· over-bailment • improper maintenance of books and ... february 2010 to the conclusion of the...

© 2010 Grant Thornton Australia Ltd | Administrators' Section 439A(4) Second Report to Creditors | 22 January 2010

Prestney Bros. (Motors) Pty Ltd(Administrators Appointed)A.C.N. 004 835 965

Administrators' Section 439A(4)Second Report to Creditors

22 January 2010

Andrew HewittDirectorT +61 3 8663 6014E [email protected]

Matthew ByrnesDirectorT +61 3 8663 6014E [email protected]

Mitesh RamjiAssociate DirectorT +61 3 8663 6173E [email protected]

2© 2010 Grant Thornton Australia Ltd | Administrators' Section 439A(4) Second Report to Creditors | 22 January 2010

Contents

Section Page

1. Executive summary 3

2. Introduction and background 5

3. Reasons for failure 10

4. Trading during Administration 18

5. Sale of business 25

6. Historical trading 28

7. Investigations 31

8. Employees and employee entitlements 45

9. Report as to affairs ("RATA") 49

10. Estimated return to creditors 60

11. Remuneration 62

12. Administrators' recommendation 64

APPENDICIES PAGE

A. Reasons for failure 68

B. Voidable transactions 74

C. Trading performance by department (under administration) 76

D. Historical financial performance 79

E. Retrospective remuneration report 84

F. Prospective remuneration report 91

G. Grant Thornton scale of rates 96

H. Declaration of independence, relevant relationships and indemnities 97


Section 1

Executive summary

Administrators' recommendation12.

Remuneration11.

Estimated return to creditors10.

Report as to affairs ("RATA")9.

Employees and employee entitlements8.

Investigations7.

Historical trading6.

5.

4.

3.

2.

1.

Sale of business

Trading during Administration

Reasons for failure

Introduction and background

Executive summary


Executive summaryExecutive summary

St George provided us with an indemnity to the value of $500k which in turn allowed us to continue to trade the business.

A net loss of c. $200k was incurred for the period 29 September 2009 to 15 January 2010. After adjusting for one-off costs and pre-appointment costs an adjusted loss of c. $61k was incurred.

Matthew Byrnes and Andrew Hewitt were appointed joint and several Voluntary Administrators ("Administrators") of Prestney Bros. (Motors) Pty Ltd ("the Company") on 29 September 2009.

After being granted an extension to the convening period the Second Meeting of Creditors has been called for Monday, 1February 2010 at 11:00am and will be held at the offices of Grant Thornton, Level 2, 215 Spring Street, Melbourne, Victoria.

Introduction

The Company operated primarily as a new and used motor vehicle retailer, selling new vehicles supplied by Ford, Mercedes-Benz and Subaru.

The Company operated from one leased premises, located at 124-128 York Street, Sale owned by a related party, Prestney Bros. (Properties) Pty Ltd ("Properties").

Our review has identified that the following factors mainly contributed to the failure of the business:

• The misuse of the floor plan facility resulting in conversion of vehicles and over-bailment

• Improper maintenance of books and records leading to lack of transparency in the Company's profitability

• High fixed cost base of the business

• Poor management of repair orders and accounts receivable

Principal activity Reasons for failure Trading during Administration

There are unlikely to be funds available for distribution to any class of creditor.

Estimated return to creditors Remuneration Administrators' recommendation

Remuneration from our appointment to close of business on 20 January 2010 is $600,959 excluding GST and disbursements.

Remuneration for the period 21 January 2010 to Second Meeting of Creditors is estimated to be $25,000 excluding GST and disbursements.

Our estimate of prospective fees from 1 February 2010 to the conclusion of the liquidation is $100,000 excluding GST, disbursements, and any amounts received from the General Employee Entitlements and Redundancy Scheme (“GEERS”).

We have evaluated all available options and recommend that the Company be placed into Liquidation at the Second Meeting of Creditors.


Section 2



Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Introduction

Appointment and second meeting of creditors Matthew Byrnes and Andrew Hewitt were appointed joint and several Voluntary Administrators ("Administrators") of Prestney Bros. (Motors) Pty Ltd ("the Company") on 29 September 2009 pursuant to section 436A(1) of the Corporations Act.

The First Meeting of Creditors was held on 9 October 2009 at the Grant Thornton offices and our appointment as Administrators was confirmed by the creditors. At this meeting the creditors voted against the appointment of a Committee of Creditors.

Ordinarily the second meeting of creditors would have been held in November 2009. However an extension to this period known as the "convening period" was sought.

Creditors were informed via correspondence dated 2 November 2009 that an application had been made to the Supreme Court of Victoria requesting an extension of the convening period. The application was subsequently granted and the period within which to convene the second meeting was extended to 26 January 2010.

Given the convening period extension, the Second Meeting of Creditors has been called for Monday, 1 February 2010 at 11:00am and will be held at the offices of Grant Thornton, Level 2, 215 Spring Street, Melbourne, Victoria.

Second report to creditorsThe purpose of this report is to present creditors with information on the three possible directions the Company’s future may take and the options available to you as a creditor, together with information about the Company’s business, property, affairs and financial circumstances.

The options presented by the Corporations Act (“the Act”) to be voted on by creditors at the meeting are that:

The Administration terminate; or

The Company be wound up; or

The Company execute a Deed of Company Arrangement.

The Act requires us to make a recommendation to creditors as to the option that will result in a better outcome for them. We have evaluated all available options and recommend that the Company be placed into Liquidation at the Second Meeting of Creditors.

This recommendation is discussed in further detail in Section 12 of this report.



Company background

Principal activityThe Company operates primarily as a new and used motor vehicle retailer, selling new vehicles supplied by Ford, Mercedes-Benz and Subaru. The used vehicle department comprises a number of different manufacturers, predominately sourced through vehicle trade-ins.

The Company operates a vehicle service centre on-site and a vehicle parts department which supplies the service division as well as the general public.

The Company also operates as the RACV 24-hour call out centre for the local and surrounding area.

In summary, the Company operated several divisions, namely:New Ford;New Mercedes-Benz passenger;New Mercedes-Benz commercial;New Subaru;Used cars;Vehicle servicing, maintenance, panel shop and warranty; Spare parts; Finance and accounts; Two truck license which is owned by Prestney. Bros (Properties) Pty Ltd but operated by the Company; andRACV centre.

The Company funded its business operations through an overdraft facility provided by the National Australia Bank Limited ("NAB") and a bailment facility provided by St George Bank Limited ("St George").


Under the terms of the vehicle bailment finance facility, ownership of all “bailed”vehicles lies with St. George until such time as bailment is remitted. I note that as at the date of appointment all motor vehicle stock was bailed however three vehicles were leased through Ford Financing.

Trading premisesThe Company operates from one leased premises, located at 124-128 York Street, Sale. The premises comprises three independent showrooms, dedicated to the individual franchisors, along with a number of service and detailing areas and office space. The total area of the premises is 6,272 square metres.

We note that the premises is owned by a related party, Prestney Bros. (Properties) Pty Ltd ("Properties"). Properties has the same directors as the Company and whilst no formal lease agreement was in place, we understand that the Company paid the premises' mortgage in lieu of paying rent to Properties.

We understand that the showrooms were ungraded in 2007.

Further we note that the NAB hold a first ranking mortgage over the premises and St. George hold a caveat supporting an unregistered mortgage.

Trading during administration and indemnityWe were provided with an indemnity in this administration by St. George to the value of $500k.This has allowed us to continue to trade and attempt to sell the business as a going concern.

Trading during the administration period is discussed in greater detail in Section 4 of this report.


2 Dec 0931 Oct 0927 Oct 0921 Oct 0913 - 20 Oct 099 Oct 0929 Sep 09

Appointment date

First creditors meeting

Business advertised in the AFR, Age and GoAuto

Information Memorandum circulated

28 Dec 09

First month trading

Termination of Mercedes Franchise

26 Jan 10

Termination of Subaru Franchise

End of convening period

Ongoing meetings with interested parties from 30th October 2009

Voluntary administration extension obtained

Formal investigations as required during the Administration period

17 Dec 09 23 Dec 10

First round of redundancies

Final round of redundancies

1 Feb 10

Second Meeting of Creditors

Key events of the administration

The timeline below details the key events of the administration.

The sale of business process commenced shortly after appointment and this process has continued throughout the administration. The sale of the business is discussed in detail in Section 5 of this report.

To maximise the effectiveness of the sale campaign and we sought to extend the Voluntary Administration period. This extension was granted on 27 October 2009.

Since appointment we have conducted investigations into the reasons for the Company's failure. The outcome of these investigations are discussed in Sections 3 & 7 of this report.


The termination of the Mercedes-Benz and Subaru franchises had a negative impact on the trading viability of the Company and therefore the value of the business. As a result of the loss of franchisees and their respective customer bases, redundancies were deemed to be necessary.

Despite the loss of the two franchises, we have managed to continue to trade the Company throughout the administration period, albeit now at a reduced capacity.

At the Second Meeting of Creditors on 1 February 2010 the Company's future will be decided.

An offer for the sale of the business (combined with the sale of the property) was received from an interested party with whom negotiations are currently taking place.


Mrs Janice Heather PrestneyDirector since 10 March 1983

Mr Robert Keith PrestneyShareholding – 10,000 shares

Prestney Bros. (Motors) Pty Ltd (Administrators Appointed)

Mr Robert Keith PrestneyDirector since 13 July 1970

Organisational structureIntroduction and background

Janrob Nominees Pty LtdShareholding – 20,000 shares

Company office holders & shareholdingsA search of the Australian Securities and Investments Commission (“ASIC”) database confirmed that the Directors of the Company are those listed above.

We have not identified any other person who may be considered a deemed or shadow director of the Company.

Our investigations did not reveal any other persons who acted in the capacity of a director.

At the date of appointment the Company’s shareholding was made up of 30,000 fully paid up ordinary shares with a total par value of $30,000.

A search of the ASIC database shows there has been no change to shareholdings or officeholders in the 12-months prior to the appointment date.

Janrob Nominees Pty Ltd (“Janrob”) is a related party, wholly owned by the Directors of the Company. We understand that this company is a holding company with no other assets and is not trading. A search of the ASIC's database indicates that an annual return has not been lodged since 2002.

The only other known related entities are Prestney Bros. (Properties) Pty Ltd (formerly Prestney Bros Pty Ltd) who owns the Company's premises and Prestney Bros. Distributors Pty Ltd which is a dormant entity.

Prestney Bros. Distributors Pty Ltd

Prestney Bros. (Properties) Pty Ltd

Landlord Dormant


Section 3

Reasons for failure


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Reasons for failureReasons for failure

A schedule of 157 "missing" vehicles was provided by St George at appointment, which represent vehicles that have potentially been sold by the Company but payment to St George had not been remitted.The vehicles were not on hand at the Company's premises at the date of appointment. The industry term for this practice is "conversion". The total value of converted vehicles is c. $5.5m.Our investigations suggest that the vehicles were:

Reported to St George as being sold on Deferred Payment Plan (and that the business was awaiting payment) when in fact the vehicle was sold to a private customer (and payment had been already received); or Invoices and purchase orders ("PO") provided to St George as supporting documentation were altered in order to obtain an additional thirty (30) days extended finance rather than remit the funds to the St George within two (2) days of payment being received and the vehicle being delivered.

Essentially St George was misled in order to obtain credit terms the Company was not entitled to. (Our conclusions were based on testing fifty-eight (58) invoices provided by St George. We intend to undertake a review of the remaining invoices upon receipt from St George.)

Converted vehicles

Upon our initial review of the used car bailed vehicles, we noted that several vehicles appeared to be bailed at amounts significantly higher than their market value. This practice is commonly referred to as "overbailment". We traced 263 used car transactions (from the records on hand for the period 28 July 2008 to 2 October 2009) from acquisition to disposal. Our findings revealed that c. 91% of the transactions analysed were overbailed at an average of c. $4.7k per used vehicle. It appears that this practice was used to access cash and manage cash flow constraints as the Dealership would receive funds from St George upfront for the bailed amount of the vehicle whilst the repayment is deferred until the vehicle is sold.

Over-bailed vehicles

Misuse of floorplan finance facility

(Appendix A)

Commentary

Summary of reasons for failure

ExampleReason


$'000 FY08 FY09 FY10 YTD TotalFloorplan interest 619 568 35 1,222Property mortgage repayments 120 120 30 270Property improvements - - - 1,200Related party payments 366 302 52 721Total 1,105 992 117 3,412


Application of funds

(Appendix A)

The Directors' loan account at appointment had built up to c. $1.2m, comprising annual drawings which averaged c. $200k per year from September 2004 up until appointment.Whilst annual drawings may reflect an equivalent market based salary of a director, should the business be placed into Liquidation these amounts may be pursued as a loan account owing.

Related party payments

Floorplan interest payments incurred were approximately $1.2m over the last twenty-seven (27) months.The business was clearly over-geared and could not afford the high level of interest finance. Yet the business was meeting its interest commitments as cashflow was being supplemented with the "conversion" and "overbailment" funds.

Floorplan interest

We have not been able to identify or trace the cash relating to the converted/overbailed vehicles through the records of the business.We have throughout our review identified expenses and payments to which these funds were likely to have been applied.A summary of these expenses/payments are shown in the table below.

We have become aware of a trend of cash based arrangements within the business and it is plausible that some of the monies may have been applied to these and other transactions.

Likely use of funds

Commentary


ExampleReason


Reasons for FailureReasons for failure

Whilst there was no lease in place between Prestney Bros. (Motors) and Prestney Bros. (Properties) (the owner of the property), the mortgage on the property was paid by Prestney Bros (Motors) in lieu of rent. Repayments of c. $30k per quarter were traced through to the bank accounts which appear reasonable.

Property mortgage repayments

The Company appears to have spent c. $1.2m on property improvements over the past six years. These amounts are unlikely to have been sustained by the business and we believe the "conversion" and "overbailment" funds are the likely source of how the improvements were funded.

Property improvements

Application of funds

(Appendix A)

The cost base of the business was c. $2.6 million per the 30 June 2009 trial balance.Used cars, Parts and Services divisions reported a gross profit of $1 million for the same period based on the DA60 reports which are essentially management reports derived from the trial balance.Therefore new vehicle sales would need to generate c. $1.6 million in gross profit in order for the Company to break-even.We have calculated based on the DA60 reports that the average gross profit per new vehicle was c. $5k.At this average the business would need have sold 325 vehicles to break-even assuming all of the above financial information is regarded as correct.Vehicle sales data reported by the manufacturers indicates that the dealership reported sales of 330 vehicles for the year.However, the business reported a profit of c. $420k in the financial year 2009 which suggests that an additional 84 new vehicles (at their gross of c. $5k each) would have needed to be sold to deliver the reported level of profit.Additionally the level of gross profit per vehicle of $5k appears high as the average for the 12 months prior and the 4 months post 30 June 2009 was c. $3.5k. Consequently, the number of new vehicles required to be sold in the year to generate the same level of profit would increase to 474 new vehicles.

Estimated breakeven position and assessment of reasonableness of reported profit

Assessment of reasonableness of reported profit

(Appendix A)

Commentary


ExampleReason



The Company provided the accountants with monthly reports (DA60's) and a year end general ledger trial balance. Invariably the two (2) sources of information did not reconcile.We were advised by the accountant that the director would hand write the results he would like to have reported in the financial statements and advise the accountants to draw up financial statements accordingly. The accountants prepared the financial statements on this basis with any balancing items being booked to the shareholders' loan account.The accountant was unable to provide any working papers, journals, draft accounts or documentation to substantiate these claims advising that all records relating to the Company had been returned. We did not locate them in the Prestney records.It appears as though some balances were carried forward from prior years with the accounting staff not closing off the year end accounts. We found that the business did not maintain adequate books and records to enable accurate financial reporting or management decision-making.We have concluded that the records maintained in the Reynolds system are unreliable. Detailed forensic investigation and extensive account reconstruction would be required in order to obtain reasonably accurate financial information. We will discuss this at the upcoming creditor's meeting.

Financial statements

Lack of transparency in the Company's profitability due to poor records

(Appendix A)

We identified an entry processed in April 2009 which was essentially a reversal of floor plan interest of c. $177k in the accounts provided to the NAB seeking an increase in the overdraft limit.This had the impact of improving profit by c. $350k reflecting a profit of c. $200k for the ten (10) months ending 30 April 2009 (as opposed to a c. $150k loss). The overdraft facility was subsequently approved.We note that the overdraft facility increased c. $779k over the past twenty-four (24) months and the extension provided in May 2009 ($500k) was fully utilised at the time of appointment.

Alteration of accounts prior to submission to the Bank

Unfavourable business practices

(Appendix A)

Commentary


ExampleReason



There were thirteen (13) fleet related trade-in vehicles on hand at the time of our appointment. The vehicles had been in stock for an average of 189 days.We compared the vehicle's aging and the profit or loss made on their subsequent sale. Our results show that nine (9) of vehicles tested were sold at a total loss of c. $23k and had been on hand for an average of 228 days. From this, it is apparent that the Company was trading in vehicles which it struggled to on-sell in a timely or profitable manner. Whilst we were unable to extend our review sample due to lack of records available, we believe that there is a possibility the practice of overtrading vehicles in order to maintain fleet contracts and associated bonuses contributed to the detriment of the Company’s ongoing viability.

