Wolfe Civil Pty Ltd (In Liquidation) ACN: 097 157 947 ( the Company ) Prepared pursuant to section 70-40 of the Insolvency Practice Rules (Corporations) 2016 Dated: 17 July 2018 Liquidator Kim Wallman Date of Administration 6 March 2018 Date of Liquidation 18 April 2018 Contact Dilyana Panova Telephone Number 08 9215 7904 HLB Mann Judd (Insolvency WA) ABN 54 686 879 814 Level 3, 35 Outram Street West Perth WA 6005 PO Box 622 West Perth WA 6872 Telephone +61 8 9215 7900 Fax +61 8 9321 0429 Website: www.hlbinsolvencywa.com.au Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (Insolvency WA) is a member of International. A world-wide network of accounting firms and busines s advisers.
Contents 1. Introduction... 3 2. Update on the Progress of the Liquidation... 3 2.1. Update on Debtor and Retention Realisations... 3 2.2. Directors Report as to Affairs ( RATA ) and Liquidator s Estimates... 4 2.3. Investigations Undertaken to Date... 5 2.4. Explanation of Difficulties and Causes of Demise of the Company... 7 2.5. Further Investigations to be Undertaken... 8 3. Receipts and Payments... 8 4. Likelihood of a Dividend... 8 5. Costs of the Liquidation... 9 6. What Happens Next?... 9 7. Where Can You Get More Information?... 10 Page 2
1. Introduction I, Kimberley Stuart Wallman, was initially appointed as the Administrator of the above Company on 6 March 2018 pursuant to section 436A of the Corporations Act 2001 ( the Act ). As you are aware, at the meeting of creditors held on 18 April 2018, it was resolved that the Company be placed into liquidation. As there were no nominations for an alternative Liquidator, I automatically became Liquidator of the Company in accordance with sections 446A and 499(2A) of the Act. The purpose of this report is to comply with the requirements of section 70-40 of the Insolvency Practice Rules (Corporations) 2016 as follows: provide creditors with a written account of the winding up the estimated amounts of assets and liabilities of the Company inquiries relating to the winding up of the Company that have been undertaken to date further inquiries relating to the winding up of the Company that may need to be undertaken what happened to the business of the Company the likelihood of creditors receiving a dividend before the affairs of the Company are fully wound up possible recovery actions This report should be read in conjunction with my section 75-225 report to creditors dated 10 April 2018. 2. Update on the Progress of the Liquidation I have set out the information set out below in order to provide creditors with an update regarding the conduct of the liquidation. 2.1. Update on Debtor and Retention Realisations In my report to creditors of 10 April 2018, I commented on the subject of debtors and retentions as follows: The primary assets of the Company consist of accounts receivable and retention amounts. With the input of the Directors and relevant employees, I have been in contact with the debtor representatives, mainly consulting engineers who have been appointed to manage the various projects. Crucially, I have met with the consulting engineer who is overseeing the Company s two largest projects. The records of the Company are in a satisfactory state for the scope and nature of the business; however, I have encountered some difficulties with the reconciliation of the various databases that the Company maintained. At the first meeting of creditors, I provided an estimate of $500K for accounts receivable and retention amounts. A number of amounts were listed in three independent databases which overstated the amount that I initially considered might be recovered. For reasons elaborated upon below, accounts receivable are likely to total, at best, $100,000 and retentions are likely to total, at best, $150,000. Current accounts receivable claims and retentions (some of which are not due for release until early 2019) are being held by clients, pending the finalisation of the various projects in order to enable the consulting engineers to finalise the amounts that may be released to the Company. In all cases, there are funds left in the respective contracts and these funds will be utilised under each contract to finalise the works by others. Page 3
I advise that the overall position has not changed significantly since my last report to you; and whilst incomplete works have progressed under the oversight of clients and other contractors, I am not yet in a position to comment reliably on what funds may recovered from clients. A retention sum of $20K plus GST is due for release to the Company shortly; however, other retention sums are still several months away from falling due for release to the Company. 2.2. Directors Report as to Affairs ( RATA ) and Liquidator s Estimates As outlined in my report to creditors of 10 April 2018, at 6 March 2018 the assets and liabilities of the Company according to the Directors Report as to Affairs ( RATA ) were estimated to be as follows: As per Directors RATA Estimated Realisable Values HIGH $ $ Estimated Realisable Values LOW Asset Realisations Achieved To Date Notes ASSETS Accounts Receivable 107,572 100,000 50,000 57,410 1 Retentions 260,881 150,000 100,000 Nil 1 Water Corporation Bond - 57,945 57,945 57,945 2 Recoverable Tax Asset - 0 0 N/A 3 TOTAL ASSETS 368,453 307,645 207,945 115,355 LIABILITIES Priority Creditors Wages 418 500 500 4 Superannuation 14,080 15,000 15,000 4 Annual Leave 60,873 54,765 54,765 4 Long Service Leave 71,495 54,864 54,864 4 Payment in Lieu of Notice 111,687 97,744 97,744 4 Redundancy 259,676 216,907 216,907 4 Secured Creditor NAB Overdraft 325,000 273,000 273,000 5 Unsecured Creditors Trade Creditors 1,067,040 1,300,000 1,300,000 6 Suncourt Nominees 356,432 356,432 356,432 Eaglesham Nominees 52,800 52,800 52,800 Non-priority Employee Entitlements - 79,450 79,450 7 Contingent Secured Liabilities NAB Bank Guarantees 91,273 91,273 91,273 TOTAL LIABILITIES 2,410,774 2,592,735 2,592,735 Page 4
