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Administrators’ report
20 November 2018
Administrators:
David McEvoy and Martin Ford
Tasman Market Fresh Meats Pty Ltd
ACN 164 501 133
TMFM Holdings Pty Ltd
ACN 156 377 392
(both Administrators Appointed)
20 November 2018
Table of contents
Glossary 1
1 Disclaimer 3
2 Executive summary 4
3 Introduction 7
4 Companies’ background 10
5 Conduct of administrations 18
6 Financial background of the Companies 20
7 Investigations 29
8 Offences and liquidation recoveries 36
9 Deed of Company Arrangement (DOCA) 42
10 Estimated return to creditors 43
11 Administrators’ recommendation 46
12 Enquiries 48
Appendices 49
Appendix A – Appointment of Proxy, Proof of Debt or Claim Form – Form 532 50
Appendix B – Remuneration Approval Report dated 20 November 2018 51
Appendix C – Declaration of Independence, Relevant Relationships and Indemnities 52
Appendix D – Notice of meeting of creditors 53
Appendix E – ASIC Publication: Insolvency information for directors, employees, creditors and shareholders 54
Appendix F – Details of identified secured creditors 55
Appendix G – ARITA Publication: Creditor information sheet: Offences, recoverable transactions and insolvent trading 56
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Glossary Abbreviations Definitions
Act Corporations Act 2001 (Cth)
Administrators David McEvoy and Martin Ford of PwC Australia as joint and several Administrators
AEDST Australian Eastern Daylight Savings Time
AEST Australian Eastern Standard Time
APAAP All present and after-acquired property, a term associated with security interests under
the PPSA
ARITA Australian Restructuring Insolvency and Turnaround Association. ARITA was formerly
the Insolvency Practitioners Association of Australia.
ASIC Australian Securities and Investments Commission
ASX Australian Securities Exchange
ATO Australian Taxation Office
Code ARITA Code of Professional Practice
COI Committee of Inspection
Companies Tasman Market Fresh Meats Pty Ltd and TMFM Holdings Pty Ltd (both Administrators
Appointed) (Collectively referred to as the Companies)
D&O Policy Directors and Officers Insurance Policy
DOCA Deed of Company Arrangement
DJSB Department of Jobs and Small Business
DIRRI Declaration of Independence, Relevant Relationships and Indemnities, pursuant to
s436DA of the Act and Code.
FEG Fair Entitlements Guarantee, a scheme administered by the DE to provide assistance to
employees owed employee entitlements following the insolvency/bankruptcy of an
employer
FY Financial Year (e.g. the financial year 1 July 2012 to 30 June 2013 would be expressed
as FY13)
Group Tasman Market Fresh Meats Pty Ltd and TMFM Holdings Pty Ltd (both Administrators
Appointed) (Collectively referred to as the Group)
HY Half Year (e.g. the half financial year 1 July 2013 to 31 December 2013 would be
expressed as HY13)
k Thousand
M Million
PMSI Personal Money Security Interest as defined in the PPSA
PPSA Personal Property Security Act 2009 (Cth)
2
Abbreviations Definitions
PPSR Personal Property Securities Register – a register set up under the PPSA for the
registration of security interests
PwC PricewaterhouseCoopers Australia. “PricewaterhouseCoopers” refers to
PricewaterhouseCoopers, a partnership formed in Australia which is a member firm of
PricewaterhouseCoopers International Limited, each of which is a separate legal entity.
RATA Report As To Affairs
Report This report, prepared pursuant to Insolvency Practice Rule 75-225 of the Act about the
business, property, affairs and financial circumstances of the Companies
s Section of the Act
Second Meeting Meeting held pursuant to s439A of the Act where creditors determine the future of the
Companies, scheduled for 29 November 2018 at 10:30AM AEDST
YTD Year to date, a period starting from the beginning of the current financial year and
continuing up to a defined date (e.g. monthly management accounts from 1 July 2013 to
31 January 2014 would be expressed as ‘YTD January 2014’
Given the variation in dates that the Group uses for reporting purposes, for ease of reference we have included the relevant date ranges that are referenced throughout the report:
Abbreviation Relevant date
FY16 29 June 2015 to 26 June 2016
FY17 27 June 2016 to 25 June 2017
FY18 28 June 2017 to 27 June 2018
YTD FY19 28 June 2018 to 19 August 2018
EOM February Month ending 18 February 2018
EOM March Month ending 25 March 2018
EOM April Month ending 22 April 2018
EOM May Month ending 27 May 2018
EOM June Month ending 24 June 2018
EOM July Month ending 22 July 2018
EOM August Month ending 19 August 2018
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1 Disclaimer In reviewing this Report, creditors should note:
This Report is based upon our investigations to date. Any material issues that are identified subsequent to issuing this Report may be the subject of a further written report and/or tabled at the Second Meeting.
The contents of this Report are based on information obtained from the Companies’ books and records, financial systems, representations from the directors, management and our own enquiries and investigations.
The statements and opinions given in this Report are given in good faith and in the belief that such statements and opinions are not false or misleading. Except where otherwise stated, we reserve the right to alter any conclusions reached on the basis of any amended or additional information which may be provided to us between the date of this Report and the date of the Second Meeting.
In considering the options available to creditors and formulating our recommendation, the Administrators have necessarily made forecasts of asset realisations and total creditor claims. These forecasts and estimates may change as asset realisations progress and claims are received from creditors. While the forecasts and estimates are based on the Administrators’ best assessment in the circumstances, creditors should note that the eventual outcome for creditors may differ from that estimated in this Report.
Neither the Administrators, PwC nor any member or employee of the firm is responsible in any
way whatsoever to any person in respect of any errors in this Report arising from incorrect information provided to us.
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 of the information presented 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 of the Companies and must not be disclosed without the prior approval of the Administrators.
Creditors should consider seeking their own independent legal advice as to their rights and the options available to them at the Second Meeting.
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2 Executive summary 2.1 Appointment background
David McEvoy and Martin Ford were appointed joint and several Administrators (Administrators) of the Companies on 7 September 2018 by the directors under s436A of the Act.
2.2 Report’s purpose
The purpose of this report is to table the findings of our investigations into the Companies’ business, property, affairs and financial circumstances, as well as our opinion on the three options available to creditors in deciding the future of each of the Companies.
The majority of this Report has been prepared on a consolidated basis. TMFM Holdings Pty Ltd (Administrators Appointed) (TMFMH) is a holding company which only has two creditors (one secured creditor and the auditor) and was not the employing entity. Therefore, most information herein relates to the trading entity, Tasman Market Fresh Meats Pty Ltd (Administrators Appointed) (Tasman), however specific disclosures will be made where this is not the case.
2.3 Administrators’ recommendation
We recommend that it is in the creditors’ interests that the Companies be wound up (i.e. placed into liquidation).
2.4 Second meeting of creditors
The Second meeting of creditors (Second Meeting) will be held concurrently on:
Date: 29 November 2018
Registration: 10:00 am AEDST
Meeting time: 10:30 am AEDST
Location Chartered Accountants Australia and New Zealand
Level 18, 600 Bourke Street
The meetings will be held concurrently, with separate resolutions proposed for each of the Companies as required. To register attendance and be entitled to vote at the Second Meeting, creditors must complete and submit the following forms attached at Appendix A:
Form 532 – Appointment of Proxy
Proof of Debt form for the relevant company.
Forms must be submitted by no later than 5:00pm AEDST on 27 November 2018 to this office or by email to [email protected].
2.5 Deed of Company Arrangement
We have not received any Deed of Company Arrangement (DOCA) proposals for the Companies and therefore the option for creditors to vote on a DOCA proposal is currently unavailable.
2.6 Estimated return to creditors
Based on presently available information, we estimate that creditors’ returns will be:
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Creditor type Liquidation
Cents in the dollar
Secured creditors 16.9
Employees 91.9
Unsecured creditors Nil
2.7 Offences and liquidation recoveries
Our preliminary view is that the Companies became insolvent, or were likely to become insolvent, on or about 5 September 2018, being the date on which it became apparent that the Companies would not be able to source the funding required to effect a planned restructure, which was necessary to restore profitability, reduce debt and enable the Companies to continue to meet their debts as and when they fell due going forward.
As the directors immediately took steps to appoint administrators following that point, and given the likelihood of the directors qualifying for a safe harbour defence in any event, we consider it is unlikely that there is a proper basis for pursuing an insolvent trading claim against the directors. In addition, we have not identified any potential offences in the course of our investigation to date.
Should a liquidator be appointed, further investigations would be conducted concerning:
whether there is any basis for establishing an earlier date of insolvency
if the liquidators form the view that the Companies became insolvent on a date prior to 5 September 2018, whether any payments made or other transactions entered into prior to our appointment might constitute voidable transactions such as preference payments
trading decisions made by the Companies in the lead up to the appointment of administrators.
2.8 Administrators’ overview
2.8.1 Conduct of administration
Since our appointment we have:
pursued a sale of the business, as a whole and on a store-by-store basis, to preserve jobs and minimise employee entitlement liabilities, and maximise the value achieved for the Companies’ assets
continued to trade the majority of the business on a “business as usual” basis to support the goal of selling the business as a going concern
conducted investigations into the affairs of the Companies and reported to creditors
undertaken various statutory reporting obligations
We have accepted three separate offers resulting in the sale of 14 of the 17 stores. The sales completed on 29 October 2018 (1 store), 2 November 2018 (4 stores) and 14 November 2018 (9 stores) respectively.
2.8.2 Companies’ financial background
The Companies had been trading at a loss since FY16, and YTD August 2018 they were reporting an unaudited EBITDA loss of c$216k.
Higher input costs for product purchases and other cost items, particularly utilities and rent, were impacting upon EBITDA.
Much of the reported value on the balance sheet is derived from intangibles and leasehold improvements, which are difficult to extract value from in an Administration scenario.
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2.8.3 Reasons for Companies’ difficulties
The Companies’ difficulties arose largely as a result of:
increasing input prices and rising operational costs
increased competition in the sector, particularly driven by supermarkets
loss-making regional stores and the inability to exit those leases or reduce rents
an over-leveraged balance sheet
an inability to attract fresh capital to implement a turnaround plan
2.9 Remuneration
We are seeking approval for our remuneration at the Second Meeting as summarised below:
Period Amount (excluding GST)
($)
Tasman Market Fresh Meats Pty Ltd (Administrators Appointed)
Voluntary Administration
Resolution 1: 7 September 2018 to 15 November 2018*
793,493.00
Resolution 2: 16 November 2018 to 29 November 2018 45,000.00
Liquidation (if applicable)
Resolution 3: 29 November 2018 to the conclusion of the liquidation
90,000.00
TMFM Holdings Pty Ltd (Administrators Appointed)
Voluntary Administration
Resolution 1: 7 September 2018 to 15 November 2018
7,798.50
Resolution 2: 16 November 2018 to 29 November 2018 5,000.00
Liquidation (if applicable)
Resolution 3: 29 November 2018 to the conclusion of the liquidation
10,000.00
*Actual time charges for the period 7 September 2018 to 15 November 2018 totalled $893,943.00, however, we are seeking remuneration approval for $793,493.00, a discount of $100,000 Prospective Liquidators’ remuneration will not be sought if creditors elect to form a Committee of Inspection (COI).
