forge group limited (administrators appointed) (receivers .../media/ferrier... · the business unit...

Forge Group Limited (Administrators Appointed) (Receivers and Managers Appointed) And certain Subsidiaries (Referred to as “the Group”)

Concurrent First Meetings of Creditors

Friday 21 February 2014

Introduction

Forge Group- First Meeting of Creditors

Appointment of Administrators

Martin Jones, Andrew Saker and Ben Johnson of Ferrier Hodgson were appointed as

Joint and Several Administrators of the following entities on 11 February 2014:

Appointment of Receivers and Managers

Mark Mentha and Scott Langdon of KordaMentha were also appointed Receivers and

Managers of the following main trading entities on 11 February 2014:

Company ACN

Forge Group Ltd 065 464 226

Alanthus Nominees Pty Ltd 112 996 746

Energy Maintenance Partners Pty Ltd 147 111 215

Forge Group Asset Management Pty Ltd 161 511 486

Forge Group Construction Pty Ltd 114 897 728

Forge Group Minerals & Resources Ltd 113 740 211

Forge Group Power Pty Ltd 103 678 324

Forge International Pty Ltd 128 522 305

Cimeco Pty Ltd 161 511 477

CTEC Pty Ltd 161 511 468

Abesque Engineering Pty Ltd 161 511 931

Introduction


The Receivers and Managers role is to secure and realise the property captured by the secured

creditors’ charges. This includes debtors, contracts, plant and equipment and security bonds.

The Receivers and Managers are currently negotiating to complete the Diamantina Power Station

contract in Australia and realise the Group’s interest in international investments which are not

subject to the receivership or administration, but fall within the Receivers and Managers’ control

by virtue of the entities shares being held by one of the above entities.

Please note that the USA and West African foreign entities are not in any formal

administration and are stand alone businesses that have not been effected by our

Appointment.

Company ACN

Forge Group Ltd 065 464 226

Forge Group Asset Management Pty Ltd 161 511 486

Forge Group Construction Pty Ltd 114 897 728

Forge Group Minerals & Resources Ltd 113 740 211

Forge Group Power Pty Ltd 103 678 324

Forge International Pty Ltd 128 522 305

Introduction


Concurrent Meetings

The legal position is that there are in fact eleven (11) meetings being held concurrently today. For

the purposes of any resolutions, I propose that the following will apply:

The following entities are parties to a Deed of Cross Guarantee (DXG):

1. Forge Group Limited

2. Forge Group Construction Pty Ltd

3. Forge Group Power Pty Ltd

4. Forge Group Minerals & Resources Ltd

The effect of the DXG is that in the event of liquidation of any or all of the entities, the assets and

liabilities are effectively pooled. As such for the purposes of today’s meeting, and where

resolutions are proposed for any of the DXG Entities, I will not be seeking separate resolutions for

each entity, but rather one joint resolution for all four entities above.

Introduction


In relation to the other seven (7) entities which the Administrators are appointed over and are not

subject to the DXG,

1. Alanthus Nominess Pty Ltd

2. Abesque Engineering Pty Ltd

3. Cimeco Pty Ltd

4. CTEC Pty Ltd

5. Energy Maintenance Partners Pty Ltd

6. Forge Group Asset Management Pty Ltd

7. Forge International Pty Ltd

each resolution proposed today will need to be passed in respect of each non DXG entity, and

each creditor will be given the opportunity to vote in relation to the company for which they have

a claim against.

Housekeeping


Please turn of all mobile phones during the meeting

Media is asked to leave

Please hold all questions until the end of the meeting

When asking a question, please wait for a microphone attendant before directing

your question to the Chairman

Introduction of Meetings


Meetings to be held concurrently

Notice calling the meeting

Admission of proxies

Amount admitted- voting purposes only

Determination of quorum

Voting and resolutions

Motions, Resolutions and Casting Vote

Conduct of Meetings


Purpose of Meetings

The main purpose of the concurrent meetings of creditors today is:

For creditors to resolve pursuant to Section 436E(1) of the Act:

Whether to appoint a Committee of Creditors and;

If so, who are to be the committees members

AND

For creditors to resolve pursuant to Section 436E(4) of the Act that:

to remove the Administrator from office; and

to appoint someone else as the Administrator of the company.

Declaration of Independence, Relationships and Indemnities


Pursuant to Sections 436DA(2) and (3) of the Act and the ARITA Code of Professional

Practice, the Administrators’ enclosed a copy of the Administrators’ Declaration of

Independence, Relevant Relationships and Indemnities (DIRRI) for the Group in the

circular to creditors dated 12 February 2014.

