second meeting of creditors - mcgrathnicol · second meeting of the coi week one immediate shut...
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DRAFT
Red Lea ChickensOrlc 92Red Lea FranchiseRed Lea FranchisingRed Lea LogisticsRed Lea Leasing Red Lea HatcheryRed Lea FeedRed Lea Corrugation & FlexoRed Lea Retail Holding(All Administrators Appointed)
(collectively “the Red Lea Group”)
Second Meeting of Creditors9 July 2018
Agenda
2
Introduction
Meeting formalities and overview of voting process
Overview of the Red Lea Group
Overview of the Voluntary Administration
Purpose of meetings
Meetings to be held concurrently
Voluntary Administration of the Red Lea Group
Events leading to the Voluntary Administration
Administrators’ actions to date
Financial position and performance
Reasons for failure
Investigations
Proposed Deed of Company Arrangement
Return to creditors
Administrators’ recommendation for the future of the Red Lea Group
Administrators’ remuneration
Questions
Meeting formalities
3
Open meeting
Administrator Chairperson: IPR 75-50
Introductions
Barry Kogan (Administrator)
Kathy Sozou (Administrator)
Jonathon Henry (McGrathNicol Partner)
Cameron Cheetham (Corrs Chambers Westgarth)
Attendance register
Quorum: IPR 75-105
Time and place convenient: IPR 75-30
Administrators’ report to creditors pursuant to IPR 75-225 (“the Administrators’ Report”)
Proofs of debt and proxies
DIRRI
Voting
Voting
4
Red Lea Group entity Colour of voting slip
Red Lea Chickens Light pink
Orlc 92 Light green
Red Lea Franchise Light blue
Red Lea Franchising Red
Red Lea Logistics Yellow
Red Lea Leasing Bright pink
Red Lea Hatchery Bright green
Red Lea Feed Light purple
Red Lea Corrugation & Flexo Light orange
Red Lea Retail Holding Bright orange
Voting can be done “on the voices” (i.e. by show of hands) or by a poll
Each creditor can only vote in the entity they are a creditor of, you will have received coloured slips at sign-in
Voting
5
Hold up voting slip
Each creditor/proxy holder in the room gets one vote, regardless of how many proxies they hold
When more creditors/ proxy holders vote for it than vote against it
On your voting slip, tick “In favour of” or “Against”, add your name and (for proxy holders) the creditor you represent
Hand voting slip to Administrators’ staff
General proxies: fill in a voting slip for each general proxy you hold
Special proxies: we already have your creditor’s vote (provided in advance or at sign-in)
When more creditors (either in the room or via proxy) vote for it than vote against it ANDWhen those who vote for it are owed a greater amount of money than those who vote against it
On the voices By poll
How to vote
Voting via proxy
How theresolutionis passed
Overview of the Red Lea Group
6
Red Lea Leasing
Red Lea Franchise
Red Lea Franchising
Red Lea Feed
Red Lea Hatchery
Red Lea Logistics
Redlea Group Holding
Red Lea Corrugation
& Flexo
RL Property Holding plus eight
subsidiaries
Red Lea Retail
Holding
Asif family and related interests
Two wholly owned
subsidiaries
Red Lea Chickens
ORLC 92
Subject to appointment ofVoluntary Administrators
7
Appointment Moratorium period Outcome of VA
2 May
First meeting of
COI
Mid-May
PPE auction
12 April
First meeting of creditors
2 July
Report to creditors issued
20 June
Second meeting of
the COI
Week one
Immediate shut down
of operations and sale of livestock
May
Ongoing employee
entitlements review
20 June
Settlement with
franchisees
3 May
Court granted
extension of convening
period
6 July
$15M received into
trust account
Overview of the Voluntary Administration
29 March
VA’s appointed
9 July
Second meeting of creditors
8
Purpose of meetings
The Red Lea Group enter into a Deed of Company Arrangement
The Red Lea Group enter liquidation
The Red Lea Group be returned to the Current Director
Resolution – meetings to be held concurrently
9
“That the meetings of creditors of each of the Red Lea Group entities, being
Red Lea Chickens Pty Ltd
Orlc 92 Pty Ltd
Red Lea Franchise Pty Ltd
Red Lea Franchising Pty Ltd
Red Lea Logistics Pty Ltd
Red Lea Leasing Pty Ltd
Red Lea Hatchery Pty Ltd
Red Lea Feed Pty Ltd
Red Lea Corrugation & Flexo Pty Ltd
Red Lea Retail Holding Pty Ltd
(all Administrators Appointed)
be held concurrently.”