Manipulation of fleet deals


Our review found that there was no formal procedures for managing repair orders (RO).Consequently, there was historically no timely pursuit of service debtors, manufacturer warranty claims or accountability of cancelled RO.There were c. 113 open RO upon appointment dating back to as early as 2006 that totalled c. $36k. The trial balance at the time reflected a work in progress balance of c. $795k which could not be substantiated. In addition there was no process in place to account for cancelled RO. The risk of lack of accountability for cancelled RO is that parts ordered for a cancelled job may not be returned and credited back to the spare parts department. Also the labour booked to the cancelled job is nullified and therefore not recorded.It would appear that the poor management of RO contributed to the failure of the business through lost warranty claim reimbursements. In addition there is the potential that cash was received in respect of RO but not accounted for in the Company's records. We are advised that one of the reasons the service manager was dismissed in August 2009 was the poor management of RO.

Poor control of Repair Orders (and therefore Labour-in-Progress)

Commentary


ExampleReason



Improper maintenance of books and records

(Appendix A)

Our review of the Company's accounting function revealed poor internal controls and a lack of reconciliations which resulted in years of incorrect accumulated financial data such as unreconciled suspense accounts.We found that the trial balance recorded several balance sheet amounts that clearly misrepresented the net asset position of the business. This trial balance showed no resemblance to the financial statements prepared by the external accountant.

The trend shown above further supports our conclusion that the trial balance was unreliable. As at 30 September 2009, the accounts reviewed appeared to be overstated by a total of c. $4.8m.

Commentary


Reason

30-Jun-08 30-Jun-09 Sep-09 Comments($) ($) ($)

AssetsVehicle debtors 1,311,057 577,616 1,681,241 The balance on hand equates to 44 vehicle debtors which cannot be substantiated.Subaru inventory (20,894) (17,147) (18,733) This account is misrepresented as it is continuously recorded as a credit balance.Parts inventory (344,108) (320,335) (45,927) Clearly incorrect as it is a credit balance. Amount per inventory listing was c. $340k as

compared to stock count of $175k.

Labour in process 522,493 735,772 795,691 Suggests accumulated balances created through ROs not being closed off. At an average cost of c . $2k per service, this equates to c. 400 services in progress which is clearly inaccurate.

Subtotal 1,468,548 975,906 2,412,272

Liability accounts reflecting debit balances (essentially recorded as assets)Accounts payable – Ford Motor Company 201,853 291,330 288,226 Suggests Ford owed the business c. $288k.Accrued payroll 316,514 405,747 452,562Accrued sick and holiday pay 849,045 1,026,885 1,069,292Prov ision for long service leave 36,457 38,331 38,331Superannuation payable 469,796 567,698 538,885Subtotal 1,873,665 2,329,991 2,387,297Total 3,342,213 3,305,897 4,799,569

Accrual accounts with debit balances which c learly misrepresent the financial position of the business.



From our review, it appears as though the Company converted vehicles and engaged in various unfavourable business practices in order to inject cash into the business to meet its debt requirements, operating costs, facility upgrades and related party loans. This was not sustainable and ultimately caused the failure of the Company.

Conclusion

Despite spending in excess of c. $200k over six (6) years on a dealership specific accounting system, it is apparent that the computer accounting system was not maintained or adequately utilised. Examples of underutilisation include:

The reporting functions of the system were used on a limited basis despite Reynolds’s report generator being able to supply detailed information on almost any part of the dealership’s operation;Profit and loss reports were not set up in the system; There was no process to record and reconcile factory receivables (holdback paid by the manufacturer), which are often vehicle specific; A number of vehicle stock reports were setup in the system, however these had not been run for a number of years;No daily operating control reports were setup in the system; andReliance on hand written documents, particularly, with regard to recording of employee entitlements.

Consequently, the Dealership did not have access to accurate management information to assist with decision making.

The Accounting System was not maintained or adequately utilised

Poor internal controls and record keeping

(Appendix A)

Commentary


ExampleReason


Section 4



Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


New Vehicles

Used Vehicles Parts Service

Overhead costs Total ($)

Sales units 41 88 - - - 129

Ave Sale price 48,820 13,362 - - - 24,631Holdback / Bonus 1,244 - - - - 1,244Ave Cost price (46,168) (12,907) - - - (23,478)Ave Gross 3,896 455 - - - 1,549

Sales 2,001,602 1,175,838 293,379 260,856 - 3,731,674Holdback / Bonus 51,024 - - - - 51,024COS (1,892,872) (1,135,780) (231,560) (128,236) - (3,388,447)Gross profit 159,755 40,058 61,819 132,620 - 394,252Gross profit % 8% 3% 21% 51% - 10.6%

Variable costs (27,130) (18,512) - - - (45,642)Selling costs - - (25,367) (60,314) - (85,681)Semi-fixed costs (41,133) (37,856) - - - (78,989)Selling gross profit 91,492 (16,310) 36,452 72,306 - 183,941

Overhead costs - - - - (349,998) (349,998)

Net profit/(loss) 91,492 (16,310) 36,453 72,306 (349,998) (166,058)

Estimated trading loss (1 Jan to 15 Jan 2010) (35,000)

Adjusted net profit/(loss) 91,492 (16,310) 36,453 72,306 (349,998) (201,058)Adjustments 5,117 47,783 740 2,211 83,998 139,851Adjusted net profit/(loss) 96,609 31,473 37,193 74,517 (266,000) (61,207)

Financial trading performance during administration

The Bank provided us with an indemnity to the value of $500,000 which in turn allow us to continue to trade the business. The table to the left summarises the trading results under administration for the period 29 September 2009 to 15 January 2010.

We note that :the table provides detailed trading results for the 3 months to 31 December 2009; and the estimated trading result for the 2 weeks ending 15 January 2010 is shown separately as a net figure as at the time of going to print sufficient details for this period’s trading were not available.

Sales Sales of c. $3.7 million were generated from the date of appointment to 31 December 2009 based on:

the sales of 129 vehicles (new and used) generating c. $3.2 million; andparts and services contributing c. $290k and $260k in sales respectively.

Gross profitThis level of sales generated c. $394k in gross profit. The contribution to gross profit was derived relatively equally between the vehicle sales departments and the parts & services departments.

Variable and selling costs Variable and selling costs relate to commissions and incentives paid to salesmen and service staff, pre-delivery costs, service fees, policy adjustments as well as freight and fuel charges and have generally been consistent on a monthly basis.


Profit and Loss Statement for the period 29 September 2009 to 15 January 2010

We note that the above results do not include any St George floor plan interest which we understand is being capitalised to the amount owed.



Semi-fixed costsSemi-fixed costs comprise sales managers' salaries, new car advertising and promotion, proportion of the finance managers salary (who sells vehicle finance), demonstrator petrol expense and Mercedes-Benz floor plan interest.

Overhead costsWe discuss overheads costs in more detail later in this report. We note that of the $350k incurred in the 3 months to 31 December 2009, c.$139k is regarded as one-off costs and pre-appointment costs considered necessary in order to continue to trade the business whilst a buyer was being sought.

Net loss and adjusted lossA net loss of c. $200k was incurred. After adjusting for one-off costs and pre-appointment costs an adjusted loss of c. $61k was incurred for the period 29 September 2009 to 15 January 2010.



Oct 09 Nov 09 Dec 093 months to Dec

09 ($)Sales units 56 30 43 129

Ave Sale price 22,709 27,005 25,479 24,631Holdback / Bonus 1,010 1,125 2,204 1,244Ave Cost price (21,717) (25,376) (24,447) (23,478)Ave Gross 1,406 2,042 1,391 1,549

Sales 1,478,285 1,002,820 1,250,569 3,731,674Holdback / Bonus 23,222 12,374 15,428 51,024COS (1,353,545) (884,357) (1,150,545) (3,388,447)Gross profit 147,962 130,837 115,453 394,252Gross profit % 10% 13% 9% 11%

Variable costs (15,262) (4,093) (14,888) (34,243)Selling costs (29,835) (29,691) (26,154) (85,680)Semi-fixed costs (34,199) (35,483) (20,706) (90,388)Selling gross profit 68,667 61,571 53,704 183,941

Overhead costs (205,554) (92,953) (51,491) (349,998)

Net profit/(loss) (136,888) (31,382) 2,212 (166,058)

Estimated trading loss (1 Jan to 15 Jan 2010) - - - (35,000)

Adjusted net profit/(loss) (136,888) (31,382) 2,212 (201,058)Adjustments 122,535 15,433 1,881 139,851Adjusted net profit/(loss) (14,353) (15,949) 4,093 (61,207)


In the table left we summarise monthly trading results for the three months ending 31 December 2009 and also include an estimate of $35k for the two weeks of trading to 15 January 2009.

October 2009 The business generated c. $1.48 million in sales in October 2009. 56 Vehicle sales accounted for c. $1.3 million and c. $200k form the parts and services division.

An accounting loss of c.$43k made on the sale of seven vehicles that had been on the lot for an extended period of time and their accounting value did not represent their realisable value.

Overall a loss if c. $136k was incurred of which c. $122k is attributable to one-off and pre-appointment costs (the adjustments are discussed later in this report).

November 2009Only 30 vehicle sales (11 new and 19 used vehicles) were achieved in November 2009. The higher gross profit percentage is attributable to the mix of models sold (good month for Subaru sales) as well as improved service profit as a result of a service promotion campaign.

The net loss for the month was c. $31k (before adjustments).


Profit and Loss Statement for the three months ending 15 January 2010

We note that the above results do not include any St George floor plan interest which we understand is being capitalised to the amount owed.



December 2009The overall result for the month was a profit of $2k. Despite being a short month, the business generated c.$1.25 million in sales (which was $250k higher than November 2009).

Admittedly the higher sales were achieved at lower margin as we tried to minimise our exposure of being left with inventory which would be subject to wholesale pricing in the event of a shut-down scenario.

The improved result was due to a reducing cost base through lower staff numbers (through resignations and terminations) and scaling back of expenditure considering the shutdown scenario that was likely at the time.

The result was considered satisfactory considering the withdrawal of Mercedes-Benz was effective 4 December 2009.

2 weeks to 15 January 2010We note that the estimated trading result for the 2 weeks ending 15 January 2010 is shown separately as a net figure as at the time of going to print sufficient details for this period’s trading were not available.

We can however comment that the reported loss of c. $35k was a result of fixed costs of c. $25k (mainly salaries and professional fees); and a $15k loss on sale of 9 used vehicle and associated departmental costs. We note that the service division recorded a profit of c. $6k justifying our decision to retain 4 service staff.



Oct 09 Nov 09 Dec 09 As a % of total($) ($) ($)

Prof & Serv Fees 30,453 23,055 9,997 63,504 24.5%Rent 10,000 10,000 10,000 30,000 11.6%Annual And Sick Leave 12,155 11,830 1,772 25,757 9.9%Superannuation 10,882 7,355 7,424 25,661 9.9%Salaries Admin 9,078 6,746 5,740 21,564 8.3%Legal fees - 15,433 1,881 17,314 6.7%Data Processing 10,639 3,460 3,460 17,559 6.8%Institutional Advert ising 9,860 - - 9,860 3.8%Insurance 2,500 3,635 3,634 9,769 3.8%Payroll Taxes 4,432 2,272 2,106 8,810 3.4%Other 14,900 9,167 5,477 29,544 11.4%Total 114,899 92,952 51,491 259,342 100.0%Add: Pre-appointment expenses 90,655 - - 90,655Gross overheads 205,554 92,952 51,491 349,997

3 months to Dec 2009 ($)

Financial trading performance during administrationTrading during Administration

Overhead costs We discuss material overheads by exceptions as follows.

Professional and Service FeesThese costs relate mainly to consultants' fees who assisted with the daily running of the business, a contract management accountant for 3 weeks and a Reynolds consultant's fees who assisted with quarantining the pre-appointment records and system and setting up the new post administration system.

RentWe have provided for a rental figure of $10k per month. This equates to the mortgage repayments paid by Prestney Bros (Motors) in lieu of rent.

Data Processing CostsData processing costs relate to the Reynolds & Reynolds ERA system. The monthly subscription is c. $3.5k. The balance of c.$7k relates to the one off installation of the "new" system store which was necessary to record post administration trading.

AdvertisingAdvertising costs relate to weekly advertisements in the Gippsland Times ($2.5k). The balance of the costs c. $7k related to advertising the business for sale in The Age, The Australian Financial Review and Go Auto.

In the table below we summarise monthly overhead costs for the 3 months ending 31 December 2009.


Oct 09 Nov 09 Dec 09 YTD Dec 09

($) Sale of used vehicles at a loss 42,666 - - 42,666Dataprocessing costs 23,150 - - 23,150Advertising the sa le of business 7,360 - - 7,360Legal fees - 15,433 1,881 17,314Petty cash 139 - - 139Reynolds - pre appointment 7,492 - - 7,492Insurance 7,135 - - 7,1351 days wages 3,700 - - 3,700Commissions 8,754 - - 8,754Professional fees 20,668 - - 20,668RACV warranty payments 1,471 - - 1,471Total adjustments 122,535 15,433 1,881 139,849

Financial trading performance during administrationTrading during Administration

Pre-appointment expenditure and other adjustments InsuranceIt was determined that it was necessary to maintain the pre-appointment insurance policy. However, the pre-appointment insurer, refused to provide cover to the Company unless the pre-appointment debt was paid. Due to a lack of alternatives, the pre-appointment debt was paid on 15 October 2009.

Data processing costsA decision was made on appointment to quarantine the information recorded in the “old” ERA system in order to preserve the records for investigative purposes and to create a “new” system store to record the results of trading under administration.

Whilst this involved additional cost (c. $23k including installation and utilising the services of a specialist Reynolds consultant), the benefit derived is expected to justify the cost particularly with regard to greatly improving the finance and administration function of the business.

Additionally, upon appointment Reynolds advised that the service would be discontinued unless we settled the pre-appointment debt of c. $7.5k. This amount was paid as it was deemed necessary to the Company's operations.

Professional feesPre-appointment professional fees relate to interim management costs incurred to run the business for the period leading to our appointment, once the Director left the dealership.

RACV warranty paymentsPayments were made to the RACV in respect of the pre-appointment warranty debt in order to preserve the RACV trading relationship.

Pre-appointment expenditure and other adjustmentsThese one-off, non-recurring, abnormal or pre-appointment expenditures were incurred in order to continue to trading the business and are discussed in further detail on the next page of this report.

Sale of used vehicles at a lossAn accounting loss of c.$43k was made on the sale of 7 vehicles. These vehicles had been on the lot for an extended period of time and their accounting value did not represent their realisable value. It should be noted that a profit of c. $4k was made on the bailment of these vehicles.

Wages and commissionsPre appointment wages and commissions were paid in order to maintain staff.


Section 5

Sale of business


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Publication Advertisement DateThe Age Wednesday, 14 October 2009

Friday, 16 October 2009Saturday, 17 October 2009

Australian Financial Review Tuesday, 13 October 2009Tuesday, 20 October 2009

GoAuto Wednesday, 14 October 2009

Sale of Business

Process UndertakenWe determined that a sale of the business and assets of the Company was likely to result in the best outcome for creditors and other key stakeholders. Whilst continuing to trade the business, a comprehensive sale campaign was undertaken.

The business and assets of the Company were marketed for sale commencing with an advertising campaign in The Age, Australian Financial Review and GoAuto.

Advertisements requesting expressions of interest were placed in the above publications as follows:

Sale of business

We received strong interest in response to the advertising campaign, with 23 parties registering their interest. Confidentiality agreements were sent out to these parties.

An Information Memorandum ("IM") was prepared and circulated to interested parties (who had executed confidentiality agreements) from 21 October 2009.

The original deadline for indicative offers was 30 October 2009. We have been flexible with the deadline to accommodate the requests by several interested parties for more time to formulate their offers.

Several interested parties have visited the premises and were provided with additional information subsequent to the IM being released.

Outcome of the ProcessDespite strong initial interest linked to the size of the Mercedes-Benz PMA and the length of establishment of the dealership in the area, initial offers received for the business were disappointing. A total of 3 offers were received.

We commenced further negotiations with each of these parties, however during this process Mercedes-Benz confirmed the termination of their Franchise Agreement.

Subsequently, all offers were withdrawn for both the property and the business.

Additional contributing factors cited as reasons for withdrawals of offers submitted were understood to be:

An expectation Subaru would relocate its franchise which occurred on 28 December 2009;

the high implied annual rental ($280k) based on the indicative value of the property ($3.5 million) based on an 8% yield, which is not supported by the trading performance of the business (especially since the site was now a single franchise operation);

the capital expenditure requirement to upgrade the service department; and

the amount of employee entitlements estimated to be c. $500k were likely to will be offset against the purchase price by any purchaser.


Sale of BusinessSale of business

Decision to wind down the businessConsidering the lack of interest and the loss of both Mercedes-Benz and Subaru franchises the likelihood of a successful sale of the business was remote.

We therefore resolved to wind down the business which led to termination of employment of all staff over the period 17 December and 23 December 2009. Five (5) staff were rehired on a casual basis to assist with the wind down process which was to take place between the Christmas and New Year break.

Current statusSubsequently, an offer for the sale of the business (combined with the sale of the property) was received from an interested party with whom negotiations are currently taking place.

As a result we rehired a further three (3) staff (brining the current total staff complement to 8) on a casual basis in order to continue to trade the business whilst negotiations continue.

We will provide an update regarding the status of the sale process at the second creditors' meeting.