Please refer to our Remuneration Approval Reports at Appendix B for full details of key activities undertaken by us, our partners and staff and the remuneration approval sought.
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3 Introduction 3.1 Appointment information
David McEvoy and Martin Ford were appointed joint and several Administrators of the Companies on 7 September 2018 by the directors under s436A of the Act.
3.2 Declaration of Independence, Relevant Relationships and Indemnities
Our Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) is provided at Appendix C. The DIRRI discloses information regarding any prior personal or professional relationships the Administrators and PwC had with the Companies or related parties, our independence and any indemnities received relating to this appointment.
3.3 Report’s purpose
An administrator is required to investigate a company’s business, property, affairs and financial circumstances and report to creditors on:
the administrator’s opinion on the options available to creditors, being that the:
- company be wound up (liquidation)
- company execute a DOCA
- administration should end (with control of the company reverting to the company’s directors)
This report is based on our investigations to date. Any additional issues we identify subsequent to this Report may be the subject of a further written report and/or tabled at the Second Meeting.
The majority of information in this Report has been prepared on a consolidated basis:
due to the interdependent relationship of the companies within the Group and how management and the directors present and review financial information (i.e. on a consolidated basis)
to enable stakeholders to appreciate and understand the businesses, operations, financial affairs and our investigations of the Group as a whole.
TMFMH is the holding company and only has two creditors (one secured creditor and the auditor) and was not the employing entity. Therefore, the majority of information herein relates to the trading company, Tasman, however specific disclosures will be made where this is not the case.
3.4 Purpose of Second Meeting
The Second Meeting will:
address the contents of this Report
respond to questions from creditors
determine the Companies’ future by resolving one of the three available options
seek approval of:
- administrators’ remuneration
- future remuneration of the liquidators or deed administrators (as applicable)
- should creditors desire, the formation of a Committee of Inspection (COI)
The current Administrators automatically become the Liquidators unless creditors resolve to replace them.
The options available to creditors and the Administrators’ opinion on each option are set out in detail in Section 11. We recommend that the Companies be wound up.
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3.5 Second meeting convening period
On 3 October 2018, we made an application to the Court to extend the convening period for a period of 60 days. Following our application, the Court made various orders including:
1. Extending the convening period of each of the Companies to 7 December 2018
2. The Second Meeting may be held at any time during the period comprised of the convening period as extended to 7 December 2018 and the period of 5 business days thereafter.
At the Second Meeting, creditors can consider whether the Second Meeting be adjourned to enable further investigations to be conducted and/or to consider their position. If adjourned, the Second Meeting must be reconvened within 45 business days of the Second Meeting date.
3.6 Second meeting details
The Second Meeting will be held on 29 November 2018 at 10:30 am AEDST. Formal notification Form 529 – Notice of Meeting of Creditors is attached at Appendix D.
3.7 Meeting registration
To register attendance and be entitled to vote at the Second Meeting, creditors must complete and submit the following forms attached at Appendix A:
Registration forms Information
Form 532 –
Appointment of Proxy
A new proxy form is required to be completed for each creditors’ meeting (i.e.
previous meeting proxy forms are invalid for the Second Meeting).
If a corporate creditor wants to be represented at the Second Meeting, it must
appoint an individual to act on its behalf by providing an executed proxy form.
Individuals may choose to appoint a representative to vote on their behalf by
executing a proxy form. If an individual is attending in person a proxy form is not
required.
Proof of Debt or Claim
Form
This form is required to be completed to entitle a creditor to vote at the Second
Meeting. Documents to support the amount claimed (e.g. unpaid invoices) must
also be provided.
There is no requirement to resubmit a proof of debt form if previously provided
unless the amount claimed has changed.
Please take care when completing the form to ensure the correct party is named as
the creditor. As an example, this may include XYZ Pty Ltd as trustee for the ABC
Family Superannuation Fund.
Only creditors of the Companies are entitled to vote at the Second Meeting.
Creditors are encouraged to arrive as early as possible after the registration time to enable the orderly registration of attendees so that the meeting can commence on time.
3.8 Committee of Inspection (COI)
Existing COI
To date the COI has met twice by teleconference during the course of the Administration. Minutes from these meetings have been lodged with ASIC.
COI post Administration
Creditors may wish to establish a COI at the Second Meeting, typically to assist and guide the liquidator or deed administrator (as applicable). A minimum of two members is required to form a COI.
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Creditors should consider whether they are in a position to be a COI member, as membership of a COI requires attendance at meetings (telephone facilities will be made available so members do not have to attend in person). Members of the COI must have regard for the creditor group’s interest, not their own interests.
Importantly, for a creditor to be eligible for appointment as a member of a COI, they must either:
be in attendance at the Second Meeting
appoint a general power of attorney to attend the Second Meeting on their behalf
authorise a person in writing to be a member of the COI on their behalf.
3.9 Further information
To assist creditors, employees, and shareholders to understand the voluntary administration process, the Australian Securities and Investments Commission (ASIC) has released a package of insolvency information sheets endorsed by ARITA.
Enclosed at Appendix E is ASIC’s publication “Insolvency information for directors, employees, creditors and shareholders”, which provides an index of all the information sheets that are available. These information sheets can be downloaded from:
www.asic.gov.au
www.arita.com.au
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4 Companies’ background 4.1 Overview
The Companies comprise Tasman (the trading company) and TMFMH (the holding company).
Tasman is a large format butcher with over 30 years’ experience operating as an independent meat retailer. Tasman generated over $100m in revenue in FY18 through a network of 17 stores across metropolitan Melbourne and regional Victoria.
Tasman employed approximately 300 employees across its store network, head office and distribution centre, with approximately 150 employed full time and a similar number of casuals. It operated from leasehold premises located across metropolitan Melbourne, Geelong, Shepparton and Traralgon.
Information regarding the Companies’ financial background is included in Section 6.
4.2 Group structure
A diagram of the Group’s structure at appointment date is provided below.
4.3 Recent events
Prior to our appointment, the Companies had undertaken a strategic review and were exploring a number of restructuring initiatives to improve the balance sheet position and operational and financial performance. These initiatives included:
approaching landlords to exit unprofitable stores
seeking fresh equity / capital injection
seeking a restructure of debt obligations with the secured creditor
development and implementation of an operational turnaround plan.
These initiatives were largely inter-dependent, and the Companies were ultimately unable to successfully complete each initiative.
Outlined below is a brief timeline of key recent events in the Companies’ history.
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- 28 September 2017 - The Companies’ lender agreed to provide relief from debt amortisation commitments for the September 2017 and December 2017 quarters
- 23 October 2017 – The Companies’ engaged Collins Pitt Associates to provide advisory services, specifically to conduct negotiations with landlords on uncommercial leases
- April 2018 – The Companies’ directors sought Safe Harbour advice from their legal advisors
- 10 April 2018 – PPB Advisory was engaged by the Companies’ to provide restructuring analysis
- 3 May 2018 – The Companies’ lender agreed to provide further relief from debt amortisation commitments for the March 2018 quarter
- 8 June 2018– PPB Advisory was engaged by the Companies to conduct further restructuring analysis
- June/July 2018 – The Companies were in discussions with a prospective equity investor who conducted due diligence on a potential investment
- 28 June 2018 – The Companies presented an options paper and restructuring proposal to their lender
- 24 July 2018 - The Companies’ lender agreed to accept a discounted settlement of the Companies’ debt facilities based on the proposed restructuring plan, which was subject to a number of conditions precedent and inter-dependent variables, critical among which was the need to raise fresh equity of c $3.5m
- 14 August, 2018 – The prospective investor advised the Companies that they would not be proceeding with an equity investment
- August/September 2018 – The Companies were in discussions with various other parties to procure an equity injection to fund the restructuring plan
- 5 September 2018 – The Companies’ directors determined that all options to raise equity had been exhausted and that it would not be possible to fund the proposed restructure
4.4 Statutory information
A search of ASIC’s database notes the following details for the Companies and their directors, other officers and shareholders.
4.4.1 Tasman
Company details
Date of incorporation 26 June 2013
Registered office Level 1, 25 Ross Street
South Melbourne VIC 3205
Principal place of business Level 1, 25 Ross Street
South Melbourne VIC 3205
Directors’ details Appointment from/to
Rajeev Dhawan 4 December 2015 – current
Jason Rosenblatt 15 August 2014 – current
Secretary’s details Appointment from/to
Alessandro Micari 26 June 2013 - current
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Shareholders Shareholding details
TMFM Holdings Pty Ltd 1,000 fully paid ordinary shares, held beneficially (total amount paid $2.00).
Source: ASIC
4.4.2 TMFMH
Company details
Date of incorporation 20 March 2012 (note previous name was “Cascadium Pty Ltd” from incorporation until 25 July 2013)
Registered office Level 1, 25 Ross Street
South Melbourne VIC 3205
Principal place of business Level 1, 25 Ross Street
South Melbourne VIC 3205
Directors’ details Appointment from/to
Rajeev Dhawan 26 July 2013 – current
Jason Rosenblatt 15 August 2014 – current
Secretary’s details Appointment from/to
Alessandro Micari 26 June 2013 - current
No. Holder name Total shares held % of shares held
1 Equity Partners Fund No 3 Limited Partnership LP 97,736,648 42.9
2 Crescent Tasman Singapore Pte Ltd 30,060,670 13.2
3 Equity Partners No. 3 Limited Partnership LP 23,443,422 10.3
4 Equity Partners 3 GP Pty Ltd 21,801,776 9.6
5 Equity Partners 3B Pty Ltd 15,573,830 6.8
6 Equity Partners 3A Pty Ltd 15,169,252 6.7
7 Amaleon Investments Pty Ltd 6,711,111 2.9
8 Tinardi Capital Pty Ltd 2,858,104 1.3
9 Jamesdale Investments Pty Ltd 2,450,486 1.1
10 Testa Pty Ltd 2,321,861 1.0
11 Fluorescent Pty Ltd 2,171,926 1.0
12 XBM Investments Pty Ltd 2,171,926 1.0
13 Esteves Nominees Pty Ltd 1,537,963 0.7
14 Kenneth Board 1,537,963 0.7
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No. Holder name Total shares held % of shares held
15 JL Stevens Investments Pty Ltd 946,581 0.4
16 Board Investments Pty Ltd 456,262 0.2
17 Santra Nominees Pty Ltd 339,682 0.1
18 A & S Hirst Pty Ltd 325,901 0.1
19 Goodman Pearson Investments Pty Ltd 300,000 0.1
20 Chris McIntyre 162,951 0.1
228,078,315 100.0
Source: ASIC
The above list of shareholders has been extracted from ASIC’s records.