Notes: 1. Current accounts receivable claims and retentions (some of which are not due for release until early 2019) are being held by clients, pending the finalisation of the various projects in order to enable the consulting engineers to finalise the amounts that may be released to the Company. In all cases, there are funds left in the respective contracts and these funds will be utilised under each contract to finalise the works by others. Of the $57,410 achieved in debtor realisations to date, a sum of $56,030 was achieved during the administration period of 6 March 2018 to 18 April 2018 and thus, will not be reflected in the enclosed account of receipts and payments. 2. A Water Corporation bond refund was recovered in the amount of $57,945. 3. In section 6.4 of my report to creditors of 10 April 2018, I identified a potential recovery from the Australian Taxation Office ( ATO ) integrated client account in relation to a credit in the amount of $158,905 as at the date of my appointment. Following recent correspondence with the ATO, it appears the credit amount was a misallocation of payments made by the Company and the amount is not available for recovery. 4. I have calculated employee entitlements as per the Company s records that differ slightly from what was reported by the Directors. 5. The NAB balance overdraft is the balance as of my appointment which is more accurate than reported by the Directors. 6. I have received several claims from creditors that are in excess to the figures listed in the Company s MYOB system, hence why my estimates are higher than those of the Directors. 7. The Directors are capped in the amounts they can receive as dividends as priority creditors and thus they rank as unsecured creditors for the remaining employee entitlements. 2.3. Investigations Undertaken to Date I am required to investigate the past affairs of the Company and report my findings to the Australian Securities & Investments Commission ( ASIC ). A report prepared pursuant to section 533 of the Act was forwarded to ASIC on 9 May 2018 detailing my investigations into the affairs of the Company and possible offences committed by the Company s officers. A response was subsequently received from ASIC stating that they have decided not to commence an investigation into the matters raised in my report. I have set out below a summary of the investigations I have undertaken to date for the benefit of creditors. Duty to ensure books and records are maintained in accordance with the Corporations Act 2001 (Section 286) a company must keep written financial records that: a) correctly record and explain its transactions and financial position and performance, and b) would enable true and fair financial statements to be prepared and audited. I advise creditors that I have taken possession of the Company s hard copy and electronic books and records. The Company engaged the services of a bookkeeper to maintain a computerised MYOB accounting system. Furthermore, the Company utilised the services of an independent, external taxation accountant for the preparation of annual income tax returns and financial statements. This system enabled the Directors to ascertain an accurate perspective of the Company s financial position as required by the Act. It appears that the books and records comply with the requirements of the Act. Page 5
Insolvent transactions (Section 588FC) these are unfair preferences or uncommercial transactions entered into when a company was insolvent or became insolvent as a result of entering into the transaction. My investigations into this matter are set out below: Unfair preferences (Section 588FA) these are transactions where a company transacts with a creditor resulting in that creditor receiving more than the creditor would receive if the transaction were set aside and the creditor claimed the same amount in a liquidation. Unfair preferences paid a company within six months of the relation-back day (the day of the liquidator s appointment) are void against the liquidator. This timeframe is extended to four years should a related entity be a party to the transaction (s588fe(4)). My investigations have not indicated any material payments that would be considered preferential and therefore repayable to the Liquidator. Uncommercial transactions (Section 588FB) these are transactions entered into that a reasonable person would not have entered, having regard to the benefits and detriment to the company and to the other parties involved in the transaction. Uncommercial transactions entered into by a company are voidable against the Liquidator if they were entered into within two years of the relation-back day. My investigations have not indicated the presence of any uncommercial transactions. Unfair loans to a company (Section 588FD) these are loans made to a company where interest and other charges on the loan are extortionate. These transactions can be recovered regardless of when they were entered into as long as they were entered into on or before the winding up begun. My investigations have not revealed any unfair loans. Unreasonable director-related transactions (Section 