Section 6

Historical trading


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


FY10 YTD

Internal accounts DA60's External accounts

Sales 4,352,575 4,270,388Gross profit 396,653 426,236Expenses (460,081) (462,352)Operating profit (63,428) (36,116)Unallocated earnings (47,311) 53,009Net profit (110,739) 16,893

Accounts unavailable

FY09

Internal accounts DA60's External accountsSales 20,812,930 20,809,038Gross profit 1,332,738 1,410,170Expenses (2,642,597) (2,222,932)Operating profit (1,309,859) (812,762)Unallocated earnings 1,222,172 1,236,473Net profit (87,687) 423,711

Accounts unavailable

FY08

Internal accounts DA60's External accountsSales 22,509,069 22,537,235 21,279,592Gross profit 1,665,003 1,853,907 344,958Expenses (2,257,986) (2,219,753) (841,802)Operating profit (592,983) (365,846) (496,844)Unallocated earnings 605,890 672,888 695,525Net profit 12,907 307,042 198,681

Historical trading

Profit and loss summary by financial year

A contributing factor identified as a reason for failure of the business (as discussed at Section 3 of this report) was a lack of transparency in the Company's profitability and net asset position.

This is due to:Inadequate maintenance of books and records; An inability to rely on the reported financial information (financial statements prepared by an external accountant and management accounts reported to the bank) as they did not reconcile to the general ledger; and Unusual balances in the general ledger appearing to materially misrepresent the financial position of the business.

Detailed forensic investigation and extensive account reconstruction would be required in order to obtain reasonably accurate financial information. We will discuss the value of incurring the costs of same at the upcoming creditors meeting.

In the following tables we compare the financial information from the following sources:

Internal accounts (as sourced from the monthly trial balances);DA60 reports (which are sourced from the general ledger but did not reconcile to the general ledger). Essentially these reports reflected a profit whilst the general ledger reflected a loss. The DA60 reports were provided to the financiers and manufacturers as the management accounts of the business; andFinancial statements prepared by the external accountant.

We have been unable to reconcile the financial information sourced from the three sources. Accordingly no reliance was placed on the financial statements (and we provide them for information purposes only).

In addition we refer you to Appendix D where we provide summaries of the DA60 reports as compiled during our investigations. We do not attest to the accuracy of these figures and provide them for information purposes only.


Balance Sheet

$'000 External FinancialsJun-08 Jun-08 Jun-09 Sep-09

Current AssetsCash on hand and at bank (336) (350) (842) (628)Trade debtors 3,762 1,436 757 1,786Inventory 5,069 4,417 3,712 3,144Other CA - 430 639 685Total CA 8,495 5,933 4,266 4,987Non Current AssetsPlant & equipment 728 889 903 904Other NCA 634 1,626 1,838 1,854Total NCA 1,362 2,515 2,742 2,758TOTAL ASSETS 9,857 8,448 7,008 7,745Current LiabilitiesFinances payable (7,202) (5,915) (4,683) (5,214)Trade creditors (209) 121 236 222Taxes payable (63) (1,209) (1,276) (1,504)Employee entitlements - 1,476 1,748 1,809Vehicle charges payable - 373 502 333Total CL (7,474) (5,154) (3,473) (4,354)Non Current LiabilitiesNon Current Liabilities (1,678) (1,883) (1,747) (1,715)TOTAL LIABILITIES (9,152) (7,037) (5,222) (6,069)NET ASSETS 705 1,411 1,786 1,676

Trial Balance

Balance SheetHistorical trading

In the following tables we compare the balance sheets of the Company as at 30 June 2008 from the following sources:

Internal accounts (as sourced from the monthly trial balances); andFinancial statements prepared by the external accountant.

We have been unable to reconcile the financial information reported in the two sources.

In addition, we note that the Report as to Affairs ("RATA") at Section 9 reflects a net deficiency of c. $8m as at the date of our appointment compared to the trial balance reflecting a net asset position of c. $1.7 million.

Accordingly no reliance was placed on the financial statements.


Section 7

Investigations


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Investigations

The extension of the voluntary administration convening period granted by the Supreme Court of Victoria in accordance with Section 439A(6) of the Corporations Act has allowed additional investigations to be conducted that would ordinarily have been performed after the second meeting of creditors.

The following findings will assist in the preparation of statutory reports to be submitted to the Australian Securities and Investments Commission ("ASIC") as well as assist any potential legal action surrounding a case for insolvent trading.

Preliminary findings in areas investigated are discussed in the following order:

1. Insolvent Trading; and2. Voidable Transactions

Creditors should note that our investigations were hampered due to one staff member initially refusing to provide assistance with investigations on the basis of legal advice received. Once appointed liquidators we may seek to publicly examine officers of the Company and key individuals involved in the business pursuant to Sections 596A and 596B of the Act.

Creditors should note that investigations will continue into the liquidation. Consequently any updates will be provided in the future where appropriate.

Creditors should note that recoveries from Insolvent Trading actions and Voidable Transactions are only available to a Liquidator.

1. INSOLVENT TRADINGSection 588J of the Act provides that a liquidator and under certain circumstances a creditor, may recover from the Directors of an insolvent company compensation in respect of losses suffered by creditors from transactions entered into at a time when a company is insolvent.

Investigations to date indicate that the Company may have traded whilst insolvent.

A company is insolvent when it cannot pay its debts as and when they fall due. The Directors have a legislated duty to prevent insolvent trading under Section 588G of the Act.

Should it be formally proven that the Company traded whilst insolvent, there is potentially a claim against the Directors of the Company either by the liquidator or in limited circumstances the creditors, for allowing the Company to continue to trade whilst insolvent.

Pursuing such actions is dependent upon the personal financial position of the Directors to fund any judgement against them.

The Directors may also have valid defences available to them in such circumstances as noted under Section 588H of the Act. Prior to commencement of legal action any defences raised by the Directors would first need to be assessed.

Investigations


Insolvent Trading Review

This section provides areas investigated which are specific to insolvent trading. The following pages outline our findings with specific examples where possible.

Our review highlights multiple indicators of insolvency and that it would appear that the Directors ought to have known that the Company was insolvent.

The length of time the Company may have been trading whilst insolvent is yet to be determined.

The likelihood of recovery will continue to be assessed as further information is discovered and once we are appointed Liquidators of the Company.

If creditors have information which would assist our investigations then please provide the same in writing. Additionally, should liquidation occur and there are creditors wanting to pursue and fund such an action please contact us to discuss this in further detail.

We reiterate that recoveries of this nature are only available if the Company is placed into liquidation and should the Directors be able to pay a judgement obtained against them.

We are aware that the Directors have guaranteed the Company's debts to NAB and St George and it is likely St George will suffer a shortfall from the Company's assets in excess of c. $5.5m. In addition, there is a loan account owing of c. $1.2m. Accordingly, the prospect of recovery from a trading whilst insolvent action is likely to be limited.

Investigations

Indicators of Insolvency

The following procedures were undertaken as part of the trading whilst insolvent review.

Insolvent TradingReview of maintenance of books and records in accordance with Section 286 of the Corporations ActTesting the integrity and completeness of transaction data providedAnalysis of financial position of the Company and Balance sheet test of solvencyAnalysis of liquidity ratiosAnalysis of financial performance of the Company and Cash flow test of solvencyRelationship with financiersReview of the Company's history of remittance of Commonwealth and State taxesIdentification of any post-dated or dishonoured chequesReview of creditor ageing and other overdue payables

Insolvent Trading Investigation Procedures

In the following pages we discuss our investigations in respect of indicators of insolvency.

Our investigations to date indicate that the Directors ought to have known that the Company was insolvent.



The Company is presumed to be insolvent in accordance with Section 588E(4) of the Corporations Act ("the Act") on the basis that it did not maintain books and records in accordance with Section 286 of the Act.We found that the business did not maintain adequate books and records to enable accurate financial reporting or management decision-making.We have concluded that the records maintained in the Reynolds system are unreliable. Detailed forensic investigation and extensive account reconstruction would be required in order to obtain reasonably accurate financial information. Consequently, in any insolvent trading action we would seek to rely on the presumption of insolvency surrounding the lack of maintenance of records in accordance with Section 588E of the Corporations Act.We refer you to Section 3 of the report where a detailed assessment on the adequacy of books and records has been discussed.

Commentary

Indicators of insolvency

Maintenance of proper books and records

1.1

IndicatorRef

Investigations

! Creditors should note that many of the factors below are reliant upon being able to review and present analysis of the Company's financials. As explained in Section 3: Reasons for Failure this review has been hampered by the inadequacy of records maintained by the Company.

NOTE TO CREDITORS



The Company was unable to produce accurate and timely information about the financial position.

Balance Sheet testOrdinarily we would undertake a series of liquidity ratios, such as: Current Ratio; Quick Ratio (Acid Test); and Working Capital Turnover Ratio.The results of these ratios assist in the determination of the Company's balance sheet solvency, or in this case, the lack of solvency. As source data is misrepresented the results of ratios and analysis would be misleading to creditors, consequently the results have been withheld from this report.Our investigations to date reveal that at the date of appointment the deficiency in net assets was approximately $8m; which is based on our assessment of assets and liabilities at appointment. The Company also appears to have a shortage of liquid assets. Refer to the Report as to Affairs ("RATA") section in Section 9 for a detailed review of this deficiency.On that basis the Company fails the Balance Sheet test of solvency.

Financial position1.2

Commentary


IndicatorRef

Investigations



Discussions with the external accountant revealed that it is likely that the financial statements did not accurately reflect the true financial performance of the Company. Refer to Reasons for Failure section at Section 3 of the report.Our initial reconciliation of the internal accounts has revealed that the Company was not profitable in the lead up to appointment, however a person relying on management accounts and prepared financials would see that the Company was profitable for all but one month during FY09 and leading up to the date of appointment. It may be difficult to ascertain the length of time the Company was experiencing trading losses which is contrary to the prepared financials.

Cash Flow Test of solvencyWe utilised independent third party documents such as bank balances to undertake the Cash Flow test of solvency.The overdraft facility was increased from $250k to $750k in April 2009 based on outdated financials (FY2007) and an update of current management accounts (DA60 report) which appear to have been altered.The business reliance on the NAB overdraft facility has steadily increased over the past 24-months as shown by the trend in the NAB bank balance depicted in the graph below:

Although the bank balance was in decline the Company was largely operating within the facility limits, however the requirement for further funding suggests profitability of the business was deteriorating. We note that the approval of the overdraft facility indicates support from the NAB albeit provided on documents we believe were manipulated.Creditors should refer to Section 3: Reasons for Failure and Section 6: Historical Trading for a detailed review of the poor accounting and shortcomings in the financials.

Financial performance

1.3

Commentary


IndicatorRef

Investigations

(1,000,000)(800,000)(600,000)(400,000)(200,000)

0200,000400,000

31/07/2007 30/11/2007 31/03/2008 31/07/2008 30/11/2008 31/03/2009 31/07/2009

$AUD Bank Balance



Investigations have failed to reveal any correspondence from the NAB that there were any concerns over the solvency of the Company.An investigative accountant's review was conducted in August 2009 which was initiated by St George.The Company's access to St George's online wholesale system was removed shortly prior to appointment. The wholesale system allowed the Company to bail their own vehicles online. The procedure surrounding vehicles sold on DPP was changed in August 2009 whereby the Company was instructed to provide further supporting documentation for each sale on DPP in response to concerns around the conversion of vehicles.This indicates that by August 2009 St George had concerns over the financial position of the Company.

Relationship with financier

1.4

A review of all outstanding statutory obligations was undertaken at the beginning of our appointment.To date, no proof of debt has been submitted by the ATO or other statutory bodies.Our investigations to date reveal the following to be outstanding at appointment:− Luxury Car Tax: c.$330k is outstanding which is a net accrued balance from 2003;− PAYG withholding: c.$89k is outstanding from at least June 2009;− Fringe Benefits Tax: c.$4k is owing from April 2009;− GST payments are due from the June 2009 and July 2009 monthly BAS; and− Superannuation owing from February 2009 totalling c.$77k is outstanding.The SRO issued the Company a final notice for non-payment of payroll tax for the months of August 2009 and September 2009.

Outstanding / overdue commonwealth and state taxes

1.5

We have not identified any dishonoured cheques issued by the Company during the nine months leading up to appointment.Discussions with accounts staff revealed that the Company engaged in a process of drawing cheques at month end which reflected the balance owing to suppliers, however cheques were not always forwarded to the supplier until they were pressured and until there were sufficient funds in the bank account. This process is not unusual.

Post-dated and dishonoured cheques

1.6

Commentary


IndicatorRef

Investigations



The Company's net asset position is deficient to the point that given the charges already lodged against the Company it would be extremely risky to advance the Company further funds especially given the true financial position of the Company was not represented in financials.We expect that it would be highly unlikely that the Company would be able to source additional capital.

Ability to generate additional capital

1.8

The above procedure regarding payment of suppliers via cheque makes it difficult to determine from the Company's records if a supplier was paid because the cheque may have been drawn but not sent out, meaning the internal accounts were unable to be aged.We have not received sufficient proofs of debt from suppliers to indicate whether or not the Company's records were accurate in relation to creditor balances.

Creditor aging1.7

The following are additional indicators of insolvency which continue to be assessed:We did not come across any solicitor letters, summonses, judgement, or warrants issued to the Company; andWe have found no existence of applications to wind up the Company.

Other indicators1.9

Commentary


IndicatorRef

Investigations


Voidable Transactions

VOIDABLE TRANSACTIONSIn circumstances where a Liquidator is appointed he may be able to recover certain payments or dispositions of property that appear to the Liquidator to be voidable transactions pursuant to Part 5.7B of the Corporations Act.

Should we be appointed Liquidators of the Company, we will conduct a further detailed assessment of payments in order to assess whether there are any likely recoveries.

As outlined above, I have identified a number of payments that would be further reviewed by a Liquidator.

Pursuing such payments may incur substantial costs by us as Liquidators and our legal advisors and there are a number of defences available to creditors in defending a preferential or uncommercial transaction action brought against it by a liquidator.

An unsuccessful action can result in a negative return as the Liquidator would be required to settle both the Company’s and the defendant’s legal fees. Accordingly, a Liquidator is required to fully investigate the circumstances surrounding the payment before commencing legal action. I wish to stress that by no means should you assume that each of the payments referred to are recoverable.

Recoveries of this nature are only available if the Company is placed into liquidation.

Investigations

Voidable transactions include the following. Further explanations of each type are included in Appendix B.

Unfair preferences Uncommercial transactionsUnfair loans Unreasonable director related transactions


The above transactions are discussed in detail in the following pages.

The assessment of voidable transactions is relevant to creditors in choosing between the three options available at the second meeting of creditors, as they are only recoverable in a liquidation scenario.

Investigations



Work performedA review of the three months of bank statements within the relation back period identified a number of 'round sum' payments made.We note that a comprehensive review of the ageing of creditors was not able to be undertaken. This procedure is normally undertaken to determine whether certain creditors received preferential payments during the relation back date.A number of these round sum transactions are director related transactions which are discussed in section 2.4 "Unreasonable Director Related Transactions".Should the Company be placed in liquidation, a more detailed and comprehensive review of payments made during the relation back period will be undertaken.Refer to section 1.6 "Post-dated and dishonoured cheques" in the Insolvent Trading section for discussion on the Company's procedures in dealing with supplier payments.

ConclusionPayments totalling c. $92k made up of 12 transactions were identified as being made during the relation back period which were of a round-sum nature. Records on hand were not able to explain who the recipients of these payments were and we are working with the NAB to attempt to identify the recipients.Review of the balance of bank statements may reveal additional potential preferential payments which will be reported at the second meeting of creditors.These payments will be further investigated should the Company be placed into liquidation.

General proceduresThe following procedures are generally carried out in determining whether an unfair preference occurred:

Analysis of aging of top 10 suppliers as at the appointment date.Analysis of top ten supplier balances by month throughout the relation-back period.Identification of suppliers at risk of unfair preferences.Analysis of the volume of monthly purchases and payments for those suppliers identified as at risk of unfair preferences.Analysis of running account balance for the suppliers identified as being at risk of unfair preferences.Quantifying the value of transactions which may be considered unfair preferences.

Unfair Preference: section 588FA

2.1

Commentary

Unfair Preferences

TransactionRef

InvestigationsInvestigations



Work performedThe following procedures were undertaken in determining whether any uncommercial transactions were entered into during the relation back period:

Review of the Company's bank statements and cheque book for recurring or large 'round' amounts; We reviewed all high value payments (>$10k) and determined whether these were traceable to the accounts;Identification of payments made out to 'cash';Tracing identified payments through to supporting documentation; andConsideration of whether the substance of the identified transactions were on commercial terms.

General proceduresIdentification of recurring payment amounts throughout the relation back date.Identification of all payments made to 'cash' and payment transactions not allocated to a supplier code.Tracing all identified payments to supporting documentation.Consideration of whether the substance of the identified transactions are on commercial terms.

Uncommercial Transactions: section 588FB

2.2

ConclusionA review of the cash payments journal revealed a large number of payments being made to 'cash'. Further investigations revealed that the majority of these were to reimburse Mr Robert Prestney for the use of his credit card (see section 2.4 "Unreasonable Director Related Transactions" for further discussion).At this stage no payments have been identified which would be classified as an uncommercial transaction.

Commentary

Uncommercial Transactions

TransactionRef




Work performedLocated and analysed accounts appearing to be director related such as "Shareholders Loan A/c" and "Investments – Partners/Proprietors".

General proceduresReview of the terms of financing arrangements to the Company.Review of the Company's historical loan repayment and drawings throughout the relation back-date period.Consideration of whether the interest rates on the identified financing arrangements are on commercial terms.