Events leading to the Voluntary Administration
10
Late 2016Asif family took over day to day
mngt
Jan 2016Major
customers enter
insolvency, $4m bad
debt
Jul 2016Acquisition transaction finalised
Early 2016Logistics and retail entities created
Dec 2016Stat
demand served, key suppliers required
COD
Apr 2017Debtor finance facility entered
into
29 Mar 2018VA’s
appointed
Jun 2015Trading loss of $1.7m
Jun 2016Trading loss of $0.2m
Jun 2017Trading loss of $20.6m
Feb 2018YTD
trading loss of $19.1m
Mar 2017Offered business for sale
Apr 2015$30m
Acquisition by the Asif
family
Acquisition Asif family ownership VA appointment
Administrators’ actions to date
11
Statutory obligations
Discontinuing of operations
Investigations & DOCA proposal
CreditorsEmployees
Financial performance – trading companies
12
Statement of financial performance
$’m FY15 FY16 FY17 YTD18
Sales 175.5 177.2 171.9 81.9
COGS (165.2) (166.0) (167.9) (83.0)
Gross profit 10.4 11.2 4.0 (1.1)
Gross margin 5.9% 6.3% 2.3% (1.4%)
Other income 0.5 0.1 1.0 -
Expenses (12.6) (11.5) (25.6) (18.0)
Operating profit (loss) (1.7) (0.2) (20.6) (19.1)
Source: unaudited management accounts
Loss making from FY15 (and likely earlier), with a trading loss of $19.1 million YTD18
Financial performance – trading companies
13
Source: unaudited management accounts
Introduction of RL Logistics and RL Retail significantly increased expenses
Statement of financial performance
$’m FY15 FY16 FY17 YTD18
Sales 175.5 177.2 171.9 81.9
COGS (165.2) (166.0) (167.9) (83.0)
Gross profit 10.4 11.2 4.0 (1.1)
Gross margin 5.9% 6.3% 2.3% (1.4%)
Other income 0.5 0.1 1.0 -
Expenses (12.6) (11.5) (25.6) (18.0)
Operating profit (loss) (1.7) (0.2) (20.6) (19.1)
Statement of financial performance
$’m Jun-15 Jun-16 Jun-17 Feb-18
Current assets 40.9 39.4 37.6 37.0
Non-current loans to related parties 5.9 32.9 38.8 31.3
PPE and other 20.7 6.1 9.4 9.5
Total assets 67.5 78.4 85.8 77.7
Current liabilities (31.1) (36.9) (50.2) (49.2)
Employee entitlements and other (2.2) (0.8) (0.5) (1.2)
Non-current loans from related parties - (0.8) (34.7) (44.7)
Non-current loans from third parties (13.1) (19.0) - (7.7)
Total liabilities (46.5) (57.4) (85.4) (102.9)
Net assets 21.1 20.9 0.4 (25.1)
Financial position – trading companies
14
Source: unaudited management accountsImpact of acquisition transaction
Financial position – trading companies
15
Source: unaudited management accountsIncreased reliance on related party funding
Statement of financial performance
$’m Jun-15 Jun-16 Jun-17 Feb-18
Current assets 40.9 39.4 37.6 37.0
Non-current loans to related parties 5.9 32.9 38.8 31.3
PPE and other 20.7 6.1 9.4 9.5
Total assets 67.5 78.4 85.8 77.7
Current liabilities (31.1) (36.9) (50.2) (49.2)
Employee entitlements and other (2.2) (0.8) (0.5) (1.2)
Non-current loans from related parties - (0.8) (34.7) (44.7)
Non-current loans from third parties (13.1) (19.0) - (7.7)
Total liabilities (46.5) (57.4) (85.4) (102.9)
Net assets 21.1 20.9 0.4 (25.1)
Intercompany loans
16
Source: company books and records
8.5
13.515.3
13.9
16.918.3
25.6
28.9
-
5
10
15
20
25
30
Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Feb-18
$'m
Funds advanced to RL Chickens via Redlea Group Holding
RL Chickens received more funds from Redlea Group Holding than it returned
17
Reasons for failure
The Group was loss making
Inadequate capital structure
Complex industry dominated by a number of key parties
Investigations
18
Claims available in a liquidation – c. $25M
Transfer of assets
Discharge of Directors’ duties
Unreasonable director related
transactions
Insolvent trading
Significant litigation and delay risk
Voidable transactions
Investigations