588FDA) these are transactions entered into by a company and a director, close associate of a director, or person on behalf of a director, which a reasonable person would not have entered into. The transaction must be a payment by a company, the transfer of property by a company, or the incurrence of an obligation of a director s by a company. These transactions are voidable if they were entered into within four (4) years of the relation-back day. My investigations have not revealed any related party transactions. Transactions entered into for the purpose of defrauding Creditors (Section 588FE (5)) these are insolvent transactions entered into for the purpose of defeating, delaying or interfering with the rights of creditors and were entered into within a period of ten (10) years prior to the relation-back day. My investigations have not revealed any such transactions. Circulating Security Interest created within six months (Section 588FJ) where a circulating security interest is granted by a company within six months of the relation-back day, the security interest is void against the liquidator unless valuable consideration was given or the company was solvent at the time of granting of the circulating security interest. My search of the PPSR has not revealed any circulating security interests registered against the Company within six months of the relation-back day. Directors duty to prevent insolvent trading (Section 588G) a director of a company has a duty to prevent a company from incurring a debt when the company is insolvent or there are reasonable grounds to suspect that the company is or would become insolvent. A director would fail to fulfil that duty if the director was aware of the grounds for suspecting the company is or would become insolvent or a reasonable person in a like position would be aware of such grounds. Page 6
The defences available to a director are as follows; (i) (ii) (iii) (iv) The director had reasonable grounds to expect, and did expect, that the company was solvent and would remain so; or The director had reasonable grounds to believe, and did believe, that a competent and reliable person was providing adequate information to the Director and based on that information the director expected the company to be solvent and to remain so; or The director did not take part in the management of the company at the time due to illness or other good reason; or The director took reasonable steps to prevent the company from incurring the debt. I formed the preliminary view that the Directors may have traded whilst insolvent for a period of three to four months prior to my appointment as Administrator, because at the time transactions were entered into with creditors during this period, there were likely to be reasonable grounds to believe the Company may not have been able to pay its debts as and when they fell due. It appears the Company may have become insolvent in late 2017 following the accrual of liabilities with respect to trade creditor liabilities. Having said that, there are a number of indicators that suggest that the Directors may have had reasonable grounds to expect that the Company was solvent during these times: Employee superannuation was not in arrears when the Administration commenced and a number of superannuation payments were noted in the records for December 2017 quarter superannuation and even the months of January and February 2018 Taxation liabilities were not significant The Company s overdraft banking facility was operating within its allowable limits The Company was being supported my two related entities in respect of rent and plant hire charges My view therefore is that the Directors may have valid defences to insolvent trading actions which would make recovery efforts challenging, costly and time consuming. Following discussions at the two meetings of creditors conducted in this external administration to date, I am aware of the views of some creditors of the Company that insolvent trading offences have occurred in their opinion; however, given the above, my view is that an insolvent trading recovery action would lack commercial merit. Creditors can be empowered under sections 588M and 588R of the Act to commence recovery proceedings against the Directors for compensation resulting from insolvent trading. If a creditor desires to commence such an action, I request that they make contact with my office. 2.4. Explanation of Difficulties and Causes of Demise of the Company As outlined in my report to creditors of 10 April 2018, both Directors of the Company have supplied me with the same commentary as to the causes of the demise of the Company. I have again set out below their responses to various questions put to them in their Directors questionnaires. When did you first realise that the Company might have to go into external administration? Friday, 2 March 2018 What caused you to realise this? Contracts not starting on time Work in pipeline delayed by developers Page 7