4.5 Creditors’ claims
4.5.1 Tasman
At our appointment date, the claims of Tasman’s creditors totalled ~$22.7m. The following table summarises estimated claims by each known class of creditor.
Creditor class Number of creditors Amount ($’000)
Secured creditors
Circulating and non-circulating 21 12,536
Employee entitlements
Priority creditors 341 1,297
Excluded employee entitlements (unsecured
creditors) - -
Unsecured creditors
Trade/External creditors 165 7,057
Related entitles 1 1,793
Total creditor claims 520 22,683
These claims may be subject to change.
These amounts have been derived from the:
Report as to Affairs (RATA) provided by the directors (Section 6.3)
Companies’ books and records
formal proof of debt or claim forms submitted by creditors.
4.5.2 TMFMH
At our appointment date, the claims of the TMFMH creditors totalled $12.36m. The following table summarises estimated claims by each known class of creditor.
Creditor class Number of creditors Amount ($’000)
Secured creditors
Circulating and non-circulating 1 12,356
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Creditor class Number of creditors Amount ($’000)
Employee entitlements
Priority creditors - -
Excluded employee entitlements (unsecured
creditors) - -
Unsecured creditors
Trade/External creditors 1 6
Related entitles - -
Total creditor claims 2 12,362
These claims may be subject to change.
These amounts have been derived from the:
RATA provided by the directors (Section 6.3)
Companies’ books and records
formal proof of debt or claim forms submitted by creditors.
4.5.3 Secured creditors
A ‘secured creditor’ is a creditor that holds a security interest over some or all of a company’s assets. To be enforceable in an external administration context, the security interest must generally be registered on the Personal Property Securities Register (PPSR) or, in the case of land and buildings, at the relevant Land Titles Office. Security interests can be over:
circulating assets (formerly known as ‘floating’ assets) e.g. debtors, stock and cash
non-circulating assets (formerly known as ‘fixed’ assets) e.g. property, plant and equipment, land and goodwill.
Searches of the PPSR and the Victorian Land Titles Office conducted at the date of our appointment show that 26 security interests were registered by a total of 19 secured creditors across the Companies. At the date of this Report, fourteen registrations have been discharged and two claims have been settled.
A summary of the security interests registered over the Companies’ assets is shown below.
Creditor class Number of creditors No. of security interest(s) Amount ($)
APAAP* 2 3 12,356,198
Motor vehicle(s)** 3 4 -
Other goods 16 19 179,926
Total creditor claims 21 26 12,536,124
* All present and after-acquired property – no exceptions (APAAP)
**Motor vehicles are novated leases, with no debt currently payable
The indicated values have been derived from the Companies’ books and records, creditor claims and pay-out figures for leased assets. These are subject to change.
These security interests comprise:
general security interests over all, or substantially all, of the assets of the Companies (APAAP registrations); and
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specific security interests (including claims of other secured parties over specific assets or classes of assets such as leased vehicles or goods supplied).
The APAAP holder is ANZ Banking Corporation (ANZ), in respect of various facilities. In accordance with the security agreements, there is a deed of cross-guarantee in place meaning that ANZ has a secured claim against Tasman to the extent of any shortfall from the realisations of TMFMH’s assets.
The Administrators have not completed an assessment of the validity of each remaining PPSR registration, and the above information is provided for illustrative purposes only at this point.
Full details of secured creditors are provided at Appendix F.
4.5.4 Employees
Outstanding employee entitlements have a statutory priority for payment over other creditors (except from the proceeds of non-circulating asset realisations).
Upon our appointment, wages were outstanding for the period 3 September 2018 to 6 September 2018. Those wages were paid in full shortly after our appointment. Further, superannuation on wages for the same period has also been remitted by the Administrators.
Superannuation totalling $229,141 is outstanding for the period 1 July 2018 to 2 September 2018, however that does not include any Superannuation Guarantee Charge (SGC) which may be payable to the Australian Taxation Office (ATO). This information will be provided by the ATO in due course.
The table below details all known employee entitlements as at 4 November 2018.
The table accounts for Payment in Lieu of Notice (PILN) and redundancy for those employees who have been terminated due to closure of the Rosebud, Bendigo and Brooklyn stores (where their roles were not transferred to other stores) or who were not offered continuity of employment by the purchasers of the business. Calculations have been based on the relevant contract or award for each employee, taking into consideration the National Employment Standards (NES).
Entitlements Total Amount ($’000)
Wages -
Superannuation 229
Annual leave 212
Long service leave 151
PILN 285
Redundancy 420
Total Priority Creditors 1,297
Excluded Employee Entitlements -
Total Priority Employee Entitlements 1,297
Leave entitlements of employees who have transferred as the result of a sale of business have been assumed by the relevant purchasers.
4.5.5 Excluded employees
Excluded employees are defined in the Act as directors and their spouses or relatives (s556(2)).
Outstanding priority employee entitlements for excluded employees are limited to $2,000 for wages (including superannuation) and $1,500 for unpaid annual leave and long service leave. The balance of their entitlements ranks as an unsecured claim (s556(1A) and (1B)) of the Act.
We are not aware of any excluded employees.
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4.5.6 Fair Entitlements Guarantee (FEG)
In the event Tasman is placed into liquidation and there are insufficient funds to pay employee entitlements in full, employees may be eligible for payment of any shortfall in their entitlements (excluding superannuation) under FEG which is administered by the Department of Jobs and Small Business (DJSB).
Employees must meet eligibility requirements outlined in the Fair Entitlements Guarantee Act 2012.
FEG advances are repaid to the Government if and when funds become available, in the same priority as employees’ claims.
Further information can be found on FEG’s website at http://employment.gov.au/fair-entitlements-guarantee-feg.
4.6 Unsecured Creditors
4.6.1 Tasman
As at 19 August 2018 (the Companies’ last reporting period prior to our appointment) the claims of Tasman’s unsecured creditors totalled $9m as follows:
Creditor class No of creditors Company records
($’000s)
Trade/External creditors 165 7,057
Related entities 1 1,793
Total creditor claims 166 8,850
These figures are derived from the Companies’ books and records.
Tasman’s top 10 unsecured creditors in value are:
No. Creditor Amount per company records
($’000s)
1 M C Herd Pty Ltd 613
2 Inghams Enterprises Pty Ltd 539
3 GF & VC Hardwick 483
4 G & B Gathercole Pty Ltd 377
5 Origin Energy Electricity Ltd 321
6 Melrina Victoria 315
7 Westside Meat Pty Ltd 255
8 PJ Meats Pty Ltd 240
9 PMP Digital 232
10 Australian Lamb Co. P/L 203
Total of top 10 3,578
Total unsecured creditors 7,057
% of total unsecured claims 50.7%
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4.6.2 TMFMH
From the Companies’ records, we are only aware of one unsecured creditor of TMFMH at the date of our appointment, as follows:
No. Creditor Amount per company records
($)
1 Grant Thornton Audit Pty Ltd 5,675.42
4.7 Related entities
We are not aware of any related party creditors of TMFMH.
According to the Companies’ books and records there is one related entity creditor in Tasman as follows:
Related party creditor Amount per company records
($)
TMFMH 1,793,483
We are not aware of any other related entity creditors.
The above related entity claim has not been verified or adjudicated upon. Based on our preliminary review of the Companies’ books and records, this claim appears to have arisen from an intercompany loan account between the Companies for the loan facility which TMFMH holds with ANZ.
Our understanding of the make-up of this loan account is that TMFMH credits its related party loan account with Tasman for a proportion of costs, including interest and fees. We understand this arrangement has been in place since August 2013.
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5 Conduct of administrations 5.1 First meeting of creditors
The first meeting of creditors of the Companies was held concurrently on 19 September 2018 (First Meeting), pursuant to s436E of the Act.
Creditors at the meeting resolved that a COI be formed for Tasman comprising:
Representative names Representing
David Moss Ingham Enterprises Pty Ltd
Paul Papa PJ Meats Pty Ltd
Pietro Failli Westside Meat Pty Ltd
Justin Gathercole G & B Gathercole Pty Ltd
James Hardwick GF & VC Hardwick
COI meetings were held on 27 September and 25 October 2018 to discuss the administration status and our investigations to date.
At the First Meeting of Creditors, the Chairperson advised the meeting that members of the COI included current suppliers. Accordingly, in order to address the issues of Insolvency Practice Schedule (IPS) 80-55 and ensure that normal arms-length transactions did not result in any breaches, the Chairperson proposed a resolution, permitting arms-length transactions in the ordinary course with members of the COI and Tasman or its creditors. This resolution was passed by the creditors.
A COI was not formed for TMFMH.
A copy of the First Meeting minutes may be obtained from ASIC’s website.
5.2 Key conduct of the Administrators
The key conduct of the Administrators to date has been to:
urgently pursue the sale of the business, as a whole or on a store-by-store basis, to preserve jobs, minimise employee entitlement liabilities, enable as much as possible of the business to continue and to realise maximum funds from asset realisations
manage the continuation of trading on a “business as usual” basis while undertaking the sale process
conduct investigations into the affairs of the Companies and report to creditors
undertake various statutory reporting obligations.
5.2.1 Continued trading
The Companies continued to trade during our appointment in order to:
preserve going concern value while the sale of business program is undertaken
provide continuity of employment for the majority of staff
provide ongoing business for existing suppliers/creditors
We ceased trading on 14 November 2018, coinciding with effective completion of the sale of the remaining nine stores.
Sales since our appointment have totalled $14.2m to 11 November 2018, which has been broadly in-line with the run-rate for the period leading into our appointment. We ceased trading at two stores (Rosebud and Bendigo) on 10 September 2018, which were identified as being unprofitable.
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For the Administration to date we have paid a total of $9.1 m to suppliers for stock purchases and $2.4m to employees for wages and superannuation.