In the DIRRI, we noted that:

“We, Martin Jones, Andrew Saker and Ben Johnson of Ferrier Hodgson have undertaken

a proper assessment of the risks prior to accepting the appointment as Administrators

of The Group in accordance with the Corporations Act 2001 (Cth) (the Act), the

Australian Restructuring Insolvency & Turnaround Association (ARITA) Code of

Professional Practice (the Code) and applicable professional standards. 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.”

The Voluntary Administration (“VA”) Process


The Voluntary Administration process allows a company time (up to 25 business

days) to either:

Restructure its affairs and continue in existence where such will provide a

better return for the company’s creditors than an immediate winding up; or

Provide a mechanism for an orderly winding up of the company where it is not

possible for the business to continue.

The ultimate outcome of the VA process is either the restructure of the company

through a deed of company arrangement or the liquidation of the company.

Creditors may also decide to adjourn the second meeting for a period of up to 45

business days.

Voluntary Administration Process Cont.


Administration

should end

Liquidation

Deed of

Company

Arrangement

Administrators

First meeting

of creditors Held 21 February 2014

Second meeting

of creditors To Be Held 18 March 2014

OR OR

Report to

creditors To Be Issued 7 March 2014

Group Overview


Forge Group was a contracting business with the following key business units:

Forge Group North America

In June 2013 Forge acquired Taggart Global, a world leader in asset

management, engineering and EPC across the minerals processing and

materials handling sector. (600 people in Nth America, South Africa and China)

Forge Group Africa

Provides comprehensive engineering, procurement and construction services to

the energy and resources sector in Africa. Contributed $57.4m in revenue

Forge Group Minerals and Resources

Provides engineering design and construction services for the mining and

metals sector in Australia.

Group Overview


Forge Group Power

Specialises in combined and open cycle configuration gas turbine power plants.

The business unit was acquired from CTEC in January 2012. Contributed nearly

50% of Group Revenue ($494m).

Forge Group Construction

Design, construction and fabrication including heavy civil, structural,

mechanical, piping, tanks, electrical and building. Contributed $607m in

revenue.

Forge Group Asset Management

Comprehensive operations, managed maintenance services and sustaining

capital works. Contributed $14m in revenue.

Other Key Points

Had over 2,220 people working for it, over 8 countries and had a net after tax

profit of $63m for the year ending 30 June 2013

Forge Group Ltd

ABN: 58 065 464 226

Directors: David Craig, David Simpson,

John O’Connor, Gregory Kempton,

Julie Beeby, Grahame White

Co Sec: Glen Smith

Forge Group

Construction Pty Ltd

ABN: 44 114 897 728

Directors: David Simpson,

Donald Montgomery, Mark

Rankmore

Co Sec: Glen Smith

Forge Group Minerals

and Resources Ltd

ABN: 75 113 740 211



Rankmore

Co Sec: Glen Smith

Forge Group Asset

Management Pty Ltd

ABN: 36 161 511 486



Rankmore

Co Sec: Glen Smith

Forge International

Pty Ltd

ABN: 44 114 897 728



Rankmore

Co Sec: Glen Smith

Alanthus Nominees

Pty Ltd

ABN: 66 112 996 746



Rankmore

Co Sec: Glen Smith

Forge Group Power

Pty Ltd

ABN: 41 103 678 324



Rankmore

Co Sec: Glen Smith

Energy Maintenance

Partners Pty Ltd

ABN 147 111 215


Donald

Montgomery,

Mark Rankmore

Co Sec: Glen Smith

Receivers and Managers

Appointed

Administrators Appointed

West African

Foreign Entities

Note:

The following dormant companies are 100% owned by Forge Group Ltd and created to

protect business/trading names:

Cimeco Pty Ltd (ACN 161 511 477), CTEC Pty Ltd (ACN 161 511 468), Abesque

Engineering Pty Ltd (ACN 161 511 931)

Directors: David Simpson, Donald Montgomery, Mark Rankmore

Co Sec: Glen Smith

Taggart &

Other Foreign

Entities

Group Overview

Events Leading to Appointment


June 2013

Sept 2013

Oct 2013

11 Nov 2013

18 Nov 2013 28 Nov 2013 29 Jan 2014

• FGL acquires Taggart

Global, a US based

Asset Management,

Engineering and EPC

business for

$43million.

• Announcement of a

$1.47 Billion joint

venture contract in

partnership with

Spanish engineering

firm Duro Felguera.

• The contract is valued

at $830 million for FGL,

and represents Forge’s

largest contract to

date, and increases

FGL’s order book value

to $2.1 Billion.

• FGL request an

extension to the

voluntary suspension

in trading, advising

that it does not have

sufficient certainty

regarding its projects

and ongoing

financing to make an

announcement to the

market.