What did you do as a result? Meeting with our accountants to discuss solvency status We were unable to downsize or restructure due to high amount of employee entitlements What do you consider were the causes of the failure of the Company? Poor economy Work delay Lack of work Increased competition It would appear from the above responses from the Directors, my discussions with them and former employees and my review of the records of the Company, that the Company did experience delays in the commencement of new contract works. The holding costs of waiting for the new works to start placed cash flow pressure on the Company, resulting in the accrual of trade creditor liabilities. It is my opinion therefore that the Directors reasons for the cause of failure of the Company are accurate. The local construction industry in Perth has experienced several recent and well publicised construction business insolvencies in which tight margins and delays in the commencement of new works have also been cited as causes of financial distress. 2.5. Further Investigations to be Undertaken There are no investigatory matters that remain outstanding as at the date of this report to creditors. 3. Receipts and Payments Attached at Appendix A are details of all receipts and payments in the liquidation to date. 4. Likelihood of a Dividend The Act specifies that if there are funds left over after the payment of the costs of the liquidation, the Liquidator will pay these to creditors as a dividend. Generally, the order in which funds are distributed are as follows: 1. Costs and expenses of the liquidation, including Liquidator s approved fees; 2. Outstanding employee wages and superannuation (equal ranking); 3. Outstanding employee leave of absence payments including annual leave, sick leave (if applicable) and long service leave; 4. Employee retrenchment pay (redundancy payments or pay in lieu of notice as the case may be); and 5. Ordinary unsecured creditors. Each category is paid in full before the next category is paid. If there are insufficient funds to pay a category in full, the available funds are paid on a pro-rata basis. The next category or categories will not receive a dividend. The likelihood of a dividend being paid to creditors will be affected by a number of factors including: the size and complexity of the liquidation the amount of assets realisable and the costs of realising those assets the statutory priority of certain claims and costs the value of various classes of claims including secured, priority and unsecured creditor claims the volume of enquiries by creditors and other stakeholders Page 8
Accordingly, given the asset position of the Company and the costs involved with the administration and liquidation of the Company, I anticipate that, at best, priority creditors will receive a full return in respect of their wage, superannuation and leave of absence entitlements and a partial return in respect of termination entitlements. Any funds remaining will then be paid to the secured creditor National Australia Bank ( NAB ). In addition, in the event that the accounts receivable, retention amounts and other recoverable amounts are not realised in full, there may be a lesser or no dividend to priority creditors. Low return High return Estimated realisable assets per section 2.2 above $207,945 $307,645 LESS administrator s and liquidator s remuneration ($152,431) ($152,431) Net assets for distribution to creditors $147,569 $155,214 Amount of priority Dividend rate Dividend rate entitlement $ available / cents in the dollar $ available / cents in the dollar Wages and superannuation (section 556(1)(e)) $15,500 $15,500 (100c/$) $15,500 (100c/$) Leave of absence (section 556(1)(g)) $109,629 $40,014 (36c/$) $109,629 (100c/$) Termination (section 556(1)(h)) $314,651 No dividend $189,290 (16 c/$) Unsecured creditors are unlikely to receive a dividend. Thus, I respectfully ask that you consider writing the debt off. If this position changes, I will advise creditors via future circulars. 5. Costs of the Liquidation My remuneration was approved by creditors in the amount of $80,000.00 for the conduct of this liquidation. I have set out below a summary of the resolutions that were approved by creditors, including those for the voluntary administration of the Company which preceded the liquidation: Remuneration Amount (Exc GST) Remuneration approvals: From 6 March 2018 to 8 April 2018 administration $57,431.00 From 9 April 2018 to 18 April 2018 administration $15,000.00 From 19 April 2018 to finalisation liquidation $80,000.00 Total remuneration sought $152,431.00 6. What Happens Next? I will proceed with the liquidation, including: Realising the remaining assets Arranging the distribution of dividends (if any) Finalisation of the liquidation I may write to you again with further information on the progress of the liquidation. I expect to have completed this liquidation within the next eighteen months due to expiry of some retention amounts in the future. Page 9
7. Where Can You Get More Information? You can access information which may assist you on the following websites: ARITA at www.arita.com.au/creditors ASIC at www.asic.gov.au (search for insolvency information sheets ) You can contact my office and speak with Dilyana Panova on (08) 9215 7904 or via email on dpanova@hlbinsol.com. There is also information about this liquidation on my firm s website: http://www.hlbinsolvencywa.com.au/. Yours faithfully, Kim Wallman Liquidator of Wolfe Civil Pty Ltd (In Liquidation) ACN 097 157 947 Page 10
Annexure A Page 1 of 1 Wolfe Civil Pty Ltd (In Liquidation) ACN: 097 157 947 Liquidator s Account of Receipts and Payments 18 April 2018 to 16 July 2018 Liquidator s Opening Balance (Transferred from VA account) 4,747 Receipts Water Corporation Bond Refund 57,945 Department of Jobs and Small Business Verification Works 7,854 Pre-appointment Debtor 1,380 ATO BAS Refund 64 Total 67,243 Payments Administrator s Remuneration 30,896 Liquidator s Remuneration 10,334 Liquidator s Disbursements 4,854 Administrator s Disbursements 432 Bank Charges 52 Total 46,568 Cash Balance 25,422 $