Unfair Loans: section 588FD

2.3

ConclusionA review of the financial accounts reported one 'Shareholder loan account'. Further review of this account revealed that no activity occurred in the period July 2007 to the date of appointment.Discussions with accounts staff noted that a separate account, 'Rec off & Employees' was used extensively by the director and other members of staff. This is further discussed in section 2.4 "Unreasonable Director Related Transactions".We make note that the Company was paying the mortgage repayments for the property which is in the name of Prestney Bros. (Properties) Pty Ltd. We believe that these repayments were reasonable as they were paid in lieu of rent. As these payments reflected the market rental rate the agreement is not deemed to be an unfair loan under the requirements as set out in the Corporations Act. We note that there was no formal rental agreement in place.

Commentary

Unfair Loans

TransactionRef




General proceduresIdentification of related and associated parties to the Company.Identification of all significant payments to Directors throughout the relation back period.Identification of all significant payments to other unusual or related entities throughout the relation back period.Tracing all identified payments to supporting documentation.

Work performedReview of bank statements to 30 June 2009 and review of cheque books and remittances and bank statements for any payments to related parties over the period June 2006 to the date of appointment.

Unreasonable Director Related Transactions: section 588FDA

2.4

Commentary

Unreasonable director related transactions

TransactionRef



Payment Reference Period identified AmountOne-off payments to family members 2 March 2009 20,000Cash payments 1 August 2008 to date of appointment 93,000School fees FY09 17,839Membership fees FY09 6,215Whitegoods and other personal expenses FY09 6,500Total 143,554$


ConclusionThe following transactions were identified from bank statements or cheques as possible unreasonable director related transactions:

We make note of the following payments:1. Numerous round sum payments were identified as being made to the personal credit card of the director and to him personally. A review of cheque

remittances for the period August 2008 to the date of appointment revealed that payments totalling c. $400k were made. Of this c. $285k were for reimbursements for Vic Roads registration payments. Of the remaining c. $115k, c. $93k were listed as 'cash' in the account and could not be traced to supporting documentation. We note that there may be further payments made that were not accounted for in the internal accounts of the Company.

2. A $20k payment was made to a family member in early 2009.

Additionally, the Directors loan account, 'Rec-off & Employees' had a balance of c. $1.2m at the date of appointment. Discussions with accounts staff found that this balance was comprised of annual drawings of c. $200k that had occurred since 2004. Whilst this may reflect an equivalent market based salary of a director, should the business be placed into liquidation these amounts may be pursued as a loan account owing. See section 3 'Reasons for Failure' for further discussion.


2.4

Commentary

Unreasonable director related transactions (cont.)

TransactionRef



Section 8

Employees and employee entitlements


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Employee Entitlements

EmployeesNumber of employeesAt appointment there were thirty three (33) employees, two (2) of whom had given notice of resignation prior to appointment and were serving out notice periods.

Post appointment a further eleven (11) employees resigned their positions citing retirement and alternate work opportunities as their reasons.

We considered the business to be overstaffed and did not seek to directly replace these positions. We did however recruit a used car salesman on a trial basis and strengthened the accounting division with a management account on a contractual basis for a period of three (3) weeks.

TerminationsOn 2 November 2009 Mercedes-Benz provided notice of termination of the franchise dealership agreement effective 4 December 2009. In order to continue to trade the business to at least a break-even position without the contribution previously generated from the Mercedes-Benz franchise a decision was made effective 17 December 2009 to terminate ten (10) positions.

During December 2009 Subaru confirmed that they would not be renewing their franchise agreement which was due to expire on 28 December 2009. At around this time the likelihood of a successful sale of the business was remote as all offers previously submitted were withdrawn (refer to Section 5 Sale of Business for more detail). We therefore resolved to wind down the business and terminated the remaining positions effective 23 December 2009. Five (5) staff were rehired on a causal basis to assist with the wind down process to take place between the Christmas and New Year break.

Subsequently, the sale of the business (combined with the sale of the property) was resuscitated by an interested party with whom negotiations are currently taking place. As a result we rehired a further three (3) staff (bringing the total staff complement to 8) on a casual basis in order to continue to trade the business whilst negotiations continue.

Unfair dismissal claimThere is also an unfair dismissal claim against the Company made by the former service manager through Fair Work Australia.

We lodged an application with Fair Work Australia objecting to the application for dismissal on the basis that Section 440D of the Corporations Act stays all proceedings against the Company during administration. In addition, we advised that there would not be sufficient funds to discharge any award for damages given the financial position of the Company.

The initial arbitration and conciliations were cancelled and replaced with a conference by telephone scheduled for 27 January 2010.

A further update will be provided at the second meeting of creditors.



EntitlementAmount owing at appointment ($)

Current amount owing ($) Commentary

Wages 4,000 -

Commissions 6,790 -

Superannuation – Salary Sacrifice 77,410 77,410Superannuation - SGC 1,920 1,920Annual Leave 109,630 110,000Annual Leave Loading 19,180 - Annual leave loading is only payable

upon termination for the clerical employees.

Long Service Leave 151,820 151,820Payment In L ieu of Notice 83,880 57,120Redundancy 188,080 122,910Total ($) 642,710 521,180Less: Excluded Employee (non-priority) 39,098 28,258 The resignation of the excluded

employee has reduced this amount. Excluded employees are discussed below.

Total ($) 603,612 492,922

The resignation of 11 staff has reduced these amounts.

Pre appointment wages and commissions were paid by administrators as a goodwill gesture.

Employee Entitlements

Employee entitlementsThe recording and accounting of entitlements has been conducted poorly over the years which is evidenced as follows:

The Company installed Reynolds payroll function in February 2003, however the various accrued leave balances of employees who commenced prior to this date were never imported into the system.

The effect has been that the payroll officer had been calculating sick, long service and annual leave from manual leave schedules.

The leave balances reported in Reynolds only show leave accrued and taken since February 2003 which has required leave balances to be recalculated from hand written notes for each individual employee.

There was no report able to be generated to calculate long service leave and we therefore recalculated long service leave in accordance with applicable awards.

The lack of integrity placed on the payroll system has resulted in the time consuming task of recalculating the balances for sick leave and annual leave and comparing the results to the Company’s records. The reasonableness process was also undertaken for superannuation and long service leave.

The employees are covered by the following Awards:Federal Vehicle Industry Repair, Services and Retail Award 2002;Clerical and Administrative Employees (Victoria) Award 1999;Federal Vehicle - Repair, Services and Retail (Long Service Leave) Award; andLong Service Leave Act (Vic) 1992.

The following is a comparison of the recorded employee entitlements with our reconstructed amounts. Please note that sick leave has not been shown because it is not payable upon termination.


Excluded EmployeesTotal entitlements owing to excluded employees (i.e. directors and certain family members) are c. $28k. The Corporations Act limits priority amounts to a maximum of $3.5k for each excluded employees

Neither of the two Directors has made a claim for outstanding entitlements.

The excluded employees are only able to claim the balance over the maximum $3.5k as an ordinary unsecured creditor.


Government employee entitlements and redundancy scheme ("GEERS")

Accordingly, in order to ensure prompt processing of employee claims, this matter will be referred to GEERS immediately after the second meeting of creditors if creditors vote to place the Company into liquidation.

Throughout the administration we will continue to liaise with GEERS in order to assist in the provision of outstanding entitlements to employees.

Please note that should a payment to employees be made by GEERS, these funds are recoverable by GEERS pursuant to Section 560 of the Corporations Act. That is, GEERS will take over the employee’s priority position as a creditor of the Company to the extent of entitlements paid by GEERS.


Government Employee Entitlements and Redundancy Scheme (“GEERS”)As there will not be sufficient funds to enable a dividend to be paid to priority creditors, we intend to refer this matter to the General Employee Entitlements & Redundancy Scheme ("GEERS") should the Company be placed into Liquidation at the Second Meeting of Creditors.

GEERS is a discretionary government safety net scheme for unpaid employee entitlements where employees are terminated as a result of insolvency. As GEERS is a discretionary fund, distributions from it cannot be guaranteed.

Under GEERS, where employees have a legal entitlement derived from legislation, an award, a statutory agreement or a written contract of employment, they are eligible to receive the following:

Unpaid wages for up to three (3) months;

All annual leave (excluding annual leave loading);

All pay in lieu of notice;

Up to sixteen (16) weeks redundancy pay; and

All long service leave.

Please note that GEERS does not cover amounts owed for the statutory 9% superannuation contribution.


Section 9

Report as to affairs ("RATA")


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Reference

Valuation ($ '000)

ERV ($'000) Valuation ($'000)

ERV ($'000)

AssetsLand 1 - - - -Debtors 2 249 208 240 170Factory Receivables 2 - - Unknown UnknownCash at Bank 3 - - 144 10Cash on Hand 3 5 5 5 5New Vehicle Stock 4.1 1,017 1,017 544 600Used Vehicle Stock 4.1 455 477 753 700Spare parts 4.2 344 169 175 UndisclosedWork In Progress 5 36 30 36 27Plant & Equipment 6 270 215 Undisclosed 50Di rector Loan Account 7 - - 1,206 -Leased Assets 8 - - - -Goodwill 9 480 - - -Tow Truck Licence 10 154 154 - -Claim Against Former Employee 11 TBA TBA - -Total ($) 3,010 2,275 3,103 1,562LiabilitiesSecured creditor: NAB 12 1,442 1,442 690 750Secured creditor: St George: 12 5,200 5,200

Converted vehicles 5,555 5,555Notes Payable Car & Truck 1,384 1,384Notes Payable Used Cars 454 454

Party secured: Mercedes-Benz 13 - - 290 290Employee Entitlements 14 386 386 521 521Unsecured Creditors 14 953 953 987 987Total ($) 7,981 7,981 9,881 9,941NET DEFICIENCY ($) (4,971) (5,706) (6,778) (8,379)

Administra tors' InvestigationsRATA

Report as to Affairs ("RATA")

Pursuant to Section 438B(2) of the Corporations Act, the Directors of the Company are required to submit to the Administrators a statement about the Company’s business, property, affairs and financial circumstances in the form of the Report as to Affairs ("RATA").

On 29 September 2009, a written request was issued to the Directors to complete the RATA for the Company, which was completed and returned on 29 October 2009.

The following discussion incorporates sections of the RATA prepared by Robert Prestney on behalf of both Directors, as well as updated figures and discussions based upon valuations conducted and correspondence with various creditors and other parties. Any reference to the "Director" refers to Robert Prestney.

The Director advised via correspondence dated 28 October 2009 that the RATA had been "completed to the best of our ability subject to limited access to the relevant records”. We confirm that significant time had been spent with Robert Prestney and his representatives in assisting preparation of the RATA and providing reports where the Reynolds system was able to produce them.

Access to records was only limited in so far as it would prejudice the sale of business process given that the Directors' sons expressed interest in purchasing the business assets of the Company. Accordingly there are few differences in some amounts reported in the RATA as compared with documents provided to assist in its preparation.

The RATA is available for inspection by creditors up to one (1) hour prior to the commencement of the meeting.

Please contact Edwin Clark of my office in order to do so.

The following is a summary of the RATA displaying a large Net Deficiency position. We comment on each category of asset and liability in more detail in the preceding pages of this report.



Account $’000Cash at bank: National Australia Bank (690)Cash at bank: St George 144Total (546)


The Company operated two bank accounts at appointment as listed below:

The NAB account was an overdraft facility which as at 7 January 2010 was drawn down to c. $750k due to penalty interest being charged at a rate of approximately 18% per annum.

Trade debtorsThe schedule of trade debtors was provided to the Director in order to assist completion of the RATA. The Director estimated c.$208k to be collectible which accounts for debts over 120-days not being collected.

The total trade debtors owing at appointment from the service and spare parts divisions per the internal accounting system totalled c. $240k. After adjusting for the following it was determined that c.$170k was likely to be collectible:

Suspense account;Related party entries going back 4 years; andIncorrect entries.

At that date of this report c.$160k had been recovered. These receipts are available to be used by the Administrators for trading, including to pay wages, suppliers and other administration expenses.

Factory receivables and Warranty receivables:There was no process to record and reconcile factory receivables (holdback paid by the manufacturer), which are often vehicle specific.

The deficiency in accounting procedures are discussed in the Reasons for Failure section at Section 3 of this report.

A search of the Victorian Land Titles does not show any land currently owned by the Company.

Commentary

Cash at Bank and on Hand

3

Debtors2

RATA Summary

Interest in Land1

Assets Ref



Number on Hand $’000

New Vehicles 30 544Used Vehicles 44 753Spare Parts Stock n/a 175Total 74 1,472

At appointment the funds in the St George commercial account were c. $144k of which c. $143k was withdrawn by St George among other smaller cheques which were allowed to clear. I understand this amount related to the remittance of several bailed vehicles. The St George cash at bank was not reported in the RATA.

Cash on HandThere was also approximately $5k of cash on hand at appointment. There was some confusion as to the ownership of these funds as I have been advised that some social club funds had been comingled with cash collected from the sale of RACV batteries. No records were maintained as to the break-up of these funds.

Cash at Bank and on Hand

3

Stock on hand at appointment is represented by vehicle stock (new and used) and spare parts stock. Details of all stock on hand were provided to the Director. The following is a summary of vehicle and spare parts stock on hand at appointment.

i) Vehicle Stock New Vehicles

Vehicles in stock were made up of Subaru, Mercedes-Benz passenger and commercial and Ford.All new vehicles were bailed by either St George or Mercedes-Benz Financial Services.

Used VehiclesWe understand that in the month leading to appointment all used cars on hand were bailed by St George. This meant that sales proceeds were to be remitted directly to St George upon disposal.

Commentary

RATA Summary

Stock on Hand4

Assets Ref

Report as to Affairs ("RATA")Report as to affairs ("RATA")



Work in progress ("WIP") relating to customer service, internal repairs and warranty work showed c. 113 open repair orders on appointment with a value of c. $36k. The Trial Balance reflected a WIP balance of c.$795k at the date of appointment which could not be substantiated. A detailed report of the c. 113 open RO was provided to the Director.

A majority of the RO were written-off due to:Warranty RO being outside of the required lodgement time with the manufacturer; andCustomer and Internal RO being excessively aged and the likelihood of collection determined to be remote.

The build up of the WIP account has been further discussed in the Reasons for Failure section at Section 3 of this report.

ii) Spare Parts Stock An extensive stocktake of spare parts stock was undertaken on 29 September 2009 which resulted in stock being valued at $175k.

Obsolete spare parts that had been stored separately were not incorporated into the count as their value was deemed not to materially impact the overall value of stock on hand.

Key points Immediately upon appointment we undertook a parts stock count and compared this to the general ledger;A variance of c. $171k existed from the date of appointment between the physical count value and the general ledger value;Stock over 12-months old represents over 25% of total stock; andNo Retention of Title ("ROT") claims have been made over stock to date.

Commentary

Work in Progress5

RATA Summary

Stock on Hand4

Assets Ref



Written Down Value ($'000) Estimated Book Value ($'000)Value ($) 270 215


Immediately following appointment, Dominions Auctioneers & Valuers were instructed to undertake an inspection of all plant and equipment located at the Company's premises and conduct a full independent valuation. A report was prepared of the Estimated Market Value ("ERV") and Auction Realisable Value ("ARV") of all fixed assets.

Assets mainly include RACV vehicles, furniture, mechanical equipment, Company owned tools and computer equipment.

A valuation of special tools was not undertaken given that they are predominantly owned by the respective manufacturer and/or have first right to purchase tools back at a price stipulated by the manufacturer.

Given that a schedule of special tools was not maintained by the Company a stocktake of these tools was undertaken upon appointment.

Any proceeds from the sale of plant and equipment (net of reasonable realisation costs) will be applied in priority in respect to the fixed charges.

The valuation was not provided to the Director or any family members. The value of plant and equipment reported in the RATA uses figures purported to be from 30 June 2008 financials; as financials for 2009 had not been prepared. A fixed asset register was not provided nor was it attached to the 2008 financials.

The values reported in the RATA are as follows:

Figures from the Dominions valuation have been withheld so that the sale of business process is not prejudiced, however the purchaser has offered $70k which we consider acceptable based on the valuation.

Commentary

RATA Summary

Plant & Equipment6

Assets Ref




Leased assets were not reported in the RATA.

The existence or otherwise of leased assets was also not supported by the Company's books and records. No register of such assets was known to be kept.

We indentified three (3) loan vehicles as being under lease from Ford. Two (2) of these vehicles were sold prior to our appointment. The remaining vehicle was returned to Ford during October 2009.

The only other leased assets which have come to our attention are that of a paint system and hoist. No rental is currently paid on the paint system although all paints required are purchased from the lessor. Should the business be sold then this item will be returned to the lessor.

The existence of a Director related loan account was not reported in the RATA.

In the Questionnaire for Directors and Officers Robert Prestney advised that in addition to a yearly salary of $42k the Company paid on his behalf personal expenditure and rates and electricity of c$15k per annum.

However, we understand that the account, titled “Rec Off & Employees" (1620 account), relates to Directors' loan account which at the date of appointment reflected a balance of $1.2m which has been accumulating over a period of five (5) years.

Amounts drawn under the 1620 account clearly exceed the figures reported in the RATA.

The Directors' loan account is discussed in more detail under the Reasons for Failure section at Section 3 of this report.

Commentary

Leased Assets8

RATA Summary

Director Loan Account

7

Assets Ref




Goodwill:As the business is in Administration and has lost two (2) franchises goodwill is likely to be minimal if any.

Other Assets9

Tow Truck License: Independent inquiries into the ownership of the license were made to VicRoads. It was subsequently confirmed that the license belongs to Prestney Bros. (Properties) Pty Ltd ("Properties"). Consequently this does not constitute an asset of the Company.