A summary of the key tasks undertaken by the Administrators is set out below:
identified and preserved critical supplier relations to secure ongoing stock supply
prepared rolling short-term cash flow forecasts and managed the cashflow of the Companies on a daily basis, including coordinating and verifying payments to suppliers
managed day to day operations, including overseeing stock purchasing and implementing controls
inspected a number of the stores to meet with employees and review business operations
met compliance obligations
dealt with PPSA issues.
5.2.2 Sale of business campaign
We undertook an expedited campaign for the purpose of pursuing a going concern sale. As part of that process we attended to the following tasks:
placed an advertisement requesting urgent expressions of interest in “The Australian Financial Review” on 12 September 2018, seeking non-binding indicative offers by 17 September 2018
contacted parties we identified that may be interested in acquiring the business and assets of the Companies
prepared a short-form information overview that was provided to interested parties
established an electronic data room for interested parties to access.
Expressions of interest were sought for the business as a whole or for individual stores.
The outcome of the sale process can be summarised as follows:
in excess of 10 interested parties executed confidentiality agreements and were provided with data-room access
a number of indicative offers were received for a mixture of stores
the offers broadly envisaged assuming store leases and purchasing stock on hand, plant and equipment and associated goodwill. The majority of offers also included the assumption of employee entitlements
we accepted an offer for the purchase of 10 stores in one-line on 18 September 2018. The offer was conditional on the assignment/re-negotiation of four key leaseholds on terms satisfactory to the purchaser. We were unable to obtain an assignment on satisfactory terms of one of these leaseholds and as a result that store (Brooklyn) was excluded from the sale and was subsequently closed. We executed the sale agreement with that party on 17 October 2018 and the sale completed on 14 November 2018
after accepting the above offer, we reached out to a number of parties to ascertain interest in the remaining five stores.
on 24 September 2018, we received an offer to purchase four of the remaining five stores. That offer was accepted on 25 September 2018, and the sale agreement was executed on 24 October 2018. The offer was conditional on agreeing lease assignments with landlords for a minimum of three stores. This threshold was achieved and the sale completed on 2 November 2018.
On 2 October 2018, we received an offer for the last remaining store, which we accepted on 4 October 2018. A sale agreement was executed on 15 October 2018, and completion occurred on 29 October 2018.
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6 Financial background of the Companies
The Companies prepare annual financial statements which were audited by Grant Thornton. The last audited financial statements were for the year ended 25 June 2017.
The Companies also prepare monthly management accounts. The management accounts are presented on a business unit basis, as well as on a consolidated Group basis. Management accounts are prepared for the purposes of reporting to the Board and to facilitate management’s monitoring of financial performance.
The Companies’ reporting cycle is based on a four-four-five week period and therefore reporting dates are not necessarily on the last day of the month. A summary of the reporting dates used for this Report is included in the Glossary.
We have completed a preliminary financial analysis on the following historical results:
FY16 and FY17 audited financial statements
FY18 unaudited management accounts
year to date unaudited management accounts to 19 August 2018 (end of month two of the FY19 financial year)
short-term cash flow forecast prepared by management in the weeks leading up to our appointment.
As noted in Section 3.3, this report has been prepared on a consolidated basis and as TMFMH has only one unrelated creditor, the majority of financial information reported relates to Tasman. Specific disclosures have been made where this is not the case.
6.1 Financial performance / Profit and Loss
Key Comments
Revenue has declined year on year from FY16 to FY17. A portion of this decline was due to closure of the Southland store in 19 February 2017. On a like-for-like basis the revenue decline from FY16 to FY17 was 4.2%.
Higher input prices, particularly for red meat, constrained Tasman’s ability to reduce prices in order to drive patronage and volume.
Consistent gross margins were being maintained across the review period, however underperforming stores were impacting EBITDA due to a smaller revenue contribution and fixed overheads.
The Companies’ consolidated audited financial performance (Profit and Loss) for the two financial years ended June 2016 and June 2017, and management accounts for the financial year ended June 2018, is summarised below:
Notes FY16
$’000s
FY17
$’000s
FY18
$’000s
Revenue 1 124,445 117,960 102,297
Cost of Goods Sold 2 (86,991) (83,725) (71,281)
Gross Profit/(Loss) 37,454 34,235 31,015
Margin % 30.10% 29.02% 30.32%
Other income 3 292 321 437
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Employee expenses 4 (21,926) (21,441) (19,367)
Direct expenses (3,436) (3,228) (3,343)
Other expenses (9,960) (10,136) (8,432)
Impairment of goodwill 5 - (14,831) -
EBITDA 2,423 (15,079) 311
Depreciation & amortisation (3,034) (3,352) (2,684)
EBIT (611) (18,432) (2,373)
Interest (1,039) (878) (690)
Income tax benefit / (expense) 495 (598) -
Net Profit/(loss) After Tax (1,155) (19,908) (3,063)
Normalisations 5 - 16,120 412
Net Profit / (loss) after tax
and normalisations
(1,155) (3,788) (2,651)
In the table above we have shown the net loss after tax on both a before and after normalisations basis. Normalisations relate to one-off revenue or expense items that are not earned or incurred in the ordinary course of business. Normalisations include costs relating to the turnaround plan being undertaken and the forbearance of debt, as agreed with ANZ, rent expenses relating to the change in the accounting standard for leases, and other one-off items including impairment charges (particularly relevant in FY17).
Notes
1. Revenue has dropped each year since FY16, resulting in a total decline of 17.8% between FY16 and FY18, the largest portion of which occurred between FY17 and FY18. Management primarily attributes this decline in revenue to wider economic pressures, under-performing stores and store-specific trading issues. The revenue decline is also attributable to the closure of the Southland store in FY17.
2. Over the periods reviewed, COGS has generally reduced in line with revenue, reflecting a relatively consistent gross margin. Management notes that the Companies were unable to drive sufficient volume to overcome rising input costs, so the focus was on maintaining gross margin rather than driving volume. Increasing volume and reducing margin was not a viable option given that direct costs (such as rent and electricity) were increasing and other costs, like employee expenses, couldn’t be reduced to a level sufficient to overcome the margin drop.
3. Other income includes work-cover reimbursements for wages paid for injured employees which are reimbursed, and end of year wage reconciliations and associated premium refunds. These largely account for the variances between the periods reviewed.
4. Employee expenses, while reducing in absolute quantum, increased by 1.44% as a percentage of revenue between FY16 and YTD FY19, from 17.62% to 19.06%. In the latter part of FY18, the Group rationalised its management structure to remove two positions.
5. In FY17, the Companies’ recorded an impairment charge against intangible assets (namely goodwill) of c.$14.8m. We note this is a non-cash and non-recurring item so we have treated it as a normalisation item to best represent the underlying operating performance of the business.
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In order to provide context for the profit and loss result for YTD FY19, below is the consolidated management profit and loss for the period with the corresponding YTD period for FY18:
Notes YTD August FY18
$’000s
YTD August FY19
$’000s
Revenue 1 15,763 14,274
Cost of Goods Sold (11,030) (9,924)
Gross Profit/(Loss) 4,733 4,350
Margin % 30.03% 30.47%
Other income 2 106 88
Employee expenses 3 (2,987) (2,721)
Direct costs 4 (492) (540)
Overhead costs 5 (1,335) (1,392)
EBITDA 25 (216)
Depreciation & amortisation (406) (424)
EBIT (381) (640)
Interest, income tax (expense) (100) (116)
Net Profit/(loss) After Tax (481) (756)
Normalisations 6 - 52
Net profit/(loss) after tax
and normalisations
(481) (704)
Notes
1. In comparing YTD18 and YTD19, revenue was down by 9.4%, and cost of goods sold down by 10%, showing that the Group had slightly improved its gross margin.
2. Other income in both FY18 and FY19 is primarily due to the timing of receipt of work-cover reconciliation reimbursements.
3. Employee expenses reduced by 8.9% between the periods, likely as a result of the aforementioned management restructure and controlling ‘flexible’ roles such as casual employees.
4. Direct costs increased by 9.7% when comparing the periods, with electricity costs at YTD August FY19 c$86k ahead of last year. Management have advised that a new contract entered into effective 1 January 2018 saw input costs per unit rise by approximately 10c, equating to an annualised cost of c$600k.
5. Consultancy fees of c.$43k were incurred in YTD August FY19 ($0 in YTD August FY18), and rent is c$23k higher for FY19 due to annualised rent increases across sites. These items account for the majority of the 4.3% YOY increase in overhead costs.
6. Normalisations include the aforementioned items (c$43k) and other sundry items.
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6.2 Financial position / Balance Sheet
Key Comments
The majority of asset value on the balance sheet is represented by ‘intangibles’ and ‘leasehold improvements’, which are difficult to realise in an administration scenario.
As highlighted in Section 6.1, revenue had decreased year on year and is reflected in the balance sheet through reduced inventory holdings and reduced trade payables.
The Companies’ consolidated audited financial position (Balance Sheet) as at June 2016 and June 2017, and management accounts as at June 2018 and 19 August 2018, is summarised below:
$’000 Notes FY16 FY17 FY18 YTD FY19
Current assets
Cash and cash equivalents 6,371 2,388 973 905
Trade Receivables 67 15 49 42
Sundry Receivables 330 523 352 351
Inventory 1 2,959 2,956 2,067 2,120
Total current assets 9,726 5,882 3,441 3,419
Non-current assets
Loans receivable 2 35 85 94 94
Assets – net owned fixed 10,110 8,318 6,749 6,438
Capital works in progress 656 (397) 1 43
Leasehold improvements 8,102 8,466 8,090 8,053
Intangible and investment assets 3 28,820 12,949 12,801 12,771
Total non-current assets 47,723 29,421 27,735 27,398
Total assets 57,449 35,303 31,176 30,817
Current liabilities
Trade Payables (10,471) (7,271) (7,132) (7,690)
Sundry Payables (848) (736) (488) (652)
Payroll and other provisions 4 (2,058) (2,082) (1,836) (1,517)
Lease liabilities 5 (1,033) (1,130) (1,119) (1,119)
Total current liabilities (14,410) (11,218) (10,575) (10,978)
Non-current liabilities
Loans and commercial bills 6 (12,750) (11,200) (10,817) (10,817)
Payroll provisions (88) (92) (54) (48)
Total non-current liabilities (12,838) (11,292) (10,871) (10,865)
Total liabilities (27,248) (22,510) (21,446) (21,843)
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$’000 Notes FY16 FY17 FY18 YTD FY19
Net assets 30,201 12,793 9,730 8,974
Authorised capital 33,273 35,773 35,773 35,773
Retained profit/(loss) (1,916) (3,072) (22,980) (26,043)
Current year profit/(loss) (1,155) (19,908) (3,063) (756)
Equity 30,201 12,793 9,730 8,974
Notes
1. Inventory holdings fell by c.30% between FY17 and FY18 as sales revenue fell in the same period. Similarly, trade payables reduced by c.27% between FY16 and YTD FY19.
