitled to monies. I advise that bond holders are required to contact DSS directly as the Liquidators do not act as an intermediary in this process. Notwithstanding this, where possible, we are providing information and assistance to DSS to assist with this process Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

53 Section 11 Proposal for a deed of company arrangement 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

54 Proposal for a deed of company arrangement Proposal for a deed of company arrangement DOCA Proposal The provisions of Part 5.3A of the Act allow the Company and its creditors to negotiate a proposal to deal with the Company s affairs and in such circumstances execute a deed of company arrangement ("DOCA"). A DOCA is a flexible arrangement which is available to a Company in Voluntary Administration and is usually proposed by the Director. I advise that the Director has not submitted a DOCA, and it is unlikely for one to be submitted. If this position changes, we will advise creditors accordingly and seek further time to assess the merits of any DOCA proposal Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

55 Section 12 Administrators' recommendation 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

56 Administrators' recommendation Administrators' recommendation Administrators' recommendation In accordance with Section 439A(4)(b) of the Act, the Administrators are required to make a recommendation to creditors as to which of the options available to them is in their best interests. The following options are available for creditors to vote on at the meeting convened pursuant to Section 439A of the Act: 1. The Administration should end It is possible that creditors may consider ending the Administration which would return the Company to the control of its Director. Ordinarily, the Director would resume control of the Company's assets and be able to deal with them as they deem appropriate. It would not be in the creditors' best interests for the Administration to end as the Company is not able to meet its commitments and therefore requires a mechanism to deal with creditors' claims. 3. The Company be Wound Up (Liquidation) Creditors may resolve to wind up the Company which would result in the Company being placed into Liquidation. If creditors do not nominate a different person to be Liquidator, Andrew Hewitt and I will be taken as having been nominated as Joint and Several Liquidators of the Company. A more detailed review of the Company s financial affairs would be conducted and as a consequence a report on its affairs and the conduct of its officers would be prepared and the findings conveyed to ASIC. Further investigations in relation to voidable transactions and insolvent trading would be made as well as a determination to proceed with such claims, if any. In the event sufficient funds are recovered, monies would be distributed in accordance with the provisions of Section 556 of the Act. This option is recommended as the Company is now insolvent and creditors' claims need to be dealt with under a formal appointment. 2. The Company executes a Deed Of Company Arrangement The provisions of Part 5.3A of the Act allow the Company and its creditors to negotiate a proposal to deal with the Company s affairs and in such circumstances execute a DOCA. A DOCA is a flexible arrangement which is available to a Company in Voluntary Administration and is usually proposed by the Director. I advise that the Director has not submitted a DOCA, and it is unlikely for one to be submitted. If this position changes, we will advise creditors accordingly and seek further time to assess the merits of the DOCA proposal. As no DOCA proposal has been received, this option is not available to creditors. Recommendation: In accordance with Section 439A(4)(b), the Administrators recommend that creditors resolve to place the Company into liquidation Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

57 Section 13 Remuneration 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

58 Remuneration Remuneration Voluntary Administrators' remuneration (exc of GST and disbursements) Description Joint and Several Administrators remuneration for the period 18 February 2013 to 31 March 2014 Joint and Several Administrators' estimated future remuneration for the period 1 April 2014 to 11 April 2014, being the date of the second meeting Amount ($) $1,330, $20, Remuneration Enclosed at Appendix B is the Administrators' Remuneration Report, which provides details of: Remuneration approved to date by the Supreme Court of Victoria Voluntary Administrators' remuneration to be approved, and Liquidators' future remuneration to be approved. Creditors should note that all work has, and will be, performed by the appropriate level of staff in order to optimise any potential realisations which may be available to creditors Liquidators' future remuneration (exc of GST and disbursements) Voluntary Administrators' remuneration The remuneration has been split between actual fees incurred for the period 18 February 2013 to 31 March 2014 and the estimated future fees to be incurred for the period 1 April 2014 to 11 April 2014, being the date the of the second meeting. Description Joint and Several Liquidators' remuneration for the period 12 April 2014 to completion Amount ($) $120, Liquidators' future remuneration It will be necessary for the creditors to approve the drawing of remuneration for the Liquidators, should creditors vote that the Company be placed into liquidation At the forthcoming meeting of creditors on 11 April 2014, the creditors will be requested to approve our remuneration as provided in the tables opposite Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