Other Assets10

Claim against former employee:The RATA has classed a claim against the former service manager as a contingent asset, however no value has been assigned to this claim.

The merits of any claim will be assessed providing there is sufficient documentary evidence to do so.

No other assets have been indentified.

Commentary

RATA Summary

Other Assets11

Assets Ref



Secured creditor claims as at 29 September 2009

Description Amount ($’000)Total Amount

($'000)National Australia Bank Ltd Overdraft 690St George Bank Ltd Converted vehicles 5,555

Notes Payable Car & Truck 1,384Notes Payable Used Cars 454 7,393

Total ($'000) 8,083


Mercedes-Benz Financial Services ("MBFS")All new Mercedes-Benz passenger vehicles on hand were subject to finance by MBFS.

At appointment there were seven (7) vehicles on hand, four (4) of which were Mercedes-Benz passenger vehicles bailed for $290k.

ASIC's database details that the Company has two secured creditors, National Bank of Australia Pty Ltd (“NAB”) and St George Bank Limited (“St George", "the Bank"), who both hold fixed and floating charges.

Meetings were held with both parties prior to appointment to advise of the potential appointment. Their support for the appointment was obtained as well as to trade the business during the administration.

We are continuing to work with the support of both banks during the administration.

Commentary

Partly Secured Creditors

13

RATA Summary

Secured Creditors12

Liabilities Ref



Unsecured creditor claims

Description RATA ($'000)Amount owing at

appointment ($’000)Current amount

owing ($’000)Employee entitlements 386 604 493Excluded non-priority employee entitlements - 39 28Total Employee Entitlements ($) 386 643 521Trade credi tors 483 508 488Statutory creditors 470 474 499Total Unsecured Creditors ($) 953 982 987Total ($) 1,339 1,625 1,508


Employee ClaimsThe Directors have not made a claim for outstanding entitlements. In any case the records are insufficient to calculate any such amounts owing.Resignations and retirements have significantly reduced the amounts owing to employees.Employee entitlements are discussed in detail in Section 8 of the report.

Trade CreditorsThe Company's records showed trade creditors were owed $518k as at the date of appointment.The majority of trade suppliers have not confirmed or updated the debt owed to them. This is not uncommon given the likelihood there will be no dividend to unsecured creditors.

Commentary

RATA Summary

Unsecured Creditors

14

Liabilities Ref




No further liabilities were noted in the RATA

No other liabilities have been identified.

Statutory CreditorsAmounts are listed as owing to the ATO, State Revenue Office, local shire council and insurer.Lodgements for the 2009 annual tax return, Business Activity Statements and payroll tax returns have not been completed up to the date of appointment, therefore the amounts owing are likely to be higher than reported in the RATA. Some of the amounts included in the RATA may be amounts owed by Prestney Bros. (Properties) Pty Ltd given the Company regularly made payments on its behalf.We are continuing to liaise with all statutory creditors to confirm the total amounts (including interest and penalties, if any) owing to them. These claims will rank as ordinary unsecured debts in the administration and do not carry any priority.

Related Party ClaimsLandlord: The premises are owned by Prestney Bros. (Properties) Pty Ltd and to date no claim has been made for rental instalments owing, however we note that the Company had been paying the mortgage in lieu of rent which equates to c.$120k per annum. Refer to Section 3, 'Reasons for failure' for further discussion.We are not aware of any other related party claim other than those already mentioned.

Commentary

Other Liabilities

RATA Summary

Unsecured Creditors

14

Liabilities Ref



Section 10

Estimated return to creditors


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


NotesLow

$High

$Low

$High

$Assets subject to Fixed ChargeBailed vehicle stock 1 165,497 170,497 160,000 165,497 Plant & equipment 2 60,000 70,000 40,000 45,000

Assets subject to Floating ChargeCash at bank 233,807 233,807 233,807 233,807 Parts inventory 2 60,000 75,000 25,000 35,000 Lubricants 2 10,000 12,000 - 5,000 Warranty claims 1 71,369 79,299 50,000 60,000 Debtors 1 76,591 85,101 59,571 85,101 Unbailed vehicle stock 1 56,500 65,960 56,500 65,960 Voidable transactions 3 - - - - Estimated total realisations 733,765 791,665 624,878 695,366

Less: trading liabilitiesEmployee expenses - Annual leave, super etc. (75,589) (75,589) (75,589) (75,589)Taxes - GST, LCT etc (116,250) (116,250) (116,250) (116,250)Trade creditors & accruals (275,009) (275,009) (275,009) (275,009)Bailment owing (St. George) (165,497) (165,497) (165,497) (165,497)Estimated total liabilities (632,346) (632,346) (632,346) (632,346)

Funds available for distribution before Administration costs 101,419 159,319 (7,468) 63,020

Less: Administration/Liquidation costsAdministrators’ disbursements (excl. GST) 4 (35,000) (35,000) (35,000) (35,000)Administrators’ remuneration (excl. GST) 4 (625,959) (625,959) (625,959) (625,959)Liquidators' disbursements (excl. GST) 4 (10,000) (10,000) (10,000) (10,000)Liquidators' remnuneration (excl. GST) 4 (100,000) (100,000) (100,000) (100,000)Total remuneration and disbursments (770,959) (770,959) (770,959) (770,959)Add: Indemnity provided by St. George 500,000 500,000 500,000 500,000 Funds available for distribution to creditors 5 Nil Nil Nil Nil

With sale Without sale

Estimated returnFirst ranking secured creditor No return likely.Second ranking secured creditor Partial return via sale of bailed vehicles.Employees Partial return via GEERS.GEERS in lieu of payments to employees No return likely.Unsecured creditors No return likely.

Estimated return to creditorsEstimated return to creditors

Notes1. All proceeds are shown before administration and liquidation costs. Therefore

estimates of funds distributed are likely to be lower after these costs have been settled.

2. Proceeds from plant & equipment, parts inventory and lubricants are based on either the estimated auction realisable value or the offer received for the sale of business.

3. The amounts recoverable from voidable transactions are subject to further investigations. We have estimated, in a low case scenario that none of the potential voidable transactions can be proven as in order for these amounts to be recoverable. Please refer to Section 7 of this report for further details.

4. Administrators/Liquidators fees are discussed in more detail at Section 11. Disbursements include statutory advertisements, external production of creditor correspondence to all creditors (for the first, second and final reports), photocopying, travel, meals, accommodation and postage.

5. There are unlikely to be funds available for distribution to any class of creditor.

Creditors should note that the figures provided in this section are estimates only of the likely realisations. In addition, please note that the estimated values are prior to deductions for selling and realisations costs.

Our estimate indicates the following likely returns:


Section 11

Remuneration


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


$Actual remuneration - 29 September 2009 to 20 January 2010 600,959 Estimated remunerat ion - 21 January 2010 to 1 February 2010 25,000 Total estimated remuneration to 1 February 2010 625,959

Estimated remunerat ion - 1 February 2010 to Finalisation 100,000 Total estimated Administration/Liquidator remuneration 725,959

Remuneration

We will be seeking creditors’ approval for the total of the Retrospective and Prospective fees for the Administration and Liquidation at the Second Meeting of Creditors.

A detailed report of estimated remuneration to be approved is attached with this report.

Should creditors have any queries regarding our remuneration then please do not hesitate to contact our office.

Remuneration

It is our usual practice in Voluntary Administrations to charge the Grant Thornton scale of rates for this type of work applied to the amount of time spent by the Administrators and their staff during the administration.

Attached as an annexure to this report is our detailed remuneration report along with our schedule of hourly rates.

The remuneration report is divided into two (2) sections: Retrospective and Prospective.

Creditors are encouraged to review the Retrospective remuneration report which provides a detailed breakdown of actual tasks performed to date and the total costs associated with those tasks.

The aim of this report is to provide transparency and justification that all work performed by the Administrators and our staff has been necessary to the trading of the business and complying with all statutory obligations.

The Prospective report provides creditors with an overview of the tasks required to continue trading the business towards the sale of business, those matters necessary to complete the administration and also conduct the liquidation, as well as an estimate of time and costs to complete those tasks.

The table below summarises the estimated total remuneration


Section 12

Administrators' recommendation


Remuneration11.




Investigations7.


5.

4.

3.

2.

1.

Sale of business


Reasons for failure


Executive summary


Options available to creditors and Administrators' recommendation

The following options are available to creditors at a meeting convened pursuant to Section 439A of the Corporations Act.

The Administration terminatesCreditors may resolve to terminate the Voluntary Administration.

Should this occur the Company would be handed back to the Directors to do with it as they deem fit.

This option is clearly not viable as the Company is insolvent and creditors claims need to be dealt with under a formal administration.

The Company executes a Deed Of Company ArrangementThe provisions of Part 5.3A of the Corporations Act allow the Company and its creditors to negotiate a proposal to deal with the Company’s affairs and in such circumstances execute a Deed of Company Arrangement ("DOCA").

A DOCA is a flexible arrangement which is available to Companies in Voluntary Administration and is usually proposed by the Directors.

A DOCA can allow a Company to continue to operate in a restructured form after administration.

In order for a DOCA to be considered and put forward to creditors it must provide creditors with a greater return than that of liquidation.

There has been no DOCA proposed therefore this option is not available to creditors to vote upon at the second meeting.

The Company be wound upCreditors may resolve to wind up the Company which would result in Matthew Byrnes and Andrew Hewitt being appointed Liquidators of the Company.

A more detailed review of the Company’s financial affairs would be conducted and as a consequence a report on its affairs and the conduct of its officers would be prepared and the findings conveyed to ASIC.

The assets of the Company would continue to be realised including the collection of amounts owed by trade debtors. The likelihood of success for claims in relation to voidable transactions and insolvent trading would be made as well as a determination to proceed with such claims.

Upon the sale of assets and collection of funds, monies would be distributed in accordance with the provisions of Section 556 of the Corporations Act.

Administrators' recommendation to creditorsPursuant to Section 439A(4)(b) of the Corporations Act, the Administrators are required to make a recommendation to creditors as to which of the options available is in their best interests.

Given the above, we must recommend at this time that the Company be placed into Liquidation at the Second Meeting of Creditors.

Administrators' recommendation


Second meeting of creditors Administrators' recommendation

Second meeting of creditors We advise that the complete Report as to Affairs (“RATA”) will be available for the creditors to inspect one (1) hour prior to commencement of the creditors meeting.

The meeting will be open to creditors for questions and general discussion. Should you wish to have us address any issue in detail please complete the attached question sheet and return it to me by facsimile prior to the meeting date. This will allow sufficient time to prepare a detailed response to your question.

We would once again like to thank all parties who provided their support during the administration and in particular the employees for their support and commitment to the Company under difficult circumstances.

This concludes our Section 439A(4) report to creditors.

Should you have any queries in relation to any matter raised in this report then please do not hesitate to contact Mr Edwin Clark of this office on (03) 8663 6000.

Andrew HewittADMINISTRATOR


Appendices

A. Reasons for failureB. Voidable transactionsC. Trading performance by department (under administration)D. Historical financial performance E. Retrospective remuneration reportF. Prospective remuneration reportG. Grant Thornton scale of ratesH. Declaration of independence, relevant relationships and indemnities


Reasons for failureAppendix A. Reasons for failure

Converted vehiclesIntroductionA schedule of 157 "missing" vehicles was provided by St George at appointment. These "missing" vehicles represent vehicles for which St George was not paid by the Company and were not on hand at the Company's premises at appointment. The value of these vehicles is c. $5.5m.

We understand that St George was advised by the Company that these vehicles had been sold via DPP and provided with invoices and purchase orders ("PO") as supporting documentation.

As at the date of this report St George had provided us with fifty-eight (58) invoices generated by the Company which purportedly substantiate these sales on DPP. (We intend to undertake a review of the remaining invoices upon receipt from St George).

As part of our investigations we compared the vehicle sale details recorded in the Company's accounting systems to the individual invoices in order to assess whether the vehicles had legitimately been sold on DPP to qualifying clients.

Misuse of the Floorplan FacilityIntroductionWe understand that the St George took over the provision of floor plan finance to Prestney's from Mercedes-Benz Finance in July 2006 for all vehicles including Mercedes-Benz commercial vehicles.

The financing of Mercedes-Benz passenger vehicles remained with Mercedes-Benz Finance.

In general the St George would advance finance to the value of 100% of the invoice price of a new vehicle and 80% on the declared cost of a used vehicle.

The proceeds from the sale of vehicles were to be remitted within two (2) working days of retail delivery or at the expiry of vehicle aging limits (ranging from 180 to 365 day terms) depending on whether the vehicle was a used vehicle, a demonstrator or a new vehicle.

Wholesale payouts for Vehicles sold to Government bodies or national fleets could be deferred for up to thirty (30) days from the date of delivery under a Deferred Payment Plan (“DPP”) option within the facility.

Our investigations have revealed several ways in which the floor plan facility provided by the St George was misused by management of the Company. We discuss this in more detail below.


Converted vehicles (continued)FindingsOur review revealed three (3) different results for the sample of fifty-eight (58) invoices tested which are explained below.

Twenty-seven (27) vehicles with a value of c. $885k were reported to the St George as being sold on DPP when in fact the vehicle had already been paid for. This enabled the Company to obtain an additional thirty (30) days extended finance rather than remit the funds to the St George within two (2) days of payment being received.

False invoices were generated for seventeen (17) new vehicles with a bailment value of c. $643k. The false invoices reflected dates after the actual payment date of the vehicle. In addition the purchaser's details on the invoices were changed from the actual private customer to that of a DPP approved customer in order to obtain extended finance.

It also appears that a DPP approved customer's purchase order ("PO") form may have been obtained in soft copy format as vehicles invoiced to the said customer was also accompanied with a PO matching the vehicle sold. I note that these PO were not signed and did not have a PO number.

Number of invo ices Bailment Value ($)Sold via DPP to obtain additional remittance time 27 885,479Sold via DPP but sold to a private individual who are not approved to use DPP 17 643,469Unable to confirm payment date due to remitances not kept 14 415,737

58 1,944,685


We were unable to substantiate the payment dates for fourteen (14) invoices and therefore were not able to investigate these invoices further.

ConclusionIt is apparent that the facility was misused by management of the Company by issuing false and misleading invoices in order to obtain credit terms the Company was not entitled to.

Up to the date of appointment the proceeds from the sale of converted vehicles have not been remitted to the St George. The likely use of these funds is discussed in Section 3 of this report.



"Overbailed" used vehiclesIntroductionUpon our initial review of the bailment ledger, we noted that several vehicles appeared to be bailed at amounts significantly higher than their market value.

This practice is commonly referred to as "overbailment", and can be used to manage cash flow constraints as a Dealer receives funds from the St George upfront whilst the repayment is deferred until the vehicle is sold.

InvestigationsIn order to determine the extent of "overbailment" on used vehicles, a total of 263 used car transactions (from the period 28 July 2008 to 2 October 2009) were traced through from acquisition to disposal. We compared the bailed value of each vehicle to their traded value or cost.

We summarise the results of our review in the table below.

2008 2009 TotalNo of transactions analysed 79 184 263No of overbailed used vehicles identified 73 167 240% of overbailed used vehicles identified 92% 91% 91%

Total cost price of identified overbailed vehicles 1,301,493 3,049,171 4,350,664Total bailed value of identified overbailed vehicles 1,645,400 3,845,090 5,490,490Total overbailment (343,907) (795,919) (1,139,826)Average overbailment per identified vehicle (4,711) (4,766) (4,749)

Findings and ConclusionOur findings revealed that c. 91% of the transactions analysed were overbailed at an average of c. $4.7k per used vehicle. It appears that this practice was used to access cash.

In addition, there were sixteen (16) used cars on hand at appointment which were on hand for more than 180 days.


Days in stockProfi t/Loss on

subsequent sale ($)Vehicles on-sold at a loss1 320 (4,763)2 290 (3,231)3 277 (3,250)4 271 (2,655)5 204 (3,270)7 199 (2,211)8 190 (764)9 159 (621)10 146 (2,525)Average days in stock 228Total loss (23,290)

Vehicles on-sold at a prof it6 203 1,00611 99 1,13412 76 2,28713 28 1,901Average days in stock 102Total loss 6,328Overall average days in stock 189Overall loss made (16,962)


Manipulation of fleet sales dealsIntroductionAs part of our review we investigated the risk of fleet vehicle sales/deals being won on the basis of offering an overtraded price for the used car trade-in from the fleet buyer.

The majority of fleet deals involved Ford vehicles. We understand that Ford pricing for sales to Government fleet buyers are set by Ford and these prices are known to the buyer.

Therefore, in order to win the fleet deal it would appear that Prestney continuously offered to overpay on the trade-in vehicle thus increasing the risk of a loss at washout i.e. the traded in vehicle is later inevitably sold at a loss.

FindingsThere were thirteen (13) fleet related trade-in vehicles on hand at the time of our appointment. The table to the right shows the aging of these vehicles and the profit or loss made on their subsequent sale.

Our results show that nine (9) of vehicles tested were sold at a total loss of c. $23k and had been on hand for an average of 228 days.

The reasons being that the vehicles obtained through fleet trade-ins are often less desirable and tend to be more difficult to sell. With this in mind, the Company still generally paid at the higher end of the market value for these vehicles in an effort to maintain these fleet contracts.

When set-off against the four (4) vehicles that were sold at profit, the Company incurred an overall loss of c. $17k on these vehicles and they were on hand for an average of 189 days before being sold.

Due to the Company's poor recording keeping, we were unable to test earlier fleet related transactions.