2. Loans receivable relate to two shareholder loans which are discussed at Section 6.3.2. 3. In FY16, intangibles and investment assets related to acquisition costs, and no impairment
charge had been applied. In FY17, accumulated impairment costs were c.$14.8m and occurred as a result of the asset being reviewed at this reporting date and written down to the extent that it was no longer supported by probable future benefits.
4. Payroll provisions (both current and non-current liabilities) include LSL, which the Group calculates using a probability scale of LSL becoming payable based on its experience of employee departures and history of service. Any assessments which we make of LSL liability will be made only on the employees which, at the time of this report, are owed LSL.
5. Lease liabilities relate to lease incentives, which are amortised over the life of the lease term. 6. The secured creditor’s claim against the Group at appointment is c.$1.5m higher than the
reported value in the Group’s records, due to the inclusion of bank guarantees pursuant to the terms of the facility agreements.
To understand the position of each company at EOM August 2018, the above column pertaining to the consolidated position has been split by company in the following table:
$’000 Notes Tasman TMFMH
Current assets
Cash and cash equivalents 1 904 1
Trade Receivables 42 -
Sundry Receivables 351
Inventory 2,120 -
Total current assets 3,417 2
Non-current assets
Related party loan - 1,793
Loans receivable - 94
Assets – net owned fixed 6,438 -
Capital works in Progress 43 -
Leasehold improvements 8,053 -
Intangible and investment assets 12,681 42,089
Total non-current assets 27,215 43,977
Total assets 30,632 43,978
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$’000 Notes Tasman TMFMH
Current liabilities
Related party loan (1,793) -
Trade Payables (7,690) -
Sundry Payables (576) (75)
Payroll and other provisions (1,517) -
Lease liabilities (1,119) -
Total current liabilities (12,697) (75)
Non-current liabilities
Loans and commercial bills - (10,817)
` (48) -
Total non-current liabilities (48) (10,817)
Total liabilities (12,744) (10,892)
Net assets 17,888 33,086
Authorised capital 42,000 35,773
Retained profit/(loss) (23,397) (2,646)
Current year profit/(loss) (715) (41)
Equity 17,888 33,086
Notes
1. Between EOM August 2018 and appointment, the cash at bank balance fell by c.$668k, largely due to the timing of receipts. As EOM occurred on a Sunday in August 2018, this balance included weekend EFTPOS settlements from Saturday and Sunday trade, as well as cash collections from trading between Friday and Sunday.
6.3 Directors’ Reports as to Affairs (RATA)
A company director must provide an administrator with a RATA outlining the company’s business, property, affairs and financial circumstances at the appointment date (s438B). The RATA should include:
net asset book values (based on historical financial records)
estimated asset realisable values
known liabilities.
The directors have provided us with a RATA for each of the Companies in accordance with their responsibilities under the Act.
Please note that RATA figures may differ from actual realisable values as:
net book values are based on historical financial records
asset values are not market tested
creditor claims are not yet adjudicated upon and quantified.
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Given commercial sensitivities, the Administrators’ estimated asset values have not been disclosed. Instead, we have made comments on RATA values where deemed appropriate.
6.3.1 Tasman RATA
Detailed below is the information provided in the directors’ RATA for Tasman.
Notes Director’s RATA
Book value
$’000
Estimated Value
$’000
Assets subject to specific security interests Nil Nil
Relevant secured creditor claims 1 Nil Nil
Surplus/(Deficit) on specific security
interests
Nil Nil
Other Assets:
Interest in land Nil Nil
Sundry debtors 2 351 145
Cash on hand 57 57
Cash at bank 236 236
Stock 3 2,120 2,000
Plant and equipment 4 14,534 1,000
Other 5 888 Nil
Sub Total 18,186 3,439
Less other creditor claims:
Employee Entitlements 6 (1,522) (1,522)
General security interest holders Nil Nil
Deficit on specific security interests Nil Nil
Unsecured creditors 7 (9,504) (8,385)
Surplus / (Deficiency) to creditors 7,160 (6,469)
Plus Contingent assets Nil Nil
Less Contingent liabilities 8 (1,000) (1,000)
Surplus / (Deficiency) to creditors after
contingencies
6,160 (7,469)
Administrators’ notes
1. The RATA has not disclosed the amount due to the ANZ under the cross-collateralised security agreement, which is $12.36m. Further, there has been no disclosure of parties registered on the PPSR with a security interest over assets of Tasman (refer to Section 4.5.3). Liabilities are therefore understated by an estimated $12.53m.
2. Sundry debtors may be overstated in both the book value and the realisable value. There may be minimal recovery available from pre-payments in terms of refunds for unexpired policies, however this is uncertain. Most of the debtor value is derived from the August BAS receivable which was received on 5 September 2018 and therefore is included in the cash at bank figure.
3. The book value of stock on hand has been calculated using stocktakes for meat products and estimates for other items. The estimated value reflects 94.32% of the book value which, prima facie, appears reasonable.
4. Plant and equipment book value is primarily leasehold improvements, for which the realisable value is uncertain. The estimated value assumes $50k equipment realisations at each store. In
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our view, this estimate is below market value, however given the commercial sensitivity we are unable to comment further on the estimated realisable value.
5. “Other” relates to a deferred tax asset, for which there is no expected realisation. Such assets typically represent the future income tax saving likely to arise as a result of the recoupment of carried forward tax losses.
6. The employee entitlements estimate includes wages of $407k, which have been paid. Refer to Section 4.5.4 for further details on employee entitlements and our preliminary assessment of the quantum of claims.
7. Unsecured creditor values include trade creditors as at 19 August 2018 (being the date of the last management accounts), lease liability adjustments, gift vouchers and accruals. The estimated value removes the lease liability adjustment, given this is only completed for accounting purposes. The value reported in the RATA did not include the related party loan owed to TMFMH of $1.79m. Refer to Section 4.5.1 for further details on unsecured creditor claims and our preliminary assessment of the quantum of claims.
8. Contingent liabilities relate to make-good obligations for landlords for Rosebud and Bendigo store closures. Under the Act, the Administrators are not liable for any such claims that may arise under a lease agreement (or otherwise) in place at the time of appointment. Landlord claims for make-good, if received and substantiated, form an unsecured claim against Tasman.
6.3.2 TMFMH RATA
Detailed below is the information provided in the directors’ RATA for TMFMH.
Notes Director’s RATA
Book value
$’000
Estimated Value
$’000
Assets subject to specific security interests Nil Nil
Relevant secured creditor claims 1 (10,817) (10,817)
Surplus/(Deficit) on specific security
interests
(10,817) (10,817)
Other Assets:
Interest in land Nil Nil
Sundry debtors 2 94 Nil
Cash on hand Nil Nil
Cash at bank 1 1
Stock Nil Nil
Plant and equipment Nil Nil
Other 3 11,882 Nil
Sub Total 1,161 (10,816)
Less other creditor claims:
Employee Entitlements Nil Nil
General security interest holders Nil Nil
Deficit on specific security interests Nil Nil
Unsecured creditors Nil Nil
Surplus / (Deficiency) to creditors 1,161 (10,816)
Plus Contingent assets Nil Nil
Less Contingent liabilities 4 (1,700) (1,700)
Surplus / (Deficiency) to creditors after
contingencies
(539) (12,516)
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Administrators’ notes
1. The secured creditor’s claim is c.$12.5m, with the difference between that and the amount recorded above being the inclusion of contingent liabilities (bank guarantees) at their full value on the assumption these could be drawn upon in the absence of a going concern sale (i.e. the claim represents the secured creditor’s maximum exposure position at the time of our appointment). Contingent liabilities are discussed in Note 4.
2. Sundry debtors relates to two shareholder loans, which have been classified as unrecoverable. We will review these loans to assess their recoverability, and consider the personal financial capacity of each shareholder to repay such loan. Further, whilst not disclosed at book value, Tasman is a debtor of TMFMH in respect of a related party loan for $1.79m. Refer to Section 4.6.2 for further detail. Given there is no expected return to unsecured creditors of Tasman, the estimated recoverable value is therefore zero.
3. Other assets comprise goodwill and formation costs.
4. Contingent liabilities relate to 16 bank guarantees. We expect that the majority of these liabilities will not materialise on the basis that the underlying guarantees will be replaced as part of the sale completion process.
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7 Investigations Key Comments
While our investigations are ongoing, we summarise our initial findings below:
The Companies’ failure is the result of:
- increasing input prices and rising operational costs
- supermarket competition
- loss-making regional stores
- over-leveraged balance sheet
- unable to exit leases or reduce rent
- inability to attract fresh capital to implement a turnaround plan.
Our preliminary view is that the Companies became insolvent, or were likely to become insolvent, just prior to our appointment, when it became clear that the Companies were unable to raise additional equity and therefore they had insufficient funds to enable the debt restructuring and turnaround plan to be implemented.
The critical factors that point towards a date of insolvency, or likelihood of impending insolvency, in early September in our view are that up to that point:
the Companies were meeting the vast majority of their debts as and when they fell due
the Companies had formulated an achievable restructuring/turnaround plan which, if successfully implemented, would have resolved its debt burden
the secured lender (the Companies’ largest single creditor) had agreed to a settlement of its debt at a significant discount (subject to a number of conditions, including as to timing)
until early September, the Companies believed they had a realistic prospect of satisfying the conditions on which the restructure plan was dependent
We have also formed a preliminary view that, if further investigations reveal that the Companies were insolvent from an earlier date, there is a real prospect of the directors being able to successfully rely upon the safe harbour protection (or failing that, the good faith defence) for the period from April 2018. Accordingly, at this stage the Administrators do not envisage any action being taken to pursue an insolvent trading claim
We note also that the Companies’ D+O policy does not respond to an insolvent trading claim, which means that any claim, if successful, would have to be satisfied from personal assets available to the directors
Noting that our primary focus to date has been on maintaining trading operations and pursuing the sale process, we have conducted investigations into the reasons for the Companies’ failure to the extent possible in the available time. Further investigations will be conducted should creditors vote to wind up the Companies at the Second Meeting (a liquidator has greater powers to undertake investigations and pursue recoveries than an administrator or deed administrator).
We have based our investigations and opinions on information obtained from:
books and records, including management reports and board reports
accounting and database information systems used within the business
directors, officers, management and key staff members
external professional reports, including audit reports
publicly available information
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7.1 Directors’ explanation for the Companies’ difficulties
The directors attribute the Companies’ demise to a combination of declining trading performance and the leverage assumed at the time of the acquisition of the business in 2013.