19
Redlea Group Holding Pty Ltd
Red Lea Chickens Pty Ltd
ORLC 92 Pty Ltd
Transfer of business operations
Transfer of property and fixed assets
Asif family
100%
100%
100%
Velcich family
21% (intended but never occurred)
Investigations
20
Claims available in a liquidation – c. $25M
Transfer of assets
Discharge of Directors’ duties
Unreasonable director related
transactions
Insolvent trading
Significant litigation and delay risk
Voidable transactions
Proposed Deed of Company Arrangement
21
$16.5M in funding assured
Employees paid in full in three
business days (excluding
superannuation)
Secured Creditors and related
parties do not claim, and claims
against them released
Red Lea Chickens and ORLC 92 required to participate
Pooled assets and claims
Unsecured creditors
estimated to receive 12 to 15
cents in the dollar
DOCA Proposal from Redlea Group Holding - $16.5M
Return to unsecured creditors
22
DOCA
Liquidation
$3M(based on $20M
unsecured creditors)
15 cent dividend
15 cent dividend
$7.5M(based on $50M
unsecured creditors)
$10.5M
$10.5M
$3M(Administrators’ and legal costs)
$11M(Administrators’ and legal costs)
$16.5M
$45M$16M
(35% of recoveries to litigation funder)
Outcome Creditor claims Employee claims Costs Funds required Return to unsecured creditors
DOCA 1c is $200,000
Liquidation 1c is $500,000
Liquidation recoveries need to be three times higher than DOCA fund
Estimated liquidation recoveries are currently c. 25M
23
Outcome by class of creditor
Employees
Unsecured creditors
Secured creditors
Related parties
Paid in full, including super
Return of 12 to 15 cents
Excluded from DOCA
Excluded from DOCA
Subject to FEG
Less than 10 cents, with significant risk and delay
Partial return
Less than 10 cents, with significant risk and delay
DOCA Liquidation
Recommendation
24
The DOCA Proposal provides a more certain, timely and superior return to creditors than a liquidation
Questions
Voting
26
Red Lea Group entity Colour of voting card
Red Lea Chickens Light pink
Orlc 92 Light green
Red Lea Franchise Light blue
Red Lea Franchising Red
Red Lea Logistics Light orange
Red Lea Leasing Bright pink
Red Lea Hatchery Bright green
Red Lea Feed Light purple
Red Lea Corrugation & Flexo Yellow
Red Lea Retail Holding Bright orange
Voting can be done “on the voices” (i.e. by show of hands) or by a poll
Each creditor can only vote in the entity they are a creditor of, refer
Voting
27
Hold up voting slip
Each creditor/proxy holder in the room gets one vote, regardless of how many proxies they hold
When more creditors/ proxy holders vote for it than vote against it
On your voting slip, tick “In favour of” or “Against”, add your name and (for proxy holders) the creditor you represent
Hand voting slip to Administrators’ staff
General proxies: fill in a voting slip for each general proxy you hold
Special proxies: we already have your creditor’s vote (provided in advance or at sign-in)
When more creditors (either in the room or via proxy) vote for it than vote against it ANDWhen those who vote for it are owed a greater amount of money than those who vote against it
On the voices By poll
How to vote
Voting via proxy
How theresolutionis passed
Enter into Deed of Company Arrangement
28
Red Lea Chickens Pty Ltd
Orlc 92 Pty Ltd
Red Lea Franchise Pty Ltd
Red Lea Franchising Pty Ltd
Red Lea Logistics Pty Ltd
Red Lea Leasing Pty Ltd
Red Lea Hatchery Pty Ltd
Red Lea Feed Pty Ltd
Red Lea Corrugation & Flexo Pty Ltd
Red Lea Retail Holding Pty Ltd
“That _____________________, enter into the proposed Deed of Company Arrangement with Barry Kogan, Kathy Sozou and Jason Preston being appointed as the Joint and Several Deed Administrators.”