ConclusionAs shown above, it is apparent that the Company was trading in vehicles which it struggled to on-sell in a timely or profitable manner in order to maintain fleetcontracts and associated manufacturer target bonuses at the detriment of the Company’s ongoing viability.


Reasons for failure

Poor management of repair orders/Work in progressIntroductionRepair Orders ("RO") are used to track and cost the Service department's work-in-progress. There are three (3) types of RO: ● Warranty RO relate to works undertaken in respect of Manufacturer warranty

claims; ● Customer RO relate to works undertaken for retail customers such as servicing

and general repairs; and ● Internal RO relate to works undertaken for vehicles owned by the Company

such as the restoration and repair of recently traded vehicles.

Typically, a RO will be raised once service has commenced on a vehicle. When the work has been completed the RO should be closed off and booked to:● A manufacturer's warranty receivable account in the case of a warranty RO –

which is typically settled by the manufacturer if the claim has been processed within a specified time frame;

● A customer account in the case of a customer RO – which is either settled in cash upon collection of the vehicle or on account if the customer is offered credit terms; or

● A vehicle cost account in the case of an Internal RO – so that the cost of the service can be applied to the overall cost of the used vehicle.

Risk of "open" ROThe longer RO remain open there is a:● Greater risk of not being able to recover warranty claims from manufacturers; ● Higher likelihood of the incidence of dispute with customers and therefore

increased risk of write-offs; and ● Possibility of misconduct being perpetrated due to the lack of control over this

function.

Appendix A. Reasons for failure

FindingsThere were c. 113 open RO upon appointment dating back to as early as 2006 that totalled c. $36k. The trial balance at the time reflected a work in progress balance of $795k which could not be substantiated.

Warranty RO represented c. $24k, the majority of which had to be written off as they had exceeded the manufacturer claim time limit.Customer RO represented c. $9k and were either written-off or closed off to a customer account and invoiced. To date we have collected c. $6k as part of the pre appointment debtor collection process.Internal RO of c. $3k were either closed off to the vehicle in stock or written off in the case of a vehicle which had already been sold.

In addition there was no process in place to account for cancelled RO. The risk of lack of accountability for cancelled RO is that parts ordered for a cancelled job may not be returned and credited back to the spare parts department. Also the labour booked to the cancelled job is nullified and therefore not recorded.

When prompted the warranty clerk advised that his role was to process claims for which the paperwork was received. He was not responsible for reviewing open RO. We understand that this was the responsibility of the previous service manager. The poor management of RO was cited as a contributing factor to his termination (refer to employee section – unfair dismissal claim).

ConclusionWe have not been able to quantify the extent of lost revenue due to poor WIP management and hence the amount of lost reimbursement through unprocessed warranty claims or the extent of cash received but not accounted for. It would appear that the poor management of RO contributed to the failure of the business through lost warranty claim reimbursements as well as cash received but not accounted for.



In order to corroborate these assertions, we reviewed the Trial Balance as at 30 June 2008 which was maintained in the Reynolds system.

We found that the trial balance (which reflected a profit of c. $9k for the year) recorded several balance sheet balances that were clearly misrepresented.

Financial statements and other concerns raised by the external accountant

We were advised that the director would then hand write the results he would like to be reported in the financial statements and advise the accountant to draw up financial statements accordingly.

The accountants prepared the financial statements on this basis with any balancing items being booked to the shareholders loan account.

We note that the Company reported a taxable profit of c. $200k in its tax return for financial year ending 30 June 2008.

The accountant noted that he had concerns about the going concern of the business since 2004 and raised this with Mr Prestney at the time.

The accountant also commented that he suspected an element of non-company expenses were paid for by the Company. The loan account has captured some such payments however, given the lack of systems and controls in the business there is a likelihood that other such payments have not been captured.

Conclusion

We have concluded that the records maintained in the Reynolds system are unreliable. Detailed forensic investigation and extensive account reconstruction would be required in order to obtain reasonably accurate financial information.

Lack of transparency in financial reporting Meeting with external accountant and process of preparing year-end financial statements

A meeting with the Company’s former accountant was held during which the preparation of the Company’s financial statements, BAS and tax returns was discussed. The following is an account of our discussion.

The Company provided the accountants with monthly DA60 reports sourced from the Reynolds system and a year end general ledger trial balance. Invariably the two (2) sources of information did not reconcile.

We were advised by the accountant that the information provided in his view did not add up or reconcile.

In preparing the year end accounts the accountant was not provided with schedules supporting the trial balance such as sales reports, bank reconciliations, aged debtor listings, inventory schedules, aged creditors listings or fixed asset registers.

The accountant would prepare as much information as possible from the data provided, undertake limited 3rd party verification (e.g. bank reconciliations) and return the incomplete accounts to the director for explanation.

The accountant was unable to provide any working papers, journals, draft accounts or documentation to substantiate these claims advising that all records relating to the Company had been returned.

We have not sighted or come across any working papers or hand written financial statements on the premises.


Unfair Preference: section 588FA

2.1 What is an Unfair PreferenceTo be recoverable, the following circumstances must have existed at the time the unfair preference transaction was entered into:

The Company is insolvent or becomes insolvent at the time of entering into the transaction;The transaction was entered into in the six (6) months prior to the appointment of the Voluntary Administrators of the Company, being 29 March 2009 onwards ("the relation back date")';The transaction results in the creditor receiving from the Company more than the creditor would receive from the Company in respect to the debt in a winding up of the Company;A reasonable person in the creditors circumstances would have been reasonably aware the Company was insolvent; andThe creditor must not have an offset for goods or services provided after the payment which remain unpaid, for an amount greater than the payment.

Ordinarily, this would be investigated further in liquidation and any payments to creditors in the six months prior to the appointment of the Voluntary Administrator will be identified and considered. Certain transactions which may be pursued by a liquidator (depending on the findings regarding insolvency) and potentially recoverable under these provisions will be based on:

Threats to suspend or stop future supply;Being paid outside of their documented or agreed trading terms;Receiving large rounded payments upon the suspension of the supply of goods;Being advised that the Company is experiencing cash flow problems and being requested to hold off on presentation of cheques;Warnings that future supply would be dependant on Cash on Delivery (“COD”) or payment prior to delivery i.e. altered trading terms; and/orRequests that outstanding invoices be paid or at least part paid before further future supply would be entertained.

I wish to stress that any potential preferential payments that may be identified at a later stage may have valid defences and may not be clawed back by a Liquidator. In addition, any action would incur both liquidators and possibly legal expenses which are necessary to be incurred prior to collecting any preferential payments.

Commentary

Voidable transaction description

TransactionRef

Voidable TransactionsAppendix B. Voidable Transactions

Introduction

Voidable transactions are certain transactions or dispositions of property which a Liquidator may recover because they appear to be voidable transactions pursuant to Part 5.7B of the Corporations Act. Voidable transactions include the following types which are detailed below.


What is an Unreasonable Director Related TransactionFor a transaction to be voidable under these provisions a director or an associate of a director must have benefited from the transaction in circumstances where a reasonable person would not have entered into the transaction given the nature of the resulting benefits and detriments to the respective parties.

The following procedures were undertaken to determine whether unreasonable director related transactions occurred:Identified related and associated parties (see Section 2 for further discussion on related parties)Identified significant payments to Directors and other related entities throughout the relation back periodTraced all identified payments to supporting documentation.


2.4

What is an Uncommercial TransactionThese are transactions that a reasonable person would not have entered into having regard to the benefit (if any) and detriment to the Company of entering into the transaction and the benefit to other parties of entering into the transaction.

Uncommercial Transactions: section 588FB

2.2

Unfair Loans: section 588FD

2.3 What is an unfair loanA loan is unfair if the interest charges are extortionate. Regard is made to the risk of the lender, the value of security (if any), the terms of the loan, amount and any other relevant matters.

Commentary

Voidable transaction description (cont.)

TransactionRef

Voidable TransactionsAppendix B. Voidable Transactions


New VehiclesOct 09

$Nov 09

$Dec 09

$3 months to Dec

09 ($)Sales units 23 11 7 41

Ave Sale price 39,771 52,439 72,863 48,820Holdback / Bonus 1,010 1,125 2,204 1,244Ave Cost price (38,153) (48,753) (68,438) (46,168)Ave Gross 2,628 4,811 6,629 3,896

Sales 914,737 576,824 510,041 2,001,602Holdback / Bonus 23,222 12,374 15,428 51,024COS (877,526) (536,278) (479,067) (1,892,872)Gross profit 60,433 52,920 46,402 159,754Gross profit % 6.6% 9.2% 9.1% 8.0%

Variable costs (8,677) (10,678) (7,776) (27,130)Semi-fixed costs (18,556) (13,320) (9,257) (41,133)Selling gross profit 33,200 28,922 29,369 91,492

57.3%

Profit and loss statement by department - new vehiclesAppendix C. Trading performance by department (under administration)

Profit and Loss Statement for the three months ending 31 December 2009The following tables reflect the profit and loss statements for the three months to 31 December 2009 up to selling gross profit level (excluding overheads) for the following departments:

New vehicles;

Used vehicles;

Spare parts; and

Service.


Used VehiclesOct 09

$Nov 09

$Dec 09

$3 months to Dec

09 ($)Sales units 33 19 36 88

Ave Sale price 10,817 12,280 16,266 13,362Ave Cost price (10,262) (11,842) (15,893) (12,907)Ave Gross 555 438 372 455

Sales 356,956 233,319 585,563 1,175,838COS (338,635) (224,989) (572,156) (1,135,780)Gross profit 18,320 8,331 13,407 40,058% of total 5.1% 3.6% 2.3% 3.4%

Variable costs (6,585) (4,815) (7,113) (18,512)Semi-fixed costs (15,643) (10,763) (11,449) (37,856)Selling gross profit (3,908) (7,247) (5,154) (16,310)

(40.7)%

Profit and loss statement by department - used vehiclesAppendix C. Trading performance by department (under administration)

Profit and Loss Statement for the three months ending 31 December 2009


Sales 97,761 90,123 72,971 260,856COS (52,387) (42,305) (33,544) (128,236)Gross profit 45,374 47,818 39,427 132,620Gross profit % 46.4% 53.1% 54.0% 50.8%

Selling costs (20,280) (21,565) (18,469) (60,314)Selling gross profit 25,094 26,253 20,958 72,306

54.5%

3 months to Dec 09 ($)Spare parts

Oct 09$

Nov 09$

Dec 09$

Sales 108,831 102,555 81,994 293,379COS (84,996) (80,785) (65,779) (231,560)Gross profit 23,835 21,770 16,215 61,819Gross profit % 21.9% 21.2% 19.8% 21.1%

Selling costs (9,555) (8,126) (7,685) (25,367)Selling gross profit 14,280 13,643 8,530 36,452

59.0%

Spare parts3 months to Dec

09 ($)Oct 09

$Nov 09

$Dec 09

$

Profit and loss by statement department - spare parts and service departmentsAppendix C. Trading performance by department (under administration)

Spare parts department Service department


Historical financial performanceAppendix D. Historical financial performance

The following financial information has been sourced from the Company’s DA60s maintained by the Company which are essentially management reports which are derived from the general ledger trial balance which is processed through the Company's accounting system (Reynolds).

We note that this information could not be reconciled to the relevant financial statements (2008) or to the general ledger trial balance obtained to date.

We provide this information for indicative purposes only.

No reliance should be placed on this information and the Administrators make no comment or attestation to its accuracy.


FY08$

FY09$

FY10 YTD$

Total revenue ($) 22,537,235 20,809,038 4,270,388Cost of goods sold 20,683,328 19,398,868 3,844,152Gross profit ($) 1,853,907 1,410,170 426,236Gross margin (%) 8.2% 6.8% 10.0%ExpensesSalaries & wages (606,076) (706,759) (161,457)Fixed expenses (548,483) (642,962) (167,743)Variable expenses (231,554) (371,809) (38,251)Semi-variable expenses (833,640) (501,402) (94,901)Total expenses (2,219,753) (2,222,932) (462,352)Unallocated holdbacks & bonuses 672,888 1,236,473 53,009Net profit before tax ($) 307,042 423,711 16,893


Historical financial performance


New Car Sales ($)

Used Car Sales ($) Parts ($)] Service ($) Total ($)

Total revenue 1,981,766 1,495,451 420,692 372,479 4,270,388Cost of goods sold 1,906,959 1,445,302 328,928 162,963 3,844,152Gross profit 74,807 50,149 91,764 209,516 426,236Gross margin (%) 3.8% 3.4% 21.8% 56.2% 10.0%ExpensesSalaries & wages (48,630) (61,099) (20,439) (31,289) (161,457)Fixed expenses (48,645) (48,645) (33,549) (36,904) (167,743)Variable expenses (20,510) (17,741) - - (38,251)Semi-variable expenses (30,068) (27,657) (14,921) (22,255) (94,901)Total expenses (147,853) (155,142) (68,909) (90,448) (462,352)Unallocated holdbacks & bonuses 53,009Net profit before tax (73,046) (104,993) 22,855 119,068 16,893

New Car Sales ($)


Total revenue 13,486,203 6,216,198 1,437,871 1,396,963 22,537,235Cost of goods sold 12,777,625 6,051,760 1,144,635 709,308 20,683,328Gross profit 708,578 164,438 293,236 687,655 1,853,907Gross margin (%) 5.3% 2.6% 20.4% 49.2% 8.2%ExpensesSalaries & wages (175,213) (212,257) (102,636) (115,970) (606,076)Fixed expenses (159,060) (159,060) (109,697) (120,666) (548,483)Variable expenses (198,317) (33,237) - - (231,554)Semi-variable expenses (366,865) (344,476) (41,321) (80,978) (833,640)Total expenses (899,455) (749,030) (253,654) (317,614) (2,219,753)Unallocated holdbacks & bonuses 672,888Net profit before tax (190,877) (584,592) 39,582 370,041 307,042

New Car Sales ($)


Total revenue 11,645,526 6,188,660 1,501,527 1,473,325 20,809,038Cost of goods sold 11,222,703 6,271,956 1,178,130 726,079 19,398,868Gross profit 422,823 (83,296) 323,397 747,246 1,410,170Gross margin (%) 3.6% (1.3%) 21.5% 50.7% 6.8%ExpensesSalaries & wages (226,935) (260,844) (87,796) (131,184) (706,759)Fixed expenses (186,459) (186,459) (128,592) (141,452) (642,962)Variable expenses (293,094) (78,715) - - (371,809)Semi-variable expenses (180,915) (188,681) (37,054) (94,752) (501,402)Total expenses (887,403) (714,699) (253,442) (367,388) (2,222,932)Unallocated holdbacks & bonuses 1,236,473Net profit before tax (464,580) (797,995) 69,955 379,858 423,711


Financial performance by sector FY10 YTD

Financial performance by sector FY09

Financial performance by sector FY08


RetailCalendar year 2007 2008 2009 YTD

Used vehicles sold (units) 288 274 198 Used vehicles sales ($) 5,491,075 4,805,488 3,530,952Used vehicle gross ($) 765,055 662,609 483,593Gross per unit ($) 2,656 2,418 2,442Gross profit % 13.93% 13.79% 13.70%

WholesaleCalendar year 2007 2008 2009 YTD

Used vehicles sold (units) 183 194 122 Used vehicles sales ($) 1,463,785 1,277,056 618,087Used vehicle gross ($) (9,912) (91,402) (81,595)Gross per unit ($) (54) (471) (669)Gross profit % (0.68%) (7.16%) (13.20%)

Used vehicle sales by volumeCalendar year 2007 2008 2009 YTD

Retail used vehicle sales 288 274 198 Wholesale used vehicle sales 183 194 122 Total used vehicles sold (units) 471 468 320

Ford new car salesFinancial year FY08 FY09 FY10 YTDNew vehicles sold (units) 192 180 30 New vehicles sales ($) 5,790,376 5,581,415 1,228,796New vehicle gross ($) 89,106 96,435 51,212Gross per unit ($) 464 536 1,707Gross profit % 1.54% 1.73% 4.17%

Subaru new car salesFinancial year FY08 FY09 FY10 YTDNew vehicles sold (units) 80 92 7 New vehicles sales ($) 2,586,604 2,927,247 229,371New vehicle gross ($) 149,197 147,740 10,939Gross per unit ($) 1,865 1,606 1,563Gross profit % 5.77% 5.05% 4.77%

Mercedes Benz new car salesFinancial year FY08 FY09 FY10 YTDNew vehicles sold (units) 84 58 5 New vehicles sales ($) 5,412,874 3,463,660 523,598New vehicle gross ($) 324,794 189,215 12,657Gross per unit ($) 3,867 3,262 2,531Gross profit % 6.00% 5.46% 2.42%

New and used vehicles sales historical informationAppendix D. Historical financial performance

New vehicle sales breakdown Used vehicle sales breakdown


FY08 FY09 YTD FY10($) ($) ($)

SalesReta il 551,766 589,085 187,395 Warranty 97,224 87,534 22,094 Internal 175,746 200,630 43,299 Sublet 358,868 376,642 71,464 Oil &Grease 213,359 219,434 48,227

Total sales 1,396,963 1,473,325 372,479

GrossReta il 394,346 439,128 142,795 Warranty 58,105 52,592 10,939 Internal 118,766 133,658 26,835 Sublet 40,660 31,950 6,114 Oil &Grease 75,778 89,918 22,833

Total Gross 687,655 747,246 209,516Gross Profit % 49.2% 50.7% 56.2%

FY08 FY09 YTD FY10($) ($) ($)

SalesTrade 449,986 464,807 124,757 Counter 97,117 98,847 20,572 Service 420,847 425,707 143,684 Warranty 176,391 165,548 56,335 Internal 293,530 346,618 75,344

Total sales 1,437,871 1,501,527 420,692Gross

Trade 71,310 79,363 21,807 Counter 16,134 20,140 4,135 Service 138,881 148,836 48,024 Warranty 31,753 32,355 7,865 Internal 35,158 42,703 9,933

Total Gross 293,236 323,397 91,764Gross Profit % 20.4% 21.5% 21.8%

Spare parts and service departments historical performance Appendix D. Historical financial performance

Spare parts department Service department


Retrospective remuneration report

At the meeting of creditors which is to be held on 1 February 2010, we will be seeking approval from creditors for our retrospective and prospective remuneration as Administrators/Liquidators. Retrospective remuneration from the date of our appointment on 29 September 2009 to close of business on 20 January 2010 is $600,959 excluding GST and disbursements. Remuneration for the period 21 January 2010 to the date of the Second Meeting of Creditors on 1 February 2010 is estimated to be $25,000 excluding GST and disbursements. Please note that this latter figure contains an estimate of remuneration required for the period 21 January 2010 to 1 February 2010 and the actual remuneration for this period will be confirmed and presented to the meeting of creditors on 1 February 2010.Our estimate of prospective fees from 1 February 2010 to the conclusion of the liquidation is $100,000 excluding GST, disbursements, and any amounts received from the General Employee Entitlements and Redundancy Scheme (“GEERS”). Any additional remuneration is subject to further approval from creditors.