59 Section 14 Meeting 01. Executive summary 02. Introduction 03. Background Information 04. Trading during the Administration 05. Extension of Convening Period 06. Sale of Business Campaign 07. Offences, voidable transactions and insolvent trading 08. Estimated return from a winding up 09. Effect on employees 10. Accommodation Bonds 11. Proposal for a deed of company arrangement 12. Administrators' recommendation 13. Remuneration 14. Meeting 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

60 Meeting Second meeting of creditors Second meeting of creditors The second meeting of creditors is to be held at the Institute of Chartered Accountants in Australia located at Level 3, 600 Bourke Street, Melbourne, Victoria at 11:00am on Friday, 11 April Please arrive 15 minutes before hand to allow sufficient time for registration. The notice in regards to the meeting is enclosed as Appendix C. The meeting will be open to creditors for questions and general discussion. Should you wish to have us address any issue in detail please advise us prior to the meeting date. This will allow sufficient time to prepare a detailed response to your question. Please note that attendance at the meeting is not compulsory. Telephone Attendance Should you not be able to attend the second meeting of creditors in person, creditors are invited to attend via telephone. In order to do so, you will be required to submit a proof of debt and proxy in favour of the party attending via telephone as detailed below. Please contact Thomas Austin of this office at thomas.austin@au.gt.com no later than 4:00pm on the business day prior to the meeting, being Thursday, 10 April 2014 to obtain dial in details. Lodging of proofs of debt Should you not have already lodged a proof of debt, you are required to complete and submit the proof of debt as attached as Appendix D. Lodging of proxies Proxies lodged for the previous meeting are not valid for this meeting and therefore, new proxies need to be lodged to enable voting at the second meeting. Please ensure that the proxies are signed under seal, where appropriate (if you are a company) and if the proxy is executed by a power of attorney, that a copy of the power of attorney is enclosed with the proxy form. The proxy form is enclosed at Appendix E. Proxies for the meeting can be lodged in the following ways: Post: to arrive no later than 4:00pm on the business day prior to the meeting, being Thursday, 10 April 2014 Facsimile: to (03) no later than 4:00pm on the business day prior to the meeting, being Thursday, 10 April 2014 In Person: by person with a person attending the meeting; or by to thomas.austin@au.gt.com no later than 4:00pm on the business day prior to the meeting, being Thursday, 10 April If proxies are lodged by facsimile or , the law requires that the original proxy must be lodged with the Voluntary Administrators within 72 hours of lodging the faxed or ed copy. Contact details Should you have any queries in relation to any matter raised in this report then please do not hesitate to contact Thomas Austin on (03) Yours faithfully Stephen Dixon JOINT AND SEVERAL ADMINISTRATOR 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

61 Appendices A. ARITA creditor information sheet B. Administrators' Remuneration Report C. Notice of second meeting of creditors D. Proof of Debt form E. Proxy form 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April 2014

62 Appendices A. ARITA creditor information sheet 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

63 Insolvency information for directors, employees, creditors and shareholders ASIC has 11 insolvency information sheets to assist you if you re affected by a company s insolvency and have little or no knowledge of what s involved. These plain language information sheets give directors, employees, creditors and shareholders a basic understanding of the three most common company insolvency procedures liquidation, voluntary administration and receivership. There is an information sheet on the independence of external administrators and one that explains the process for approving the fees of external administrators. A glossary of commonly used insolvency terms is also provided. The Insolvency Practitioners Association (IPA), the leading professional organisation in Australia for insolvency practitioners, endorses these publications and encourages its members to make their availability known to affected people. List of information sheets INFO 41 Insolvency: a glossary of terms INFO 74 Voluntary administration: a guide for creditors INFO 75 Voluntary administration: a guide for employees INFO 45 Liquidation: a guide for creditors INFO 46 Liquidation: a guide for employees INFO 54 Receivership: a guide for creditors INFO 55 Receivership: a guide for employees INFO 43 Insolvency: a guide for shareholders INFO 42 Insolvency: a guide for directors INFO 84 Independence of external administrators: a guide for creditors INFO 85 Approving fees: a guide for creditors Getting copies of the information sheets To get copies of the information sheets, visit ASIC s website at The information sheets are also available from the IPA website at The IPA website also contains the IPA s Code of Professional Practice for Insolvency Professionals, which applies to IPA members. Important note: The information sheets contain a summary of basic information on the topic. It is not a substitute for legal advice. Some provisions of the law referred to may have important exceptions or qualifications. These documents may not contain all of the information about the law or the exceptions and qualifications that are relevant to your circumstances. You will need a qualified professional adviser to take into account your particular circumstances and to tell you how the law applies to you. Australian Securities & Investments Commission, December 2008 Page 1 of 1