As summary of the key ASX announcements made by the Forge Group are listed below:

• Announcement that FGL had

secured $50 million in asset

management contracts in

North America and Australia

Since 1 June 2013.

Aug 2013

• Release of 2013 Annual

Report showing a net

profit after tax of $63

million and total equity of

$213.5 million.

• FGL Announce:

• ANZ continue to provide

support for the

Company.

• FGL are looking at a

potential equity capital

raising.

• The underperforming

assets of the Company

(DPS & WAPS) had been

quarantined from

normal business

operations, with all

other parts of the

business trading as

normal.

• Forge had entered into

negotiated agreements,

with the Customer and

sub-contractors to

identify commercial

issues and extend

scheduled completion

dates

• $127 Million profit

write down in FY2014

associated with the

Diamantina Power

Station and West

Angelas power Station

projects;

• $45 million net cash

outlay required to

complete both

projects;

• ANZ has agreed to

provide further

support to Forge

Group through new

facilities and certain

amendments to

existing debt

facilities;

• The ANZ debt

facilities amendments

will provide sufficient

facilities to cover the

liquidity challenges

and strengthen Forge

Group’s balance

sheet;.

• FGL announce a pro-forma

FY2014 EBITDA loss

expected to be between

$20 million to $25 million.

• FGL qualified this by

confirming that they had

continued financing support

from the ANZ.

11 Feb 2014

• Administrators and

Receivers and Managers

Appointed

Key Tasks Completed since our Appointment


The Receivers and Managers are now in control of the affairs of the trading entities, and

accordingly, our role as Joint and Several Administrators is largely subordinated to the decisions

made by the Receivers and Managers. Our key tasks have included:

Notification of appointment and first meeting to creditors and employees of the Group.

Statutory Notifications.

Liaised with the Receivers and Managers with respect to various creditor and employee

queries of the Group.

Liaised with management in relation to the provision of information to complete our

investigations and discussions in relation of same.

Collection of books and records and assistance with Forensic Backup of Servers and key

computers.

Commenced section 439A Report to Creditors and Investigations.

Convening of first creditors meeting.

Key Stakeholders- Employees


Employee Entitlements receive a priority under the Act which means employee entitlements rank ahead of ordinary

unsecured creditors and ahead of secured creditors, but only with respect to circulating or floating charge assets.

Currently, we are unable to form a view if there will be sufficient floating charge assets to meet these entitlements.

The Receivers and Managers will be realising the floating charge assets.

There were approximately 1,622 Employees that were split between the entities as follows:

In relation to employees that have been made redundant, we note the following:

We are working with the Receivers and Managers, Payroll and HR of Forge to issue employees with a separation

letter. Employees should contact Forge HR to obtain a separation letter.

We have requested Payroll and HR of Forge to commence calculation of employee entitlements. Given the

number of employees terminated this will take some time to calculate.

Entity Number RetainedResigned /

Redundant

Forge Group Limited 143 26 117

Forge Group Pow er 102 21 81

Forge Group Construction 1,254 41 1,213

Forge Group Asset Mangement 53 - 53

Forge Group Mineral and Resources 70 2 68

Total 1622 90 1532

Key Stakeholders- Employees


We have contacted the key unions (CFMEU, AMU, AFMEU and CEPU) to advise them of our

appointment and will continue to liaise and work with them in ensuring employee

entitlements are calculated and paid as soon as practically possible.

We have contacted the Federal Government’s Fair Entitlements Guarantee (FEG) to advise

of our appointment and assign a case officer(s) to assist in the lodgment of claims in the

event the Group is placed into Liquidation.

FEG is a government body which compensates employees of entities which are placed into

Liquidation and are unable to pay employee entitlements in full.

Further information on FEG was included within our circular to employees and should the

entities be placed into Liquidation, we will update employees as the FEG process progresses.

Key Stakeholders- Unsecured Creditors


Unsecured Creditors of the Group include:

Insurance bond facilities provided.

Trade creditors who supply goods, equipment or services.

Equipment Financers / Lessors with respect to any shortfall.

Any liquidated damages from customers resulting from the termination of contracts.

Creditors claims are “frozen”, or subject to a statutory moratorium during the administration

process with payment being postponed to the outcome of the second meeting of creditors.

Given the appointment of the Receivers and Managers to the trading entities of the Group, any

queries relating to:

The continuance of good and services provided to the one contract still on foot;

The assessment of your retention of title / PPSA claims; and

Collection of goods / equipment supplied,

should be directed to Korda Mentha in the first instance.

Directors


Pursuant to section 437C of the Act, officers of a Company under administration cannot

perform or exercise, and must not purport to perform or exercise, a function or power as

a company officer, except with the Administrators’ written approval.

