Statutory Report By Liquidators - Grant Thornton Australia
Statutory Report byLiquidatorsNRG CONCEPTS PTY LTD (IN LIQUIDATION)ACN 101 133 484 (the Company)18 February 2020John McInerneyJoint and Several LiquidatorT 61 2 8297 2400Ejohn.mcinerney@au.gt.comPhilip Campbell-WilsonJoint and Several LiquidatorT 61 2 8297 2400Ephilip.campbell-wilson@au.gt.com
IntroductionWe refer to our initial correspondence to creditors dated 12 December 2019 in which we advised you ofour appointment as liquidators and your rights as a creditor in the liquidation.The purpose of this report is to: Provide you with an update on the progress of the liquidation. Advise you of the likelihood of a dividend being paid in the liquidation.We will also be requesting that you consider our detailed remuneration report and pass a proposal toapprove our remuneration.The Joint and Several Liquidators have relied on information provided from numerous sources toprepare the report, including: Discussions with the Director and key management staff of the Company. Discussions with the Creditors of the Company. Information available from public sources, such as, Australian Securities and Investments.Commission (ASIC) and the Personal Property Securities Register (PPSR). A review of the Company's books and records provided to date.Update on the progress of the liquidationAssets and liabilitiesThe Director of the Company is required to complete and provide to the Joint and Several Liquidators astatement about the Company’s business, property, affairs and financial circumstances, also known asthe Report of Company Activities and Property (ROCAP). The ROCAP is a snapshot in time as at thedate of our appointment of the assets and liabilities of the Company, disclosing book values and theDirector’s opinion on the estimated realisable value (ERV) for assets.Below is a summary of the assets and liabilities of the Company, detailing our opinion on the ERV incomparison to the Director’s.DescriptionNoteROCAP ERVLiquidators’ ERVCash1--Related party loans2--Other assets3----Available AssetsSub totalLess LiabilitiesEmployee entitlements4--Unsecured 90,168)(4,154,529)Sub totalTotal deficiencyStatutory Report by Liquidators2
Notes1.CashThe Director’s ROCAP indicated that the Company held two bank accounts with Australia andNew Zealand Banking Group (ANZ), one of which was overdrawn as at the date of ourappointment and the other with a nil balance.As part of our preliminary investigations, we have written to the major Australian banks andother banking institutions notifying them of our appointment as liquidators of the Company. Weidentified a bank account held by the Company with ANZ and at the date of our appointment,this account had been overdrawn by 343. ANZ advised that the other account disclosed in theROCAP was not held in the Company’s name.We do not anticipate any return from this class of asset.2.Related party loansThe Director’s ROCAP did not disclose any loans to related parties. Notwithstanding, ourpreliminary investigations into the Company’s Xero management accounts identified a numberof intercompany loans to related entities.The net balance of the loans owing to the Company as disclosed in Xero as at our appointmentare summarised below.Related Party LoanOmnia Lifestyle Group Pty LtdOmnia Group Pty LtdOmnia FinanceBalance ( )3,9711,931,93419,310We note that prior to our appointment, Omnia Lifestyle Group Pty Ltd and Omnia Group Pty Ltdwere placed into liquidation.We, as Joint and Several Liquidators of Omnia Lifestyle Group Pty Ltd have advised creditorsthat a dividend in the liquidation is not anticipated.We have contacted the liquidators of Omnia Group Pty Ltd, who have advised that a dividendin the liquidation is not anticipated.We have written to Omnia Finance Pty Ltd demanding that the loan be repaid. As at the date ofwriting we have not received a response. We note that we have not been provided with anysupporting documentation to support the claim, and accordingly a return is unlikely.To date, we have not received proofs of debt from any of the related party creditors in theliquidation of the Company.We note that we are unfunded to commence recovery action in this regard. Creditors arereferred to our request for funding further in this report.3.Other assetsThe Director has not disclosed any other assets held by the company. This is consistent withour investigations of the Company’s affairs.4.Employee entitlementsThe Director’s ROCAP did not disclose any employee entitlements owing as at the date of ourappointment. This is consistent with our investigations of the Company including, a review ofStatutory Report by Liquidators3