The declining trading performance can be attributed to:
an increase in input prices, particularly in red meat – Tasman’s key competitive advantage is its lower cost structure, relative to the supermarkets, in red meat production. With rising red meat prices, consumer demand shifted towards other products and Tasman could not fully pass on its increased input costs, leading to margin pressure
supermarket competition – the supermarkets became more aggressive in their pricing of meat products to capture more customers
loss-making regional stores – the Companies’ regional stores did not perform well and the
Companies could not exit their leases without incurring costs which they could not fund
rising operating costs – operational costs increased across the network, in the form of escalating rents over time (these were contractual) and rising power costs.
7.2 Administrator’s opinion of the reasons for the Companies’ difficulties
In addition to the directors’ stated reasons for the Companies’ demise, we believe the following factors are also relevant:
the hurdles encountered by the Companies in seeking to re-negotiate/exit onerous leases
the inability of the Companies to attract fresh capital to implement the turnaround plan.
7.3 Insolvency
A company is insolvent if it is unable to pay its debts as and when they become due and payable.
Liquidators are required to demonstrate that a company is insolvent in order to pursue certain recovery proceedings, including voidable transactions and insolvent trading clams (Section 8).
Our preliminary view is that the Companies were insolvent, or likely to become insolvent, on or about 5 September, 2018 - just before our appointment.
This date of insolvency, or pending insolvency, is based on the date it became clear that the Companies were unable to obtain further equity, which was required to implement a turnaround and to settle the secured debt at a substantial discount.
While there were indicators of insolvency prior to this date, it appears the Companies were generating sufficient cash to continue to meet their debts largely as they fell due. In addition, the Companies had the support of their bank in the form of debt amortisation relief and were meeting interest payments as they fell due.
The methods of testing solvency include but are not limited to the Cash Flow Test and the Balance Sheet Test, which are examined below.
7.3.1 Cash Flow Test
The Cash Flow Test is a measure of a company’s ability to pay its liabilities from available resources as and when they fall due.
The books and records indicate that the Companies:
were generally able to pay their debts as and when they fell due during the period under review
were forecasting to have sufficient cash available up to and beyond the date of administration to continue to meet their obligations.
We have no evidence to indicate that the Companies’ financial reports were misstated.
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Working capital
Working capital is an indicator of liquid assets available to pay debts due within 12 months. A working capital ratio of less than one indicates that a company may not be able to pay its debts as and when they fall due, but it is not determinative of that fact.
Our analysis of the Companies’ records relating to working capital and net current assets appears to disclose prima facie liquidity issues. A summary of working capital as at June 2015, 2016 and 2017 and monthly from December 2017 to August 2018 is shown below.
Current
Assets
$’000s
Less:
Current
Liabilities
$’000s
Working
Capital*
$’000s
Working
Capital /
Liquidity
Ratio**
EOM Aug 2018 3,419 (10,978) (7,560) 0.31
EOM Jul 2018 3,992 (11,251) (7,259) 0.35
EOM Jun 2018 3,441 (10,575) (7,134) 0.33
EOM May 2018 4,022 (10,700) (6,679) 0.38
EOM Apr 2018 4,937 (10,944) (6,008) 0.45
EOM Mar 2018 4,638 (10,228) (5,590) 0.45
EOM Feb 2018 4,493 (9,822) (5,330) 0.46
EOM Jan 2018 5,201 (10,392) (5,191) 0.50
EOM Dec 2017 6,858 (11,863) (5,005) 0.58
FY17 5,968 (20,937) (14,970) 0.29
FY16 10,145 (15,004) (4,859) 0.68
FY15 8,994 (13,229) (4,234) 0.68
* Working Capital = Current Assets – Current Liabilities
** Working Capital / Liquidity Ratio = Current Assets / Current Liabilities
The table shows that the Companies had negative working capital and a working capital ratio significantly < 1 (below 0.35) from at least June 2018, and that the ratio deteriorated from April 2018 as inventory levels declined and current liabilities remained broadly in the range of $10 – 11m.
The ratio can partly be explained by the nature of the Companies’ trading cycle, in that the vast majority of sales were for cash whereas purchases were generally on terms of 30-45 days, which dictated that inventory was being turned over several times within the supplier payment cycle i.e. inventory was being acquired on 30-45 day credit terms and being converted into cash within 7-10 days on average.
Short term cash flow forecast model and creditor ageing
The Companies utilised a detailed model to forecast short term cash flow. Our review of the model indicates that despite the working capital challenges, management were projecting sufficient cash to be available to meet trading obligations until at least 25 September 2018.
Our review of creditor ageing also shows that the vast majority of creditors were being paid within terms (over 90% on average) and there was limited evidence of creditor demands and payment plans.
7.3.2 Balance Sheet test
The Balance Sheet Test assesses the solvency of a company by reference to the net asset position (i.e. the level of total assets relative to total liabilities). It can be an indicator of insolvency, but the more important test is the cash flow test referred to above.
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Our review of the financial records showed that the Companies’ reported net asset position was positive throughout the period under review.
$’000 FY16 FY17 FY18 YTD FY19
Total Assets 57,449 35,303 31,176 30,817
Total Liabilities (27,248) (22,510) (21,446) (21,843)
Net Assets
(Total Assets less Total Liabilities) 30,201 12,793 9,730 8,974
It should be noted, however, that the majority of the non-current assets are illiquid and difficult to realise for book value, as they relate to leasehold improvements, capital works in progress, intangibles and investments.
To illustrate the impact of this, the table below shows the Total Asset position if adjusted to remove intangible assets - this would make the net asset position negative from at least the end of FY17:
$’000 FY16 FY17 FY18 YTD FY19
Total Assets* 28,630 22,354 18,375 18,046
Total Liabilities (27,248) (22,510) (21,446) (21,843)
Adjusted net Assets
(Total Assets less Total Liabilities) 1,382 (156) (3,071) (3,797)
*Total assets adjusted for intangible assets and leasehold improvements
The above is shown for illustrative purposes only. There is nothing irregular about recording intangible assets, leasehold improvements etc. at book value, provided they are valued in accordance with standard accounting policies. But from a solvency perspective, these assets do not, by their nature, assist in enhancing liquidity/solvency.
A liquidator will investigate these matters further, should the creditors vote to wind up the Companies at the Second Meeting.
7.3.2.1 Support of the Companies’ secured lender
We have reviewed the arrangements between the Companies’ and the Bank and it is evident that the Bank supported the Companies by continuing to provide banking facilities and by providing debt amortisation relief over an extended period. A summary of key events in the banking relationship is set out below.
28 September 2017 – An Amendment Deed was entered into between the Bank and the Companies, the key terms of which included:
- The Companies must appoint a Chief Restructuring Officer
- The Bank agreed to waive any subsisting defaults.
A facility repayment schedule was set out as follows:
- 30 June 2017 - $400,000
- 30 September 2017 – Nil
- 31 December 2017 – Nil
- 31 March 2018 – to be determined in accordance with a review by the Bank (March Review)
3 May 2018 – The March Review was postponed to 30 June 2018 (June Review), with the Bank continuing to provide facilities to the Companies, including a continuation of the amortisation relief
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27 June 2018 – The Companies presented a debt restructuring proposal and turnaround plan to the bank
24 July 2018 – The bank agreed to accept a discounted settlement of the Companies’ debt facilities based on the proposed restructuring plan, which was subject to a number of conditions precedent and inter-dependent variables
27 July 2018 - the review date for the June Review was extended to 30 September 2018, with the amortisation relief continuing
7.3.3 Other Indicators of Insolvency
Determining whether a company is insolvent (and the date at which insolvency occurred) is often difficult, and, in the context of any litigation, is ultimately a matter for a court to decide having regard to expert evidence presented to it. The courts have identified fourteen general indicators of insolvency that are considered further in ASIC Regulatory Guide 217.
Our investigations to date have identified that six of these indicators apply, or may apply, to the Companies, as summarised below:
Indicator Present Comment
Continuing trading losses Yes The Companies had continuous trading losses since at
least FY16.
Liquidity ratio below one Yes The Companies had a liquidity ratio of < 1 since at least June 2015. However, the nature of the Companies’ business (as noted earlier) accounts in part for the low liquidity ratio.
Overdue Commonwealth and state taxes No The Companies were up to date with GST reporting.
Superannuation had not been remitted for the period 1 July 2018 to 6 September 2018. However, this was not due and payable until after the date of our appointment.
Poor relationship with borrower/financier including inability to borrow additional funds
No The Companies had a supportive lender which provided debt repayment relief and covenant waiver relief.
No access to alternative finance Yes Although it is not clear that the Companies’ attempted
to seek alternative finance, the Companies were seeking to raise additional equity.
Inability to raise further equity Yes By 5 September 2018, the Companies had exhausted
all avenues to raise further equity.
Suppliers placing the debtor on COD terms or otherwise demanding special payments before resuming supply
Yes We are aware of four suppliers who threatened or actioned placing Tasman’s account on stop supply from June 2018. However the amount of these debts was relatively small ($500 - $18k and one c$61k).
Tasman agreed to pay all these of debts in response, and the suppliers continued to supply.
Creditors outside trading terms Yes On average, the Companies had c7.8% of creditors that were overdue in the period January 2018 to appointment.
Issuing of post-dated cheques No We are not aware of any post-dated cheques.
Dishonoured cheques No Review of the bank statements for two years leading up to appointment showed only one dishonoured payment.
Special arrangements with selected creditors
No We are not aware of any special arrangements entered into with creditors.
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Legal action threatened or commenced, or judgements entered against the company
No We are not aware of any demands throughout the Companies’ usual trading, however we are aware that a demand for payment of $14,541.69 was received from the landlord of the Companies’ registered office on 5 September 2018 (two days prior to appointment).
Payments to creditors of rounded figures, which are irreconcilable to specific invoices
No We have not identified any evidence of round payments to creditors.
Inability to produce timely and accurate financial information to display the Companies’ trading performance and financial position, and make reliable forecasts
No The Group was reporting monthly balance sheets and profit and loss statements and maintained a short-term cash flow.
In summary, the majority of indicators were not present prior to 5 September 2018. For those indicators that were present, our view is that a number of these are not determinative of solvency, for the following reasons:
Trading losses – although the Companies had trading losses, they were able to absorb those losses from available cash
Liquidity ratio – as discussed in Section 7.3.1, the Companies low working capital ratio was due in part to the nature of its trading cycle
Suppliers threatening stop supply / Supplier demands – we are only aware of four suppliers (informally) demanding payment from the Companies. Considering the high volume of trading, the number of suppliers and the amounts they were demanding ($500 – 18k and one for $61k) were relatively minor. We also note that the demand from the landlord was made two days prior to appointment
Creditors outside trading terms – the records indicate that an average of c7.8% of creditors were outside payment terms from the period January 2018 to August 2018. While this indicates a level of liquidity pressure, we do not consider it to be a major indicator given the relatively low % that were outside terms.