Pursuant to section 438B(2) of the Act, Directors are required to submit to us, within five

(5) business days, a statement about the Group's business, property, affairs and financial

circumstances.

The directors have requested an extension of four (4) weeks to complete the Report as to

Affairs of the Group for the following key reasons:

The complexity and size of the Group.

They do not have access to the Group’s financial records, IT systems or finance

teams.

The Administrators have granted the Directors of the Group the extension requested.

Snapshot of Creditors Position


A snapshot of the Group’s creditor position, based on draft unaudited management accounts as at

31 January 2014 and information provided by the Group may be summarised as follows:

Please note that these numbers will be subject to change, and specifically:

Calculation of employee entitlements relation to termination.

The receipt and adjudication of creditor claims and the crystallisation of liquidated damages

from customer claims for failure to complete contracts.

Creditor Group NumberBook Value

$ 000'Notes

Secured / Asset Backed

Club Bank Facility 1 289,393 Includes Finance Facilities and Bank Guarantees

Hire Purchase Liabilities 4 24,686 Subject to asset security

Insurance Bond Facilities 5 217,875 Exposure subject to resolution of contract claims

Priority

Employees 1,622 15,544 Excludes Notice and Redundancy

Unsecured

Trade Creditors 1,207 48,776 Subject to lodgment and adjudication of claims

Other Provisions / Accruals Unknow n 189,330 Predominately Relates to goods and services provided but not invoiced and income received in advance

Tax Liabilities 1 15,963 Subject to lodgment and adjudication of claims

Customer Liquidated Damages Unknow n Unknow n

Total 2,840 801,567

The Next Steps- s439A Report to Creditors


The Second Meeting of creditors will be convened on the 18 March 2014 (unless extended by the

court), at which time creditors will determine the future of the company, which will be:

a. Company to be wound up;

b. Company to execute a Deed of Company Arrangement

c. Administration to end (should the Company be solvent).

Creditors may also adjourn the second meeting for up to 45 business days.

Prior to the second creditors meeting, the Administrators are required to complete a section 439A

Report and provide to creditors for their consideration.

This report will focus on the following key areas:

Analysis of the Financial Position of the Group, both current and historical.

History of the Group.

Preliminary Statement of Position and estimated returns to creditors.

Causes of Failure.

Investigations and potential recoveries in a liquidation.

Creditors’ Options and Administrators’ Recommendation .

The Next Steps- Statutory Investigations

Section 438A requires the Administrators’ to undertake statutory investigations into, the

business, property, affairs and financial circumstances surrounding the Group.

The purpose of the investigations is to form an opinion about whether it’s in the best interest of

creditors to either:

Execute a Deed of Company Arrangement;

Place the respective entity into Liquidation

For the Administration to end


The Next Steps- Statutory Investigations

These investigations which will be outlined in our Administrators’ Report pursuant to Section

439A of the Act will be preliminary in nature, given the limited time available to fully consider

all of the issues.

The key areas of focus are:

Preliminary financial analysis as to the trading performance and likely causes of failure of

the Group.

Preliminary assessment as to the likely date of insolvency of the Group.

Director related transactions (Incl director bonuses).

Acquisition of CTEC.

Preliminary assessment as to the breaches of director duties.

We understand from news reports that litigation funder Bentham IMF has announced that it will

attempt to fund a shareholders class action against the Forge Group.


Questions and Discussions


All questions to be directed to Chairman.

When asking a question, please clearly state your name and the name of

the company or creditor you represent.

Resolutions


The first matter that is required to be addressed by the meeting is

whether or not to appoint a Committee of Creditors.

As outlined earlier creditors are required to consider and resolve

whether pursuant to Section 436E(1) of the Corporations Act 2001:

i. To appoint a Committee of Creditors; and

ii. If so, who are to be the members of the Committee.

Role of Committee of Creditors

Specific to companies

Consult with and receive reports from the Administrators

Assist the Administrators as a “sounding board” for any proposals

Approve the Administrators’ remuneration

Resolutions (cont.)


The second matter for creditors to resolve pursuant to Section 436E(4) of

the Act is (if an alternate Administrator has been nominated and has

consented to act) whether or not:

i. To remove the Administrators from office; and

ii. To appoint someone else as the Administrator of the Company.

No nominations for an alternate administrator have been received

Close of Meeting


Thank you for your attendance

Any further queries may be directed to the Administrators’ office or to our staff at the end of the meeting.

Our contact details are below:

Ferrier Hodgson

Level 28, 108 St Georges Terrace

Perth, WA 6000

Telephone: (08) 9214 1485

Facsimile: (08) 9214 1400

Email: [email protected]

forge group limited (administrators appointed) (receivers .../media/ferrier... · the business unit...

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