the Company’s Xero management accounts and business activity statements provided by theAustralian Taxation Office.5.Unsecured creditorsThe Director advised that the Company owed 4,090,168 to 62 unsecured creditors as at thedate of our appointment. To date we have received proofs of debt from 3 creditors totalling 414,391.The Director has advised in his ROCAP that 55 of the abovementioned unsecured creditors(with claims totalling c. 4,000,000) had entered into ‘Investment Loans’ with the Company.Our preliminary investigations into the nature of these loans are discussed in detail further inthis report.Receipts and Payments to dateAttached at Appendix A are details of all receipts and payments in the liquidation to date.Investigations and recovery actionsInvestigations undertakenWe have commenced our investigations into the affairs of the Company prior to our appointment andany potential recovery actions that may be available to the liquidators.To date, we have undertaken the following investigations: Contacted major banks to obtain details of any bank accounts in the Company’s name; Requested completion and reviewed the Director’s ROCAP; Conducted a detailed review and analysis of the available records of the Company; Liaised with the creditors of the Company; Liaised with the former accountant to the Company; Liaised with the Liquidator of Omnia Group Pty Ltd; Conducted searches of the Australian Business Register and Australian Securities and InvestmentCommission; Conducted motor vehicle and land title searches for the Company; and Liaised with the Director and key staff.Our findings from these investigations are detailed below. Given the limited time that has passed in theliquidation, the below findings are preliminary and may be subject to change.What happened to the business of the CompanyThe Company was incorporated on 27 June 2002 and operated from 21 Box Street Buderim QLD 4556.We understand that the Company primarily acted as an investment vehicle to raise capital to supportother entities. Our investigations also indicate that the business earned commission revenue fromproperty developers, who sold land options to investors.The Director has stated the reason for the Company's financial difficulties and the ultimate need to havethe Company wound up was due to restrictions on lending policies, which caused significant loss ofrevenue.Our investigations into the affairs of the Company also identified the following causes of failure:Statutory Report by Liquidators4
Poor financial control including lack of books and records; Poor management of accounts receivable; Inadequate cash flow and high cash use; and Poor strategic management of the business.Historical FinancialsThe financial statements summarised below are an extract of the Annual Report prepared by theCompany’s external accountant for the 2017 financial year, with comparative figures for 2016. Thefigures for the 2018 financial year and as at the date of liquidation of 28 November 2019 have beenextracted from the Company’s Xero management accounts.Summarised statements of financial positionAs unts ReceivableMotor Vehicles (Less Depreciation)Tax ReceivableRelated Entity 367,1702,970Total 9166,67535,254(97)AssetsLiabilitiesLoan - Gordon SmithLoan - GS Family TrustInvestor LoansAccounts PayableMercedes Benz Financial ContractTax PayableSuperannuation PayableTotal Liabilities1,205,4721,455,3903,659,1543,628,990Net tal Equity(908,782)(2,298,313)(2,712,019)(2,742,305) In each of the periods analysed, the Company had a net asset deficiency which increased from c. 900K in 2016 to c. 2.7M in 2019, indicating it was undercapitalised throughout this period. Thedeteriorating net asset position is largely a result of an increase in Investor Loan liabilities from c. 550K in 2016 to c. 3.3M in 2019. These funds were primarily used to meet expenses of theCompany. Cash at bank is overstated as at the date of our appointment. It appears that the account was lastreconciled in 2016 which raises concerns regarding the accuracy and integrity of the Company’smanagement accounts. As discussed above, as at the date of our appointment the Company heldan overdrawn account with ANZ. We have conducted motor vehicle searches in New South Wales and Queensland and have notidentified any motor vehicles registered in the name of the Company. We have written to the Directorto request further details in this regard, and are awaiting his response. Notwithstanding, we note thatStatutory Report by Liquidators5