7.3.4 Proving Insolvency
Further investigations into the Companies’ insolvency will be conducted by a liquidator should the Companies be wound up.
Determining when a company became insolvent can be a costly and complex exercise, involving a detailed review of the company’s financial position, cash flow, and other relevant information.
7.4 Legal actions
Generally there is a stay of proceedings against the company and its property during the administration period, except where an administrator has provided consent for the proceedings to continue, or with leave of the court.
We are aware of one legal proceeding currently on foot against Tasman for a customer’s personal injury claim brought against Tasman for an alleged injury which occurred outside a store in February 2016.
In addition to the above, we are aware that the landlord of the Companies’ registered office issued a demand for payment for rental on 5 September 2018 (two days prior to our appointment).
7.5 Outstanding or previous winding up applications
We are not aware of any outstanding or previous winding up applications against either of the Companies.
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7.6 Books and records
Our preliminary view is that the Companies maintained adequate books and records.
A company must keep written financial records that:
correctly record and explain its transactions, financial position and performance
would enable true and fair financial statements to be prepared and audited
must be kept for seven years after the transactions covered by the records are completed (s286).
Directors are responsible for ensuring that adequate financial records are maintained. Directors who fail to take all reasonable steps to ensure compliance with this requirement may be subject to a civil penalty order. This includes shadow and de facto directors.
Failure to maintain books and records may give rise to a presumption of insolvency (pursuant to s588E of the Act) (discussed above at Section 7.3)
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8 Offences and liquidation recoveries
Key Comments
While our investigations are ongoing, our preliminary view (noted at Section 7 earlier) is that the Companies became insolvent, or were likely to become insolvent, just prior to our appointment when it became clear that the Companies would be unable to raise additional equity, and therefore had insufficient funds to enable the necessary debt restructuring and turnaround plan to be implemented.
It is possible that the Companies may have become insolvent prior to this date, however, based on our investigations to date, we consider the prospects of establishing that this was the position are uncertain at best.
If it was determined that the Companies’ were insolvent before early September, and therefore traded while insolvent for a period, our preliminary view is that the directors are likely to qualify for “Safe Harbour” protection from on or around April 2018. Where it applies, safe harbour protection effectively provides a complete defence to an insolvent trading claim.
It is relevant also to note that the Companies’ insurance policy does not respond to an insolvent trading claim, which further diminishes the prospect of a liquidator commencing an insolvent trading action due to the uncertainty of a material recovery even if successful.
In summary, at this stage the Administrators do not forecast any return to creditors through an insolvent trading claim.
A liquidator will continue to investigate potential breaches and voidable transactions if the Companies transition to liquidation.
A liquidator has the ability to pursue certain claims that may result in recoveries for creditors. Importantly, these claims are not available to a deed administrator should the option to vote to execute a DOCA proposal became available for creditors.
To estimate the likely return to creditors, administrators identify claims that a liquidator could pursue, including:
voidable transactions and other potential recoveries
recoveries against past or present directors, secretaries, other officers and advisors.
Enclosed at Appendix G is a Creditor Information Sheet: Offences, Recoverable Transactions and Insolvent Trading published by ARITA, which provides general information for creditors on the types of claims that a liquidator can pursue.
8.1 Voidable transactions
The Act 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 the Act.
We have identified a small number of potential preference payments that could be considered voidable transactions which require further investigation. However, as our investigations into the insolvency date are ongoing we cannot definitively estimate potential voidable transaction recoveries.
More particularly, if the liquidator’s investigations confirm our preliminary view that the insolvency date is 5 September 2018 the liquidator would not be able to recover any preference payments, as a requirement of preference payments is that the company was insolvent at the date of payment, or became insolvent as a consequence of the payment (among other things).
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8.2 Insolvent trading
Insolvent trading is when a company incurs a debt at a time when:
the company was insolvent or became insolvent by incurring the debt
there were reasonable grounds to suspect the company was insolvent or would become so as a result of incurring the debt.
We refer to our earlier comments above regarding our view on the date of insolvency.
Company directors have a duty to prevent insolvent trading by not incurring debts when there are reasonable grounds for suspecting that the company is, or will be, unable to pay its debts as and when they fall due.
The objective test or standard of measure in deciding whether insolvent trading has occurred is whether a director can demonstrate that their actions are at the same degree and level that would be required of an ordinary reasonable person holding a similar position and responsibility in the same circumstances.
A director who fails to prevent a company from incurring a debt at a time when there are reasonable grounds for suspecting that the company is insolvent, or will become insolvent by incurring that debt, contravenes s588G of the Act.
Creditors should note that only a liquidator or an individual creditor with the liquidator’s permission can bring an action against a director for breach of s588G. An administrator or deed administrator cannot pursue a director for recoveries from contraventions of s588G of the Act.
A liquidator may recover from a director the amount of loss or damages suffered by a creditor (s588M).
8.2.1 Director defences
Director defences are only relevant where there is an allegation of insolvent trading, however if it is determined that the Companies traded while insolvent, the below defences are available to directors under the Act:
the director had reasonable grounds to expect, and did expect, that the company was solvent at that time and would continue to be solvent if it incurred the debt.
the director had reasonable grounds to believe that a competent and reliable person was responsible for providing adequate information about whether the company was solvent and that person was fulfilling the responsibility and it was expected, on the basis of the information provided, that the company was solvent and would continue to be solvent when the debt was incurred.
at the time the debt was incurred the director, due to illness or other good reason, did not take part in the management of the company.
the director took all reasonable steps to prevent the company from incurring the debt.
8.2.2 Safe Harbour – an exception to insolvent trading
On 18 September 2017, the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 introduced the concept of “Safe Harbour”. Under the new law, directors will not be liable for insolvent trading if, after suspecting insolvency, they begin to develop “one or more courses of action” that are “reasonably likely to lead to a better outcome for the company”.
Importantly, once the directors provide some evidence as to the reasonableness of the action taken, the burden of proof rests with a liquidator to establish that the directors should not qualify for Safe Harbour.
It appears that the directors sought to invoke a Safe Harbour defence (to be relied upon if it were subsequently determined that the Companies were trading while insolvent) in or around April 2018.
.
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8.2.2.1 Threshold issues
Directors will not be able to take advantage of the Safe Harbour protection if they do not clear the following thresholds:
employee obligations (including wages and superannuation) must be paid when they fall due
tax reporting obligations, such as BAS and FBT returns, must be met and all returns must be lodged on time
financial records must be kept up to date, and must be made available to any liquidator who is subsequently appointed.
At the date of the appointment we understand that:
all employee obligations that were due had been met. We note that Superannuation for the period July 1 to September 6 2018 had not been paid, but at the time of appointment it was not due and payable
all tax obligations had been met and in the required lodgement periods, including the lodgement of the FY18 FBT return, and the August 2018 BAS, including PAYG obligations
all financial records are up to date and have been made available to us, and would subsequently be available to a liquidator should creditors vote to wind up the Companies at the Second Meeting.
Based on the above and our review of minutes of directors meetings, it appears to us that the directors have satisfied the threshold issues.
8.2.2.2 Do the directors qualify for Safe Harbour?
To support the justification to continue to trade, the following hurdles must be met:
The directors must have developed and documented a plan to deal with the problems faced by the company – we have sighted a turnaround plan (with supporting analysis) in the Companies’ records; key elements of the plan have been referred to at various sections of this report
The plan must be credible and have a reasonable prospect of success – in our view, based on the available information, the plan was properly prepared, was based on robust analysis, and had reasonable prospects of success
The plan should be reviewed and assessed for reasonableness by a competent, appropriately qualified advisor – we have sighted minutes of meetings and supporting documentation to evidence that the Companies’ turnaround plan was reviewed by an appropriately qualified, independent advisor in conjunction with its lawyers. We note also that the plan was subject to regular review by the Companies lawyers at various intervals during the Safe Harbour period (refer dates below)
We note from a review of the Companies’ records that the directors initially sought Safe Harbour advice from their lawyers in April 2018, which was subsequently reviewed/updated at the following points:
20 June 2018
13 July 2018
30 July 2018
14 August 2018
28 August 2018
3 September 2018
The updates discussed various options available to the Companies in terms of re-negotiating the secured lender’s debt and engaging with external parties to explore capital injections, equity investment and asset sales.
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Further, the updates also considered exiting underperforming stores and undertaking rental reviews (where required) and noted various discussions that had been undertaken with landlords to negotiate the same.
In summary, our view is that the directors had developed and documented a plan for various issues facing the Companies and the plan was credible with a reasonable prospect of success.
8.3 Offences
Directors and others have duties, obligations and responsibilities in relation to common law and statute.
8.3.1 Corporations Act 2001
Our preliminary investigations have not identified any offences committed by the directors or others. If a liquidator is appointed we consider, however, that further investigations may be warranted.
A liquidator can conduct more thorough investigations and identify potential offences and recoveries (if any).
If a director breaches any duties, obligations and responsibilities, the director may be subject to civil and criminal penalties including:
compensation to the Company for damages resulting from the contravention
fines (up to $200,000)
imprisonment (up to 5 years)
disqualification from managing corporations.
8.3.2 Other Legislation
In addition to offences under the Act, directors and others may commit offences in respect of the Company under other legislation, for example:
Taxation laws
Trade Practices Act
Fair Trading Act.
Our preliminary investigations have not identified any such breaches.
8.3.3 Review of trading prior to appointment
If a liquidator is appointed, the liquidator will also review any trading decisions made by the Companies in the lead up to the appointment of administrators.