Remuneration – 29 March 2018 to 1 June 2018
29
“That the remuneration of the Voluntary Administrators of __________________________ (Voluntary Administrators Appointed), for the period 29 March 2018 to 1 June 2018, calculated at hourly rates as detailed in the circular to creditors dated 5 April 2018, is approved for payment in the sum of $___________, plus GST and disbursements, and the Voluntary Administrators may pay the remuneration immediately or as otherwise determined by the Voluntary Administrators.”
Summary of resolutions
Red Lea Chickens Pty Ltd 1,012,901 (approved by COI on 20 June 2018)
Orlc 92 Pty Ltd 2,218
Red Lea Franchise Pty Ltd 48,016
Red Lea Franchising Pty Ltd 12,086
Red Lea Logistics Pty Ltd 23,659
Red Lea Leasing Pty Ltd 11,970
Red Lea Hatchery Pty Ltd 2,218
Red Lea Feed Pty Ltd 2,218
Red Lea Corrugation & Flexo Pty Ltd 2,218
Red Lea Retail Holding Pty Ltd 12,334
Remuneration – 2 June 2018 to later of second creditors meeting and execution of a DOCA
30
“That the future remuneration of the Voluntary Administrators of __________________________(Voluntary Administrators Appointed), from 2 June 2018 to the later of the second creditors meeting or the execution of a DOCA, calculated at the hourly rates as detailed in the circular to creditors dated 5 April 2018, is approved up to a capped amount of $___________, exclusive of GST, and the Voluntary Administrators may pay the remuneration as and when it is incurred from funds under their control.”
Summary of resolutions
Red Lea Chickens Pty Ltd 690,344 (approved by COI on 20 June 2018)
Orlc 92 Pty Ltd 25,015
Red Lea Franchise Pty Ltd 44,665
Red Lea Franchising Pty Ltd 19,810
Red Lea Logistics Pty Ltd 25,450
Red Lea Leasing Pty Ltd 10,070
Red Lea Hatchery Pty Ltd 9,895
Red Lea Feed Pty Ltd 9,895
Red Lea Corrugation & Flexo Pty Ltd 9,895
Red Lea Retail Holding Pty Ltd 25,450
Remuneration – period of DOCA
31
“That the initial remuneration of the Deed Administrators of __________________________ (to be Subject to Deed of Company Arrangement), for the period of the DOCA, calculated at the hourly rates as detailed in the circular to creditors dated 5 April 2018, is approved up to a capped amount of $___________, exclusive of GST, and the Deed Administrators may pay the remuneration as incurred on a monthly basis or as otherwise determined by the Deed Administrators.”
Summary of resolutions
Red Lea Chickens Pty Ltd 307,020
Orlc 92 Pty Ltd 16,475
Red Lea Franchise Pty Ltd 29,225
Red Lea Franchising Pty Ltd 17,735
Red Lea Logistics Pty Ltd 29,225
Red Lea Leasing Pty Ltd 17,735
Red Lea Hatchery Pty Ltd 13,365
Red Lea Feed Pty Ltd 13,365
Red Lea Corrugation & Flexo Pty Ltd 13,365
Red Lea Retail Holding Pty Ltd 42,505
Questions