64 Appendices B. Administrators' Remuneration Report 2014 Grant Thornton Nepean Hospitals Pty Ltd (Administrators Appointed) 3 April

65 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Part 1: Declaration We, Stephen Dixon and Andrew Hewitt, of Grant Thornton Australia Limited have undertaken a proper assessment of this remuneration claim for our appointment as Grant Thornton Australia Limited, of Nepean Hospitals Pty Ltd (Administrators Appointed), in accordance with the law and applicable professional standards. We are 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 in this administration. This remuneration report details approval sought for the following fees: Period Voluntary Administration Report Reference Amount (ex GST) Resolution 1: 18 February March $1,330, Resolution 2: 1 April April 2014* 4 $20, Total Voluntary Administration* $1,350, Liquidation Resolution 3: 12 April 2014 to completion 5 $120, *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.

66 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Part 3: Description of work completed The remuneration of the Administrators and any of the Administrators partners or employees in performance of services performed from 18 February 2013 to 31 March 2014 to be fixed at $1,330, (excluding GST) plus any out of pocket expenses incurred. Approval is given for such amounts approved to be drawn on a monthly basis. Company NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Practitioner(s) Stephen Dixon and Andrew Hewitt Firm Grant Thornton Australia Limited Administration Type Voluntary Administration Period From 18 February 2014 to 31 March 2014 Task Area General Description Includes Assets Hours $165, Sale of Business as a Going Concern Preparing an information memorandum Liaising with purchasers Internal meetings to discuss/review offers received Selection of preferred purchaser Preparing additional information Liaising with the Department of Social Services Discussing terms of sale with purchaser Completing heads of agreement Discussion regarding sale contract terms Completing sale contract Plant and Equipment Liaising with valuers, auctioneers and interested parties Reviewing asset listings Assets subject to specific charges Review of Personal Property Security Register ( PPSR ) Liaising with the holder of the Secured Charge Arranging for the secured charge to be removed from the PPSR

67 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Task Area General Description Includes Creditors Hours $59, Employees 21.3 Hours $7, Debtors Correspondence with debtors Reviewing and assessing debtors ledgers Other Assets Tasks associated with realising other assets Leasing Reviewing leasing documents Liaising with owners/lessors Tasks associated with disclaiming leases Creditor Enquiries Receive and follow up creditor enquiries via telephone Maintaining creditor enquiry register Review and prepare correspondence to creditors and their representatives via facsimile, and post Creditor reports Preparing 439A report, investigation, meeting and general reports to creditors Dealing with proofs of debt Receipting and filing Proofs of Debt when not related to a dividend Corresponding with SRO and ATO regarding Proofs of Debt when not related to a dividend Meeting of Creditors Preparation 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 minutes of meetings with ASIC Responding to stakeholder queries and questions immediately following meeting Employees enquiries Receive and follow up employee enquiries via telephone Maintain employee enquiry register Review and prepare correspondence to employees and their representatives via facsimile, and post Preparation of letters to employees advising of their entitlements and options available Receive and prepare correspondence in response to employees objections to leave entitlements Calculation of entitlements Calculating employee entitlements Reviewing employee files and company s books and records Reconciling superannuation accounts

68 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Task Area General Description Includes Workers compensation claims Reviewing awards Liaising with solicitors regarding entitlements Review insurance policies Receipt of claim Liaising with claimant Liaising with insurers and solicitors regarding claims Identification of potential issues requiring attention of insurance specialists Correspondence with insurance broker regarding initial and ongoing workers compensation insurance requirements Correspondence with previous brokers Other employee issues Correspondence with Child Support Correspondence with Centrelink Trade On 2,411.3 Hours $824, Trade On Management Liaising with suppliers Liaising with management and staff Attendance on site Authorising purchase orders Maintaining purchase order registry Preparing and authorising receipt vouchers Preparing and authorising payment vouchers Liaising with superannuation funds regarding contributions, termination of employees employment Liaising with State Revenue Office regarding payroll tax issues Processing receipts and payments Budgeting and financial reporting Entering receipt and payments into accounting system Reviewing company s budgets and financial statements Preparing budgets Preparing weekly financial reports