A creditor has alleged unconscionable conduct regarding the ramp up of purchases before appointment. We have undertaken preliminary investigations into this alleged behaviour and have reviewed a sample of the Companies’ purchasing patterns in the six month period prior to the appointment of Administrators – refer table below which shows creditor balances for the Companies’ 10 largest suppliers (noting that supplier names have been withheld for privacy/commercial-in-confidence purposes) at various points over the period February to September 2018:
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The opening and closing balances, at EOM 18 February and 19 August 2018 respectively, and monthly movements, based on EOM figures, are displayed in $000s’s as follows:
No. Opening balance
Feb-Mar
Mar-Apr
Apr-May
May-June
June-July
July-Aug
Aug-7 Sept 18
Closing balance
1 217
50
(187)
219
197
(97)
133
80 613
2 329
69
34
120
46
(101) 114
(73) 539
3 40
34
90
194
179
(28) 167
(193) 483
4 210
160
64
(65)
57
85 (94)
(40) 377
5 -
325
93
(175)
(58)
151 (29)
14 321
6 37
(3)
(8)
32
(42)
180 (4)
122 315
7 1,067
168
227
(549)
(424)
166 (386)
(13) 255
8 38
90
127
(167)
(29)
78 55
48 240
9 80
2
10
33
(7)
64 (14)
65 232
10 -
-
72
(72)
364
62 (111)
(111) 203
11 4,186
(339)
(67)
570
(510)
174
(8)
(386) 3,620
Total 6,204
896
523
(430)
281
560 (169)
(100) 7,198
Based on our analysis to date, it does not appear that any improper purchasing was undertaken. We understand that Tasman undertook its purchasing on a "bids system" whereby it would source the best available prices on any given week, and also based on its demands for promotions and on suppliers’ ability to supply into those promotions. Tasman ran promotional catalogues every two weeks.
We have sighted examples where purchasing from some suppliers has increased in a given week directly as a result of a promotion that Tasman was running at that time.
Our investigations to date have not identified any conduct by the Companies vis a vis its suppliers that might reasonably be construed as unconscionable conduct. Nor have our investigations to date identified any conduct by officers or management or third parties in relation to the Companies' purchasing decisions that might reasonably be argued to give rise to any cause of action by the Companies against any of those persons.
8.4 Directors and officers insurance policy
A Directors and Officers insurance policy (D&O Policy) offers liability cover for company officers to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties. Such policies cover the personal liability of company directors and officers.
At the date of our appointment, the Companies held a Management Liability Policy (MLP) which is slightly different to a D&O policy but does cover claims against directors and officers. To avoid prejudicing any potential claims, we are not disclosing the terms of the MLP.
It is relevant to note, however, that the MLP does not respond to an insolvent trading claim.
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8.5 Reporting of offences to ASIC
Administrators are required to complete and lodge a report with ASIC pursuant to s438D of the Act where it appears that:
a past or present officer of a company may have committed an offence
money or property has been misapplied or retained
a party is guilty of negligence, default, breach of duty or breach of trust in relation to a company.
A liquidator is required to lodge a report of findings with ASIC, pursuant to s533 of the Act.
Creditors should also be aware that any report lodged pursuant to s438D (or an investigative report lodged by a liquidator pursuant to s533 of the Act) is not available to the public.
We have not identified any offences at this stage which would require us to report to ASIC.
8.6 Costs of investigations and pursuing recovery actions
Creditors should note that recovery actions by a liquidator:
may be expensive, lengthy and have uncertain outcomes
should not be commenced unless defendants have the financial resources to satisfy any judgement obtained (this is often difficult to establish)
must be funded by existing assets, creditor funding or external litigation funders. Litigation funders are likely to require a significant share of the proceeds of any judgement as a condition of funding litigation.
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9 Deed of Company Arrangement (DOCA)
A DOCA is a binding agreement between a company and its creditors setting out how a company’s affairs will be dealt with. It aims to maximise the chances of the company, or as much as possible of its business, continuing to exist, or providing a better return to creditors than would be achieved by winding up the company.
We have not received any DOCA proposals for either of the Companies and therefore the option for creditors to vote in favour of a DOCA proposal is unavailable.
We will table any DOCA proposals received after this Report at the Second Meeting. Creditors may decide to adjourn the Second Meeting to further consider any DOCA proposals received. Any adjournment of the Second Meeting must reconvene within 45 business days.
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10 Estimated return to creditors
Detailed below is the estimated returns to creditors under a liquidation scenario. We have not compared this to a Deed scenario, as no Deed has been proposed.
Based on the assumptions detailed in the notes below, we estimate a nil return to unsecured creditors.
Report
section and
notes
Liquidation
$’000
Non-circulating assets
Plant & Equipment 1 2,576
Less Total non-circulating assets 2,576
Administration costs in realising those assets:
Administrators’ costs 2 (419)
Other costs 3 (267)
Total non-circulating assets less costs 1,889
Less Secured creditor claims 4 (11,190)
Surplus/(Shortfall) to secured creditor (9,301)
Return to secured creditor from non-
circulating assets (cents in the dollar)
16.9
Circulating assets
Cash at bank 5 236
Cash on hand 6 47
Trade debtors 7 28
Inventory 8 1,490
Sundry debtors 9 132
Voidable transaction claims Section 8.1 Nil
Insolvent trading claims Section 8.2 Nil
Total circulating assets 1,934
Less Administration costs (other than non-circulating):
Trading costs 10 (197)
Legal fees 11 (25)
Administrators’ costs 12 (419)
Liquidators’ costs 13 (100)
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Report
section and
notes
Liquidation
$’000
Total circulating assets less costs 1,192
Less Priority employee claims Section 4.5.4 (1,297)
Return to employees from circulating assets
(cents in the dollar)
91.9
Available funds to unsecured creditors Nil
Unsecured creditor claims:
Trade creditors Section 4.6 7,057
Excluded employees Section 4.5.5 Nil
Related entities Section 4.7 Nil
Return to other creditors from circulating
assets (cents in the dollar)
Nil
Distribution Timing n/a
Notes
1. Estimated net proceeds from the auction of the plant & equipment from the Brooklyn store which was closed on 28 October 2018 of $100k plus the net proceeds from the going concern sale of 14 of the 17 stores, less approximately $200k in rental arrears owed to landlords to achieve lease assignments.
2. Administrators’ fees are required to be allocated between circulating and non-circulating assets - this needs to be done on a basis that fairly reflects the time spent on the sale of business and other matters. The principle we are applying is that the sale of business had a dual benefit (i.e. asset realisations for the benefit of the secured creditor and avoidance of redundancies for the majority of employees) and therefore we are allocating 50% of our costs to non-circulating assets and 50% to circulating assets.
3. Other costs attributable to non-circulating assets include legal fees (including landlord legal costs to effect lease assignments) valuation costs, and other sale of business costs i.e. advertising, etc. We have also included $67k related to a 50% share of the estimated net trading loss of the business from 7 September 2018 to 11 November 2018, for the same reason outlined in point 2 above, in that the continued trading of the business had a dual benefit.
4. The secured creditor’s (APAAP) claim, less the amount of bank guarantees that have been returned following the sale of business.
5. The cash at bank as at 7 September 2018, and available to the Administrators.
6. Cash on hand represents cash floats held at each of the Companies’ stores
7. Represents actual collections of Trade Debtors. We note that the Companies’ had minimal trade debtors.
8. Inventory realised (predominantly at cost value) from each of the going concern sales and from the closure of the three stores, less $100k for PPSR claims.
9. Sundry debtors includes $81k from a pre-appointment GST refund, $16k net return from a security deposit held by a landlord, and $35k net cash return from a bank guarantee that was previously called upon.
10. Trading costs ($197k) includes the payment of priority employees’ pre-appointment wages ($130k) that were paid to ensure the Companies’ could continue to trade and 50% share of the trading loss ($67k), as detailed in note 3 above.
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11. General legal fees incurred that do not relate to the sale of business.
12. Administrators’ fees attributable to circulating assets. Refer note 2 for additional information.
13. Estimated Liquidators’ fees should the Companies’ be wound up at the Second Meeting.
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11 Administrators’ recommendation
We are of the opinion that it is in the creditors’ best interests that the Companies be wound up (i.e. placed into liquidation). Our opinion of each option available to creditors is discussed below.
11.1 Liquidation
We are of the opinion that it is in the best interest of creditors that the Companies be wound up.
Our preliminary view is that it is unlikely that the Companies traded whilst insolvent, but further investigation would be required by a liquidator in order to reach a firm conclusion on this issue. Creditors should note that insolvent trading claims are difficult and costly to pursue, and even if successful they may not generate a return for creditors.
Likewise, as our preliminary view is that the Companies did not become insolvent until on or about 5 September 2018, it is unlikely that any material preference claims will be recoverable. Further investigation would be required by a liquidator in order to reach a firm conclusion on this issue also.
A liquidator (if appointed) would be in a position to conduct detailed investigations into the circumstances leading up to the appointment of the Administrators.
A liquidator will be empowered to:
assist employees in applying for FEG for the payment of certain employee entitlements that cannot otherwise be funded by Tasman – if necessary (Section 4.5.6)
pursue various potential recoveries under the Act, such as voidable transactions – if relevant (Section 8.1)
distribute funds in accordance with the priority provisions of the Act
complete thorough investigations into:
- the Companies’ dealings and affairs
- actions of the directors
report findings to ASIC pursuant to the Act
As detailed in Section 10 of this Report, the estimated return to creditors of Tasman and TMFMH in a liquidation scenario is summarised below.
Liquidation (cents in
the dollar)
Tasman Market Fresh Meats Pty Ltd (Administrators Appointed)
Secured creditor 16.9
Priority creditors 91.9
Unsecured creditors Nil
TMFM Holdings Pty Ltd (Administrators Appointed)
Secured creditor 16.9
Priority creditors N/A
Unsecured creditors Nil
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11.2 DOCA
This option is unavailable to creditors as we have not received any DOCA proposals for the Companies.
We will table any DOCA proposals received after this Report at the Second Meeting. Creditors may decide to adjourn the Second Meeting to further consider any DOCA proposals received. Any adjournment of the Second Meeting must reconvene within 45 business days.
11.3 Administration to end
We are of the opinion that it is not in the best interest of creditors to end the administration.
While our investigations are continuing, it is evident that the Companies are insolvent and unable to pay their debts as and when they fall due (Section 7.3). Accordingly, returning control of the Companies to the directors would be inappropriate in the present circumstances.
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12 Enquiries Further information can be located on our website: https://www.pwc.com.au/business-restructuring/insolvency-cases/tasman-market-fresh-meats-pty-ltd.html
Should you have any queries, please contact Jacob Curtis on (03) 8603 3076 or via email at [email protected].
DATED this 20th day of November 2018
David McEvoy and Martin Ford
Administrators
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Appendices
50
Appendix A – Appointment of Proxy, Proof of Debt or Claim Form – Form 532
51
Appendix B – Remuneration Approval Report dated 20 November 2018
52
Appendix C – Declaration of Independence, Relevant Relationships and Indemnities
53
Appendix D – Notice of meeting of creditors
54
Appendix E – ASIC Publication: Insolvency information for directors, employees, creditors and shareholders
55
Appendix F – Details of identified secured creditors
56
Appendix G – ARITA Publication: Creditor information sheet: Offences, recoverable transactions and insolvent trading