Appendix E. Retrospective remuneration report

Remuneration methods There are four basic methods that can be used to calculate the remuneration charged by an Insolvency Practitioner. They are:

.

a. Time based / hourly ratesThis is the most common method. The total fee charged is based on the hourly rate charged for each person who carried out the work multiplied by the number of hours spent by each person on each of the tasks performed.

b. Fixed FeeThe total fee charged is normally quoted at the commencement of the administration and is the total cost for the administration. Sometimes a Practitioner will finalise an administration for a fixed fee.

c. PercentageThe total fee charged is based on a percentage of a particular variable, such as the gross proceeds of assets realisations.

d. ContingencyThe practitioner’s fee is structured to be contingent on a particular outcome being achieved.

Method chosenGiven the nature of this administration and that all remuneration previously charged has been using the time based/hourly rate method, this will continue to be applied. This is the most common method and we believe that this method truly reflects the hours worked by individual staff members and the expenses associated with conducting the administration.

Explanation of hourly ratesThe rates for our remuneration calculation are set out in the attached “Charge Rates” together with a general guide showing the qualifications and experience of staff who may be engaged in the liquidation. The hourly rates charged encompass the total cost of providing professional services and should not be compared to an hourly wage.

Disbursements Disbursements are divided into three types: A, B1, B2. A disbursements are all externally provided professional services and are

recovered at cost. An example of an A disbursement is legal fees.B1 disbursements are externally provided non-professional costs such as travel,

accommodation and search fees. B1 disbursements are recovered at cost.B2 disbursements are internally provided non-professional costs such as

photocopying and document storage. B2 disbursements are charged at cost except for photocopying, printing and telephone calls which are charged at a rate which is intended to recoup both variable and fixed costs.

I expect that disbursements will be approximately $45,000 which includes charges for advertisement of the business and statutory notices, external production of creditor correspondence to all creditors (for the first, second and final reports), photocopying, travel, accommodation and postage.


Retrospective remuneration reportAppendix E. Retrospective remuneration report

Preparing regular written and verbal reports to the secured creditorMeetings and liaison with secured creditor and responding to their queries

Secured creditor reporting

Preparation of First Report to Creditors including attachmentsPreparation of Administrators’ Section 439A Report to Creditors including attachments

Creditor reports

Preparation of meeting notices and report attachmentsForward notice of meeting to all known creditorsPreparation of meeting file, including agenda, certificate of postage, attendance register, list of creditors, reports to creditors, advertisement of meeting and draft minutes of meeting.Preparation and lodgement minutes of meetings with ASICResponding to stakeholder queries and questions

Meeting of creditors

Receive and follow up creditor enquiries via telephone, facsimile and emailMaintaining creditor enquiry registerReview and prepare correspondence to numerous creditors and their representatives via facsimile, email and post

Creditor enquiries

Creditors332.50 hours$98,474.00

Collation of debtor recordsReviewing and assessing debtors ledger and related records

Debtors

Conducting comprehensive stock takes at each site Reviewing stock methodology and valuesReview integrity of stock recording systemLiaising with suppliers regarding ROT and trading mattersLiaising with customers

Stock

Includes

Identifying and securing assets and propertyLiaising with independent valuers, insurers and OH&S inspectorsReviewing asset registers and listingsPreparing vehicle registration reconciliations

Description of work completed from 29 September 2009 to 20 January 2010

Plant and equipment

Assets37.90 hours$14,557.50

General DescriptionTask Area



Liaison with GEERS regarding awards, calculations and entitlement provisionsReview of GEERS capped amounts

GEERS

Reviewing employee files and Company’s books and records Reconciling superannuation accounts Manual calculation of each employees entitlements from hard copy records maintained by the CompanyReview of applicable awards and industrial instrumentsPreliminary calculation of entitlements pursuant to EBA, industrial award, contractsLiaison with employees and superannuation funds specifically regarding entitlements

Calculation of entitlements

Review insurance policiesIdentification of potential issues requiring attentionCorrespondence with Willis regarding initial and ongoing workers compensation insurance requirements

Workers compensation claims

Receive and follow up employee enquiries on site andMaintain employee enquiry registerReview and prepare correspondence to employee creditors and their representatives via facsimile, email and postPreparation of letters to employees advising of their entitlements and options availableReceive and prepare correspondence in response to certain employees objections to leave entitlementsSeveral meetings on site with employees to provide updates regarding status and progressPrepare and distribute letter to employees advising of an extension to administration period and tradingPrepare and distribute letter to employees on 17 and 23 December 2009 advising of likely wind down of operations and thanking them for support during administrationPrepare and distribute separation certificates to terminated employees

Employee enquiries

Employees99.80 hours$24,849.00

Includes





Maintaining cashbook including entering receipts and payments into accounting system to satisfy reporting obligations

Processing receipts and payments

Reviewing Company’s budgets and financial statementsPreparing budgets and cash flow statementsPreparing financial reportsMeetings to discuss trading position Daily ongoing management of cash position for trading period of AdministrationQuarantine of pre appointment accounting ledgerEstablishment of Administration ledger and reporting function

Budgeting & financial reporting

Correspondence and liaison with suppliersLiaising with management and staff on site regarding trading mattersDaily attendance on site to conduct trading-on of businessReviewing and authorising all purchase orders whilst maintaining the purchase order registerPreparing and authorising receipt and payment vouchersLiaising with utility providers and establishment of new accountsLiaising with solicitors regarding customer agreements and trading mattersMeetings with franchisorsPreparing order schedules and monitoring schedules against budgetCalculation, verification and payment of employee wages and other administration entitlementsLiaison with St George regarding banking requirements and facilitiesReviewing OH&S requirements and standardsMeet with OH&S authorities to discuss key issuesPreparation of detailed forecast trading cash flow for the administration period to ensure the business can be traded at least at breakeven Prepare and distribute letter to all stakeholders advising of an extension to administration period and trading

Trade on management

Trading 1,032.90 hours$345,953.50

Includes





Review of Company books and records maintained on siteIdentifying and securing of key books and recordsConducting and summarising statutory searchesPreparation of comparative financial statementsPreparation of investigation file

Conducting investigationsInvestigations101.50 hours $22,402.00

Determining sale of business strategyPreparing a detailed Information Memorandum (IM)Preparation and review of financial tables, valuations and staff composition for information memorandumPreparation of list of manufactured items and annexures Consultation with solicitors and preparation of Confidentiality Agreements (CA)Consultation with marketing department regarding sale of business strategy and advertising requirementsDesign sale of business advertisementAdvertising sale of business Prepare and maintaining interested party registerMeeting potential purchasers and conducting site visitsNumerous meetings and discussions with potential purchasersLiaising with valuers and agents

Sale of Business

Sale of Business88.60 hours$35,063.50

Includes





Filing of documents in work filesFile reviews to ensure compliance with obligationsUpdating checklists and checklist management

Document maintenance / file review / checklist

Administration211.70 hours $59,659.50

Preparing correspondence opening and closing accountsRequesting bank statementsBank account reconciliationsCorrespondence with St George regarding specific transfers Liaison with St George regarding facilities required

Bank account administration

Identification of potential issues requiring attention of insurance specialistsArranging OH&S reviews at both trading sitesCorrespondence with Willis regarding initial and ongoing insurance requirementsReviewing insurance policies

Insurance

Notification of appointmentATO & other statutory reporting

Preparing and lodging ASIC forms including 505, 911, 530 etcCorrespondence with ASIC regarding statutory forms

ASIC Forms

Discussions regarding status of administrationStrategy meetings and reviews

Planning / Review

Includes




Hours $ Hours $ Hours $ Hours $ Hours $ Hours $ Hours $

APPOINTEE - ANDREW HEWITT 550.00 106.60 58,630.00 19.00 10,450.00 3 .70 2,035.00 1.30 715.00 69.60 38,280.00 3.00 1,650.00 - - 10.00 5,500.00 APPOINTEE - MATTHEW BYRNES 550.00 2 .10 1,155.00 - - 0 .60 330.00 0.80 440.00 0.70 385.00 - - - - - - ASSOCIATE DIRECTOR 450.00 71.90 32,355.00 - - 38.00 17,100.00 - - 3.40 1,530.00 - - 30.50 13,725.00 - - ASSOCIATE DIRECTOR 425.00 247.80 105,315.00 - - - - - - 190.80 81,090.00 - - 42.50 18,062.50 14.50 6,162.50 MANAGER 400.00 68.00 27,200.00 - - 0 .20 80.00 - - 67.70 27,080.00 0.10 40.00 - - MANAGER 400.00 0 .70 280.00 - - - - 0.70 280.00 - - - - - - - - ASSISTANT MANAGER 360.00 113.70 40,932.00 - - 62.50 22,500.00 3.40 1,224.00 24.90 8,964.00 7.80 2,808.00 - - 15.10 5,436.00 ASSISTANT MANAGER 350.00 427.50 149,625.00 0.70 245.00 31.50 11,025.00 46.80 16,380.00 271.20 94,920.00 15.20 5,320.00 - - 62.10 21,735.00 ACCOUNTANT 1 260.00 69.00 17,940.00 2.20 572.00 61.50 15,990.00 - - 5.30 1,378.00 - - - - - - ACCOUNTANT 1 250.00 331.30 82,825.00 7.70 1,925.00 32.00 8,000.00 2.50 625.00 252.30 63,075.00 - - - - 36.80 9,200.00 ACCOUNTANT 2 240.00 27.00 6,480.00 - - 27.00 6,480.00 - - - - - - - - - - ACCOUNTANT 2 230.00 6 .10 1,403.00 - - 4 .30 989.00 1.60 368.00 0.10 23.00 - - - - 0.10 23.00 GRADUATE 210.00 221.90 46,599.00 - - 54.00 11,340.00 - - 127.60 26,796.00 20.20 4,242.00 15.60 3,276.00 4.50 945.00 SECONDEE 1 200.00 1 .50 300.00 - - 1 .50 300.00 - - - - - - - - - - ADMINISTRATOR 185.00 5 .70 1,054.50 5.30 980.50 - - - - 0.40 74.00 - - - - - - ADMINISTRATOR 175.00 34.70 6,072.50 - - 1 .60 280.00 - - 0.30 52.50 - - - - 32.80 5,740.00 SECONDEE 2 170.00 7 .90 1,343.00 - - 7 .90 1,343.00 - - - - - - - - - - PA/SECRETARY 160.00 1 .00 160.00 - - - - - - - - - - - - 1.00 160.00 UNDERGRADUATE 160.00 72.70 11,632.00 1.10 176.00 - - 2.40 384.00 5.20 832.00 45.40 7,264.00 - - 18.60 2,976.00 SECONDEE 3 110.00 87.80 9,658.00 1.90 209.00 6 .20 682.00 40.30 4,433.00 13.40 1,474.00 9.80 1,078.00 - - 16.20 1,782.00

1,904.90 600,959.00 37.90 14,557.50 332.50 98,474.00 99.80 24,849.00 1,032.90 345,953.50 101.50 22,402.00 88.60 35,063.50 211.70 59,659.5025,000.00

625,959.00 62,595.90

688,554.90 395.75 281.81220.71

ESTIMATED FEES FROM 20 JANUARY 2010 TO 1 FEBRUARY 2010ESTIMATED TOTAL FEES TO 1 FEBRUARY 2010GST

TOTAL (including GST)

TOTAL ACTUAL FEES TO 20 JANUARY 2010

Assets Creditors Employees $/hour (ex GST)

Tota l ($) Employee Position Total actual hours Trade OnTask Area

Investigation Sale of Business Administration

334.93248.99 Average Hourly Rate 384.10 296.16



Prospective remuneration reportAppendix F. Prospective remuneration report

Conduct final stocktakeReviewing stock valuesLiaising with suppliers and purchasers

Stock

Preparing regular written and verbal reports to the secured creditorMeetings and liaison with secured creditorResponding to secured creditor’s queries

Secured creditor reporting

Investigations, meetings and general reports to creditorsInterim (if applicable) and Final report to creditors

Creditors reports

Receive and follow up creditor enquiries via telephone, facsimile and emailMaintaining creditor enquiry registerReview and prepare correspondence to numerous creditors and their representatives via facsimile, email and post

Creditor enquiries

Creditors25 hours$ 8,000.00

Correspondence with debtors and secured creditorReviewing and assessing debtors ledgersSend follow up letters to debtors regarding outstanding balance owingLiaising with debt collectors and solicitorsDaily reconciliation, banking and update of amounts owing

Debtors

Correspondence with valuers and auctioneers regarding sale of assetsSale of assets

Includes

Liaising with auctioneers and interested partiesReviewing asset listingsArranging collection of third party property with ownersFinalise insurance policy on assets

Description of work to be completed from 1 February 2010 to finalisation

Plant and Equipment

Assets35 hours$ 11,200.00




Correspondence with Child Support and CentrelinkOther employee issues

Liaison with GEERS regarding awards, calculations and entitlement provisionsReview of GEERS capped amountsPreparing GEERS quotationsPreparing GEERS distributionsMonitoring unpresented chequesReceive GEERS Proof of Debt for amounts advanced on behalf of employeesDistribution of GEERS funds advanced (if applicable)

GEERS

Review insurance policiesIdentification and maintenance of potential issues requiring attentionCorrespondence with Willis regarding initial and ongoing workers compensation insurance requirements

Workers compensation claims

Receive and follow up employee enquiries on site and maintain employee enquiry registerReview and prepare correspondence to employee creditors and their representatives via facsimile, email and postReceive and prepare correspondence in response to certain employees objections to leave entitlements

Employee enquiries

Employees37.5 hours$ 12,000.00

Includes





Maintaining cashbook including entering receipts and payments into accounting system to satisfy reporting obligations

Processing receipts and payments

Reviewing Company’s budgets and financial statementsPreparing budgets and cash flow statementsPreparing financial reportsMeetings to discuss trading position Daily ongoing management of cash position for trading period of Administration

Budgeting & financial reporting

Correspondence and liaison with suppliersLiaising with management and staff on site regarding trading mattersLiaising with solicitors regarding customer agreements and trading mattersCalculation, verification and payment of employee wages and other administration entitlementsLiaison with the St George regarding banking requirements and facilitiesPrepare and distribute letter to all stakeholders advising of administration trading period

Trade on management

Trading 85 hours$ 27,200.00

Includes





Preparation and lodgement of statutory investigation reportPreparing statutory investigations reports or additional reports if requiredLiaising with ASIC

ASIC reporting

Internal meetings to discuss potential litigationsPreparation of brief to solicitorsLiaising with solicitors regarding recovery actionsAttending to potential settlement matters

Litigation/Recoveries

Review of Company books and records maintained on siteCollection and listing of Company's books and recordsPreparation of deficiency statementPreparation of investigation file

Conducting investigations

Investigations35 hours $ 11,200.00

Preparation and review of financial tables, valuations and staff composition for information memorandumMeetings and discussions with potential purchaserResponding to queries and concerns from potential purchaserLiaising with valuers and agents regarding sale of businessLiaise with solicitors regarding contract for sale of businessNegotiate sale of business with potential purchaserFinalise sale of business and sale agreement

Sale of Business

Sale of Business55 hours$ 17,600.00

Includes





Filing of documents in work filesFile reviews to ensure compliance with obligationsUpdating checklists and checklist management

Document maintenance / file review / checklist

Administration40 hours$ 12,800.00

Preparing correspondence regarding bank accountsBank account reconciliationsCorrespondence with bank regarding specific transfers

Bank account administration

Correspondence with Willis regarding ongoing insurance requirementsReviewing insurance policies

Insurance

Preparing and lodging ASIC formsCorrespondence with ASIC regarding statutory forms

ASIC Forms

Discussions regarding status of administrationStrategy meetings and reviews

Planning / Review

Includes




Grant Thornton Scale of RatesAppendix G. Grant Thornton Scale of Rates

Cla

ssif

icat

ion

Ch

arge

Rat

e

G

uid

e to

Lev

el o

f In

solv

ency

Exp

erie

nce

Not

es:

2. T

ime

spen

t on

mat

ters

is re

cord

ed a

nd c

harg

ed in

six

(6) m

inut

e in

terv

als.