we are unfunded to conduct further investigations in this regard. Creditors are referred to our requestfor funding later in this report. The Director has advised in his ROCAP that 55 unsecured creditors (with claims totalling c. 4,000,000) had entered into Investment Loans with the Company. Our preliminary investigationsinto the nature of these loans indicate that:oThe size of the investment loans varied from 15,000 to 200,000 and that each investmentcarried a fixed interest rate of 10 or 12 per cent per annum. The agreed investment period wasfor 12 months with interest and principal repayable upon maturity. Our review of the Company’srecords indicate that investors may have elected to extend the periods of their investmentsbeyond the original maturity date.Summarised statements of financial 9RevenueYear ending580,874714,8007425Total Income580,874714,8007425Cost of Sales283,400289,5323,7714,385Gross Profit297,474425,269(3,028)(4,380)Salary & WagesTravelRentInterest Expenses - Investor LoansSubcontractorsStaff Bonus & CommissionsAdvertisingMotor Vehicle ExpensesConsulting & AccountingEntertainmentStaff Amenities & TrainingOther ,4467,21518,691Total Expenses1,256,2551,764,806410,67725,906Net Profit(958,782)(1,339,538)(413,706)(30,286) The Xero management accounts indicate that the business ceased earning income in FY18. Despitethis, it incurred c. 410K of expenses during FY18. A significant portion of these, c. 163K and 148K related to travel and other expenses. The management accounts indicate that the Company largely ceased trading after 30 June 2018. Approximately 50% of expenses incurred in FY16 and FY17 related to employee expenses,amounting to c. 626K and 846K respectively. These expenses appear to exceed total incomeearned, indicating inadequate cash flow and high cash use. The Company was loss making in eachof the years analysed. Interest expenses for Investor Loans were not recorded in 2018 indicating the accounts may not bereliable.Insolvent tradingThe Director advised it became apparent in November 2019 after a c. 73K Court judgement againstthe Company in relation to a creditor’s statutory demand that the Company may have to be wound up.Statutory Report by Liquidators6
Notwithstanding, our preliminary investigations have determined that the Company was likely insolventfrom at least February 2019 based on the following:oThe Company received demands for payment from a creditor for outstanding debts from asearly as August 2019. The Company was unable to meet the demand, and the debt remainsoutstanding as at the date of our appointment.oWe note that the debt underlying the above demand fell due and payable on 6 February 2019pursuant to the Investor Loan Agreement.oWe note that whilst other Investor Loan debts may have matured prior to this time, weunderstand that those investors may have elected to extend the term of their loans, andaccordingly those debts may not have been due and payable.oThe Company had a net asset deficiency from July 2016 to the date of our appointment.Notwithstanding, as discussed above the investor loan liabilities may not have been due andpayable as at that date.Taking the above into consideration, we have determined that the Company was likely insolvent from atleast February 2019. This is a preliminary estimate, and is subject to change upon further investigation.A potential claim against the Director for insolvent trading may be up to 4,154,529 being the totalunsecured creditor claims in the Liquidation to date. Further investigation is required to quantify apotential insolvent trading claim against the Director.As discussed further in this report, our investigations indicate that the Director does not appear to havesufficient assets to meet a judgment (if one is made against him).Creditors are referred to our request for funding later in this report.Voidable transactionsOur preliminary investigations have not identified any recoverable unfair preference claims,uncommercial transactions, unfair loans or unreasonable director-related that are commercial to pursue.Unfair preference claimsOur investigations have not identified any potential unfair preference claims.Uncommercial transactionsOur investigations have not identified any potential uncommercial transactions.Unfair loansOur investigations have not identified any potential unfair loans.Unreasonable Director-related transactionsAccording the Company’s management accounts, the Director and/or related entities may have receivedc. 367K of funds from the Company in the 4 years prior to our appointment.The Director also received wages of 90,000 from the Company during this period.Further investigation is required to determine whether the above amounts may be voidable against aliquidator. Creditors are referred to our request for funding later in this report.Director’s capacity to payOur preliminary investigations indicate that the Director has nominal personal assets in his own name.We have requested that the Director provide a Statutory Declaration of his personal asset and liabilityposition. We have not yet received a response.Statutory Report by Liquidators7