69 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Task Area General Description Includes Investigation 78.9 Hours $30, Administration 472 Hours $175, Finalising trading profit or loss Meetings to discuss trading position Conducting investigation Collection of company books and records Correspondence with ASIC to receive assistance in obtaining reconstruction of financial statements, company s books & records and Report as to Affairs Reviewing 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 Review of specific transactions Liaising with directors regarding certain transactions Preparation of investigation file Lodgement of investigation with the ASIC Preparation and lodgement of supplementary report if required Document First month, then 6 monthly administration review maintenance/file Filing of documents review/checklist File reviews Updating checklists Insurance Identification of potential issues requiring attention of insurance specialists Correspondence with Blue Broking regarding initial and ongoing insurance requirements Reviewing insurance policies Correspondence with previous brokers Bank account administration Preparing correspondence opening and closing accounts Requesting bank statements Bank account reconciliations

70 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Task Area General Description Includes Correspondence with bank regarding specific transfers Planning/Review Discussions regarding status of administration Books and records/ storage Dealing with records in storage Sending job files to storage Statutory 20.2 Hours $7, Documents of appointment Preparation Review Execution Filing with ASIC Report as to Affairs Directors Questionnaire Completion deadlines and extensions Filing with ASIC Report to ASIC for non-lodgement ASIC Form 524 and other forms ATO & other statutory reporting Preparing and lodging ASIC forms including 505, 524, 911 etc Correspondence with ASIC regarding statutory forms Notification of appointment Preparing BAS Completing PAYG Payment Summaries/group certificates I note that in addition to the above amounts, I will be seeking approval for fees incurred by Grant Thornton s Forensics and Consulting divisions in relation to this appointment for $6, and $53, respectively. These amounts relate to the imaging of the Company s computers for investigative purposes and specialist aged care industry consulting.

71 NEPEAN HOSPITALS PTY LTD (Administrators Appointed) Remuneration Request Approval Report Part 3A: Resolution 1 Unbilled Time Entry Summary Nepean Hospitals Pty Ltd (BT_Con Stage 2) and (RR_Voluntary Administration - In Funds) Unbilled Time Entries Summary - Feb to Mar Review and Operate Milestones Total Cost Employee Position $/Hr (excl. GST) Total Hours excl. GST ($) Hrs $ Hrs $ Hrs $ Hrs $ Hrs $ Hrs $ Hrs $ Hrs $ Hrs $ Hrs $ Andrew Hewitt Partner $4, $2, $ $ $2, Stephen Dixon Partner $31, $30, $ $ Adrian Ooi Senior Manager $107, $2, $51, $2, $ $6, $ $45, Christopher Sequeira Senior Manager $ $47.00 Cam Ansell Partner $52, $49, $3, Edwin Clark Assistant Manager $15, $ $ $14, Gillian Wright Assistant Manager $250, $3, $26, $8, $ $ $211, Gillian Wright Assistant Manager $ $ Jennifer Chambers Senior $7, $ $ $5, $2, Scott Robson Intermediate $ $ Parmveer Puni Intermediate $ $ Mei Lin Lee Graduate $ $ $ Thomas Austin Graduate $196, $21, $11, $6, $ $2, $1, $152, Henry Vu Senior $ $ Daniel Silpert Vacationer $ $ Harshad Kale Vacationer $ $ Jason Lewis Vacationer $2, $1, $ $1, Joel Markoff Vacationer $ $ $ Lily Jin Vacationer $ $ $ $ Leanne Donaldson Other $19, $18, $ Laura Van Den Bogaard EA / PA $ $ Jonathon Sammut Other $ $ Peter McCabe Other Solution Design Strategic Intent $1, $1, Admin IPAA Tasks Assets Creditors Employees Investigations Statutory $693, $49, $ $3, $81, $89, $25, $ $9, $2, $431, Trade On