3. C

harg

e ra

tes s

how

n ar

e pe

r hou

r and

exc

ludi

ng G

ST.

Regi

ster

ed T

rust

ee.

Partn

er/D

irect

or b

ringi

ng sp

ecial

ist sk

ills t

o A

dmin

istra

tions

and

Inso

lven

cy m

atte

rs. C

ontro

lling

all

mat

ters

relat

ing

to th

e as

signm

ent.

PART

NE

R/D

IRE

CTO

R$4

75

ASS

OCI

ATE

DIR

ECT

OR

$450

Qua

lified

acc

ount

ant (

CA/C

PA).

8+

yea

rs e

xper

ience

. W

ell d

evelo

ped

tech

nica

l and

com

mer

cial s

kills

. Pl

anni

ng a

nd c

ontro

l of a

ll A

dmin

istra

tion

and

Inso

lven

cy ta

sks.

Cont

rolli

ng su

bsta

ntial

mat

ters

relat

ing

to th

e as

signm

ent a

nd

repo

rting

to th

e ap

poin

tee.

PART

NE

R/D

IRE

CTO

R$5

50Re

gist

ered

Liq

uida

tor/

Trus

tee.

Par

tner

/Dire

ctor

brin

ging

spec

ialist

skill

s to

Adm

inist

ratio

ns a

nd In

solv

ency

mat

ters

. Con

trolli

ng a

ll m

atte

rs re

latin

g to

the

assig

nmen

t.

Char

ge R

ates

(exc

ludi

ng G

ST)

MA

NA

GE

R $4

10Ty

pica

lly C

A/C

PA Q

ualif

ied.

6-8

year

s exp

erien

ce.

Well

dev

elope

d te

chni

cal

and

com

mer

cial s

kills

. Pl

anni

ng a

nd c

ontro

l of A

dmin

istra

tion

and

Inso

lven

cy

task

s with

the

assis

tanc

e of

the

appo

inte

e.

ASS

ISTA

NT

MA

NA

GE

R$3

60Ty

pica

lly C

A/C

PA Q

ualif

ied.

4+ y

ears

exp

erien

ce.

Co-o

rdin

ates

plan

ning

and

co

ntro

l of s

mall

to m

ediu

m A

dmin

istra

tions

and

Inso

lven

cy ta

sks.

Con

duct

s ce

rtain

asp

ects

of l

arge

r adm

inist

ratio

ns.

MA

NA

GE

R $3

90Ty

pica

lly C

A/C

PA Q

ualif

ied.

6-8

year

s exp

erien

ce.

Well

dev

elope

d te

chni

cal

and

com

mer

cial s

kills

. Pl

anni

ng a

nd c

ontro

l of A

dmin

istra

tion

and

Inso

lven

cy

task

s with

the

assis

tanc

e of

the

appo

inte

e.

SEN

IOR

2$2

85Ty

pica

lly u

nder

taki

ng C

A/C

PA Q

ualif

icatio

n or

rece

ntly

Qua

lified

. 2-4

yea

rs

expe

rienc

e. R

equi

red

to c

ondu

ct th

e fie

ldw

ork

on A

dmin

istra

tions

and

In

solv

ency

task

s.

SEN

IOR

1$3

10Ty

pica

lly C

A/C

PA Q

ualif

ied.

3-5

year

s exp

erien

ce.

Requ

ired

to c

ontro

l the

fie

ldw

ork

on A

dmin

istra

tions

and

Inso

lven

cy ta

sks.

SEN

IOR

1$2

75Ty

pica

lly C

A/C

PA Q

ualif

ied.

3-5

year

s exp

erien

ce.

Requ

ired

to c

ontro

l the

fie

ldw

ork

on P

erso

nal I

nsol

venc

y ta

sks.

ACC

OU

NTA

NT

2$2

40Co

mm

encin

g CA

/CPA

Qua

lifica

tion.

Up

to 2

yea

rs e

xper

ience

. Re

quire

d to

as

sist w

ith th

e da

y to

day

field

wor

k on

small

er A

dmin

istra

tions

and

Inso

lven

cy

task

s und

er th

e su

perv

ision

of m

ore

seni

or st

aff.

ACC

OU

NTA

NT

1$2

60Ty

pica

lly u

nder

taki

ng C

A/C

PA Q

ualif

icatio

n. U

p to

3 y

ears

exp

erien

ce.

Requ

ired

to c

ondu

ct th

e fie

ldw

ork

on sm

aller

Adm

inist

ratio

ns a

nd In

solv

ency

ta

sks a

nd a

ssist

with

field

wor

k on

med

ium

to la

rge

Adm

inist

ratio

ns a

nd

Inso

lven

cy ta

sks.

AD

MIN

ISTR

ATO

R$1

85Co

nduc

ts a

ll as

pect

s rela

ting

to a

dmin

ister

ing

the

acco

unts

func

tion.

GRA

DU

ATE

$220

Typi

cally

6-1

5 m

onth

s exp

erien

ce.

Requ

ired

to a

ssist

with

the

day

to d

ay

field

wor

k on

Adm

inist

ratio

ns a

nd In

solv

ency

task

s und

er th

e su

perv

ision

of

inte

rmed

iate

and

seni

or st

aff.

GR

AD

UA

TETy

pica

lly fi

rst 6

mon

ths e

xper

ience

. Re

quire

d to

ass

ist w

ith th

e da

y to

day

fie

ldw

ork

on A

dmin

istra

tions

and

Inso

lven

cy ta

sks u

nder

the

supe

rvisi

on o

f in

term

ediat

e an

d se

nior

staf

f.

$190

1. T

his g

uide

to th

e lev

el of

inso

lven

cy e

xper

ience

is in

tend

ed o

nly

to b

e a

guid

e as

to th

e qu

alific

atio

ns a

nd e

xper

ience

of t

he st

aff e

ngag

ed.

It sh

ould

be

note

d th

at in

som

e in

stan

ces s

taff

may

be

enga

ged

unde

r an

appr

opria

te c

lassif

icatio

n pr

incip

ally

due

to th

eir e

xper

ience

.

PA/S

ECR

ETA

RY$1

65Ca

rries

out

all

secr

etar

ial fu

nctio

ns re

latin

g to

an

adm

inist

ratio

n.

UN

DE

RGRA

DU

ATE

$160

Typi

cally

in fi

nal y

ear o

f ter

tiary

stud

ies a

nd u

nder

goin

g va

catio

n em

ploy

men

t or

par

t tim

e w

ork.


Declaration of Independence, Relevant Relationships and Indemnities

Independence We, Matthew James Byrnes and Andrew Stewart Reed Hewitt, have undertaken a proper assessment of the risks to our independence prior to accepting the appointment as Administrators of the Company. This assessment identified no real or potential risks to our independence. We are not aware of any reasons that would prevent us from accepting this appointment.

Relevant relationships and prior engagements with the insolvent We were first contacted by the Company’s solicitor, Mr David Hackford on 16 September 2009, regarding the Company’s financial position and I met with the Directors, Mrs Janice Heather Prestney and Mr Robert Keith Prestney, together with Mr Hackford on 18 September 2009. In that meeting we discussed the financial position of the Company, options available to it, as well as the implications for continuing to trade. In general terms I advised in relation to the obligations of officeholders of a Company and the ramifications of breaching those obligations.

The Directors contacted me through their solicitor on 21 September 2009 and advised that they wished to place the Company into Voluntary Administration. Prior to accepting the appointment by the Directors, we notified the National Australia Bank Limited (“NAB”) which holds a first ranking fixed and floating charge over the Company as well as St. George Bank Limited (“St. George”), who own the majority of the Company’s stock under a bailment agreement.

Between 21 September 2009 and 25 September 2009, I negotiated a funding agreement with St. George that would allow us to trade the business on during the administration. Matthew Byrnes and I were appointed as joint and several Voluntary Administrators of the Company on 29 September 2009.

Appendix H. Declaration of Independence, Relevant Relationships and Indemnities

In the conduct of the Recovery and Reorganisation Service business we operate we have conducted a number of assignments for and on behalf of NAB and St George which are unrelated to this matter.

Other than the above, neither of the Administrators nor any member of our staff have had any dealings with the Directors, the Company or any related parties.

A proper assessment of the risks to our independence was undertaken prior to accepting the appointment as Administrators.

Following from the above, there is no known or perceived conflict of interest which prohibited our appointment.

Indemnities We have been provided with an indemnity in this administration by St. George Bank Limited to the value of $500,000.

NoteIf circumstances change, or new information is identified, we are required under the IPA Code of Professional Practice to update this Declaration and provide a copy to creditors with my next communication as well as table a copy of any replacement declaration at the next meeting of the Company’s creditors.

PRESTNEY BROS. (MOTORS) PTY LTD (ADMINISTRATORS APPOINTED)

A.C.N. 004 835 965

ANNEXURE 3

Chairman’s Presentation to the Second Meeting of creditors


Overview of Meeting

• Mobile phones• Welcome and introduction• Attendance register & observers• Confirmation of Chairman• Proxies• Notice of Meeting• Quorum


Purpose of the Meeting

Update Creditors generally regarding the administration to date.

Resolutions include:1) Company's future (i.e Liquidation)2) Administrators’ / Liquidators’ remuneration

(retrospective & prospective)3) Committee of Inspection4) Destruction of Books & Records


Sale of Business

– The business and assets were immediately put to market– Advertised in the Financial Review, The Age and GoAuto magazine– Initial deadline was 30 October 2009, later extended– Information flyer and a detailed IM were prepared– Confidentiality agreements required– Indicative interest from 26 parties– Several interested parties withdrew their interest by the deadline date– Three formal offers received– Withdrawal of Mercedes-Benz and Subaru lead to further offers being

withdrawn– Subsequently a wind down of the business was undertaken in late

December 2010


– Offer– One offer has recently been received for the business and

property– As a result eight staff were re-hired on a casual basis– Discussions have been ongoing with the party– Offer is for assets including Plant, Machinery, and Stock

as well as Property

Sale of Business


Administrators’ trading

• Decision not taken lightly by Administrators• Some element of risk• Required support of employees, key suppliers, customers

and the Bank• Believed there was a future for Prestney• Needed to test the market to see if there was a buyer• Business traded at or near full capacity during

administration


Administrators’ trading….

• Forecast to make a loss of c. $61k to 15 January 2010

• Trading was funded by St George

(61)Net trading position to 15/1

(before admin costs)

3,732

(3,388)

394

(210)

(350)

140(35)

Sales

Cost of Sales

Gross Margin

Selling costs

Overheads

AdjustmentsEstimated loss (1 Jan to 15 Jan 2010)

$'000sFrom 29/09/2009 –15/01/2010


Historical Trading

• Poor financial reporting and inadequate maintenance of books and records

• Difficulty in reconciling trial balances to DA60's• High fixed cost base not supported by high sales

volumes

• Large monthly interest costs


Reasons for failure


Reasons for failure

The Company provided the accountants with monthly reports (DA60's) and a year end general ledger trial balance. Invariably the two (2) sources of information did not reconcile.

We were advised by the accountant that the director would hand write the results he would like to have reported in the financial statements and advise the accountants to draw up financial statements accordingly.

The accountants prepared the financial statements on this basis with any balancing items being booked to the shareholders' loan account.

The accountant was unable to provide any working papers, journals, draft accounts or documentation to substantiate these claims advising that all records relating to the Company had been returned. We did not locate them in the Prestney records.

It appears as though some balances were carried forward from prior years with the accounting staff not closing off the year end accounts.

We found that the business did not maintain adequate books and records to enable accurate financial reporting or management decision-making.

We have concluded that the records maintained in the Reynolds system are unreliable. Detailed forensic investigation and extensive account reconstruction would be required in order to obtain reasonably accurate financial information. We will discuss this at the upcoming creditor's meeting.



We identified an entry processed in April 2009 which was essentially a reversal of floor plan interest of c. $177k in the accounts provided to the NAB seeking an increase in the overdraft limit.

This had the impact of improving profit by c. $350k reflecting a profit of c. $200k for the ten (10) months ending 30 April 2009 (as opposed to a c. $150k loss). The overdraft facility was subsequently approved.

We note that the overdraft facility increased c. $779k over the past twenty-four (24) months and the extension provided in May 2009 ($500k) was fully utilised at the time of appointment.



CommentaryExampleReason

The Company provided the accountants with monthly reports (DA60's) and a year end general ledger trial balance. Invariably the two (2) sources of information did not reconcile.

We were advised by the accountant that the director would hand write the results he would like to have reported in the financial statements and advise the accountants to draw up financial statements accordingly.

The accountants prepared the financial statements on this basis with any balancing items being booked to the shareholders' loan account.

The accountant was unable to provide any working papers, journals, draft accounts or documentation to substantiate these claims advising that all records relating to the Company had been returned. We did not locate them in the Prestney records.

It appears as though some balances were carried forward from prior years with the accounting staff not closing off the year end accounts.

We found that the business did not maintain adequate books and records to enable accurate financial reporting or management decision-making.

We have concluded that the records maintained in the Reynolds system are unreliable. Detailed forensic investigation and extensive account reconstruction would be required in order to obtain reasonably accurate financial information. We will discuss this at the upcoming creditor's meeting.



We identified an entry processed in April 2009 which was essentially a reversal of floor plan interest of c. $177k in the accounts provided to the NAB seeking an increase in the overdraft limit.

This had the impact of improving profit by c. $350k reflecting a profit of c. $200k for the ten (10) months ending 30 April 2009 (as opposed to a c. $150k loss). The overdraft facility was subsequently approved.

We note that the overdraft facility increased c. $779k over the past twenty-four (24) months and the extension provided in May 2009 ($500k) was fully utilised at the time of appointment.



CommentaryExampleReason


Reasons for failure


Report as to Affairs

Assets

2,275

154

215

30

169

477

1,017

208

5

ERV $'000s

Estimated to be minimalGoodwill

c. $27 value per stocktakeWork in progress

c. $50k per valuation conducted

Plant and equipment

c. $700k value per stocktakeStock – used vehicles

1,562

c. $175k value per stocktake

c. $600k value per stocktake

c. $170k deemed collectable

Absorbed by trading

Comments

Stock – spare parts stock

Stock – new vehicles

TOTAL

Debtors

Cash on hand



Creditors

Secured Creditor• St George – owed a total of c.$7.4m at the date of

appointment: partial return expected in reduction of this debt

• NAB – the Company's overdraft facility was overdrawn by c. $750k

• Mercedes-Benz (partly secured) – owed c. $290k



Creditors …

Trade suppliers, Statutory & Other = c.$1m• Very few amended claims (given nil return)• Awaiting formal confirmation of statutory claims

Employees• Total entitlements calculated c.$520k• No director related claims• Includes $79k of outstanding superannuation and c. $28k

for resigned excluded employee• Liquidator to assist with GEERS claims


Investigations

• Ongoing investigations through Liquidation

• Insolvent Trading– Maintenance of books and records– Financial position and performance– Relationship with financier– Outstanding Commonwealth and state taxes– Creditor payments– Ability to generate additional capital


Investigations….

• Voidable Transactions– Unfair preferences

– Uncommercial transactions– Unfair loans

– Unreasonable director related transactions


Estimated Return to creditors

Partial returnNAB

Nil returnGEERS

Partial return via GEERSEmployees

Partial returnSt George

Nil returnUnsecured creditors (including: Vehicle suppliers; Statutory; and Other)

ReturnClass of Creditor


Resolution # 1

Company‘s future

• Three (3) options:– Deed of Company Arrangement– Termination of the Administration– Liquidation


Resolution # 2

Administrators’ / Liquidators’ remuneration

• Retrospective work has included:– Trading the business from appointment– Maintaining a presence at the premises– Application for extension of Voluntary Administration period– Discussions with interested parties regarding sale of business– Preliminary investigations– Detailed reporting to creditors and stakeholders– Statutory obligations and lodgments (ASIC)– Convening First & Second Meetings of Creditors– Assisting employees– Liaising with the Bank, Suppliers, other stakeholders, and solicitors


Resolution # 2

Administrators’ / Liquidators’ remuneration …

• Prospective work covers:– Settlement of Sale of business process– Detailed investigation into the Company and its affairs– Reporting to ASIC pursuant to s533– Assisting employees with entitlements and claims for

payment through GEERS– Numerous statutory obligations, re insurance,

workcover, BAS, books and records– Finalisation of Liquidators trading– Site exit


Resolution # 2Administrators’ / Liquidators’ remuneration…

UpdatedCreditors report

725,959

100,000

625,959

$600,959

25,000

725,959Total

100,000Prospective- 1 February 2010 to completion

625,959Total Retrospective

$600,959

25,000

Retrospective- 29 September 2009 to 20 January

2010- 21 January 2010 to 1 February

2010


Resolution # 3

Committee of Inspection

• Purpose is to consult with the Liquidators about matters relating to the Liquidation

• Receive and consider reports by the Liquidators

• Not empowered to give directions

• Members are personally appointed, are not paid for their services, and meet on an irregular basis usually at the Liquidators’ offices

• We recommend against the forming of a Committee


Resolution # 4

Destruction of Books and Records

• 6 months after deregistration – subject to consent of ASIC• Otherwise need to retain for 5 years


Questions

Q. Brian Bateson queried whether superannuation should be remitted immediately once an employee is terminated.

A. Review of the relevant awards and ATO Superannuation did not make reference to paying superannuation early.


• Further Questions?

• Meeting close

Additional matters…

· over-bailment • improper maintenance of books and ... february 2010 to the conclusion of the...

Documents