We have also conducted our own independent searches, including a search of the NSW Land TitleOffice database, which has confirmed that the Director does not own any recoverable assets in hisname.The Director has also advised that he intends to declare bankruptcy shortly.Taking the above into consideration would appear that the Director would not have sufficient resourcesto pay any judgement obtained against him. Accordingly, we do not consider that it would becommercial to pursue recovery action against the Director for insolvent trading pursuant to section 588Gof the Act or unreasonable director related transactions under section 588FDA of the Act.Further investigations and estimated costWe do not see any merit or commercial benefit of conducting further investigations and in lieu offunding, intend to finalise the liquidation.If creditors want us to conduct further investigations we will require funding.At this stage we estimate a cost of 30,000 to conduct the further investigations into the Company’saffairs discussed above.Further inquiries to be undertakenIf funded we would undertake the following further investigations: Gather further evidence to support the date of insolvency; Quantify insolvent trading claim against the Director; Publically examine the director or any other party in relation to the Company’s affairs; Quantify the value of any potential claims; and Obtain legal advice if appropriate, on the merit and cost to pursue the claim.Request for fundingAs there are limited available funds in the Liquidations we invite creditors to fund us to conduct furtherinvestigations. Creditors are invited to register their interest in writing to this office within 14 days of thedate of this report.Notwithstanding, as discussed earlier in this report, we do not anticipate a return from furtherinvestigations, as the Director and other debtor entities do not appear to have the capacity to meet anyclaims.In lieu of interest, we expect the Liquidation will be finalised within the next 3 months.Likelihood of a dividendThe likelihood of a dividend being paid to creditors will be affected by a number of factors including: The size and complexity of the administration. The amount of assets realisable and the costs of realising those assets. The statutory priority of certain claims and costs. The value of various classes of claims including secured, priority and unsecured creditor claims. The volume of enquiries by creditors and other stakeholders.Statutory Report by Liquidators8
At the current time, there is not expected to be sufficient funds to pay a dividend to any class of creditor.We recommend that creditors write off their debts.If this position changes, creditors will be contacted and asked to submit a proof of debt.Cost of the liquidationWe am seeking approval of remuneration of 20,000 (excl. GST) for the period 28 November 2019 tothe completion of the liquidation.To date we have received a contribution of 22,000 from the Director to fund the liquidation. Withoutfurther funding the remaining balance of fees incurred form the date of our appointment to thefinalisation of the liquidation will be written off.Attached at Appendix B is a detailed report on our remuneration, called a Remuneration ApprovalReport. We unable to pay my remuneration without the approval of creditors or the court.We am seeking creditor approval of our remuneration by a proposal without a meeting.To participate in the proposal, please complete and return the following by no later than 4.00pm on 20March 2020: The “proposal without a meeting” forms included at Appendix C. The “proof of debt” form included at Appendix D which provides information about what thecompany owes you, along with supporting documents for your claim (if not returned previously).The documents can be scanned and emailed to alan.zhang@au.gt.com or returned via post to our firm’saddress, attention Alan Zhang. If you choose to return these documents via post, please ensure thatyou allow enough time for us to receive them by the due date.An information sheet on “proposals without a meeting” is included at Appendix C.What happens next in the liquidation?We will proceed with the liquidation, including: Complete our investigations into the Company’s affairs. Complete our reporting to the corporate insolvency regulator, the Australian Securities andInvestments Commission (ASIC). Finalise the Liquidation of the Company.We expect to have completed this liquidation within 3 months.Compliance with best practiceWe confirm that this report complies with the requirements in the Insolvency Practice Rules (IPR),specifically IPR 70-40, as well as the statements of best practice issued by the Australian RestructuringInsolvency and Turnaround Association (ARITA) with regard to content of the Statutory Report byLiquidator and the Code of Professional Practice with regard to remuneration.What to do nextYou shoul
The financial statements summarised below are an extract of the Annual Report prepared by the Company’s external accountant for the 2017 financial year, with comparative figures for 2016. The figures for the 2018 financial year and as at the date of liquidation of 28 November 2019 have been extracted from
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