Friday, April 4, 2008

Extract from 2nd Creditors' Circular - Ferrier Hodgson

Report by Administrators - 11 March 2008
or How Dominguez and Agabin have been lying to the Filipino public all this time concerning the real financial condition of Lafayette


The Act provides that 'Excluded Employees", which includes company directors and their spouses, are each restricted to a total maximum priority claim of $2,000 for unpaid wages and $1,500 for annual leave entitlements.


Amounts owed to Excluded Employees that exceed the statutory cap for wages and superannuation and annual leave/long service leave, and all payments owing in respect of retrenchment, being redundancy and payment in lieu of notice, rank for dividend with all other unsecured creditors.


5.1.13 Partly Secured Creditors


Partly secured creditors consist of convertible note holders held by the following:

  • SEASAF LP - USD 10m
  • VS Holdings Limited - USD 3m
  • Brightyield Enterprise Limited - USD 2m


5.1.14 Ordinary Unsecured Creditors


Accounting for formal proofs of debt received to date and the Company's records, I estimate the Company's liability to unsecured creditors at $8,035,547.


This figure is subject to the receipt and adjudication of final proofs of debt from creditors.


5.1.15 Contingent Liabilities


The contingent liability refers to the amount outstanding to Leighton under a standby loan agreement and mining claims for works completed. As at the date of appointment, the outstanding debt to Leighton from RRPI was USD 4,628,206. The debt was guaranteed by the Company.


5.1.16 Omissions from Statement


Save for my previous comments regarding specific disclosures in the Statement, there are no material omissions from the directors' Statement.


5.2 Explanation for Current Financial Position


The directors' explanation for the Company's current financial position can be found at section 3.3 above.


My preliminary view is that the Company failed because of:

    • Acts of God, namely two super typhoons which severely affected the mines ability to operate;
    • Inadequate equipment due to delays in the delivery of vital machinery;
    • Poor communication between senior and local management;
    • Lack of adequate working capital.


6. Trading by Administrators


6.1 Overview


The Administrators assumed control of the Company upon appointment. It should be noted that the Administrators were only appointed to the holding company. The operational subsidiaries remained outside of formal procedures until the local management team filed for rehabilitation in the Philippines



Section 439A(4)(a) Report by Administrators

11 March 2008

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  • It is not appropriate to base an assessment of whether a company can meet its liabilities as and when they fall due on the prospect that a company might trade profitably in the future.


In summary, it is a company's inability using such resources as are available to it through the use of its as-sets, or otherwise, to meet its debts as they fall due, which indicates insolvency.


8.2.2 Preliminary Determination


Set out below is a summary of my preliminary investigations and my preliminary determination as to the Company's solvency.


Review of the Company's bank facilities, including its overdraft facility, for the period June to December 2007


The Company held four accounts with the National Australia Bank Limited. I requested the accounts to be closed with the balances to be transferred to the administration account. A total of $69,663.16 was received from the accounts.


The Company did not operate an overdraft facility on any of its accounts. The Company remained in credit during the six months prior to our appointment.


Aged Payables Review


The books and records of the Company show that the amounts due to normal trade creditors were nominal $35,547 and relatively up to date. The older invoices were dated in November 2007. This does not include the $8m Australian convertible note holders.


Further, my review indicates that creditors took the following action against the Company.

Leighton issued a default notice on 17 December 2007 against RRPI in the Philippines for USD 4,628,206. As the Company guaranteed the RRPI debt to Leighton, the directors had no alternative but to place the Company into Voluntary Administration on 18 December 2007.


No other demands were received from creditors.


Finance Commitments Review


The Company had a number of Multi Option Facilities in place with various creditors. Uncertainty surrounding the Company's financial position meant that the servicing of these facilities would be questionable.


The Company had also issued over $26m in convertible notes requiring regular servicing of interest to the note holders.


The Company had a number of finance facilities with a syndicate of banks. The exposure of the Bank syndicate to the Group at appointment had risen to circa $270m.


The Bank Group and other financiers were party to the. Company's attempts to refinance prior to the appointment and as such, made no formal demands on the Company.


Working Capital and Balance Sheet Review


The Company had net current liabilities of $86,306 and net liabilities of $10.7m as at 30 November 2007. This is prior to the imposition of the Leighton default notice on the Company's
balance sheet.


Based on the above analysis, it is my preliminary view that the Company was more likely than

not insolvent from at least 17 December 2007, when it was evident that it could not pay its liabilities as and when they fell due.


Section 439A(4)(a) Report by Administrators

11 March 2008

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8.4 Insolvent Trading


8.4.1 Directors' Liability


Section 588G of the Act imposes-a positive duty upon company directors to prevent insolvent trading. If a director is found guilty of an offence in contravening Section 588G, the Court may order him or her to pay compensation to the company equal to the amount of loss or damage suffered by the creditors of the company.


The Court may also impose upon the directors' one of two types of civil penalty orders. The first can include a fine not exceeding $200,000 or an order prohibiting directors from participating in the management of a company. The second, where there is criminal intent and a conviction, a director could also be imprisoned for up to five years or fined as well.


ASIC usually applies for civil penalty orders while applications for compensation payable to the company are usually made by a liquidator, or in specified circumstances a creditor. The substantive elements of Section 588G are:

  • A person must be a director of a company at a time when the company incurs a debt;
  • The company must be insolvent at that time or becomes insolvent by incurring the debt;
  • The director must have reasonable grounds for suspecting that the company is insolvent or would so become insolvent by incurring the debt;


Summarised below are the defences contained in Section S88H:

  • The directors had reasonable grounds at the time the debt was incurred to expect the company to be solvent and would remain solvent even after the debt was incurred;
  • The directors relied on another person to provide information about whether or not the company was solvent;
  • The directors were ill or for some other good reason did not take part in the management of the company;
  • The directors took reasonable steps to prevent the incurring of the debt.


A liquidator must form an opinion as to the date the Company became insolvent and determine the debts incurred from that date; thereby quantifying the loss to the Company.


As the Company was primarily an investment vehicle, it is my view that an insolvent trading action would not successful.


8.5 Director Duties


Based on preliminary investigations, I have not identified any breaches by the directors of their statutory or fiduciary duties.


9. Proposal for Deed of Company Arrangement (DOCA)


9.1 Statement of Proposed DOCA


It is proposed that the Company enter into a Deed of Company Arrangement with the following material provisions:


Section 439A(4)(a) Report by Administrators

11 March 2008

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  • Roderick John Sutton and Peter Damien McCluskey of Ferrier Hodgson, Level 29, 600 Bourke Street , in the State of Victoria are to be the joint and several administrators of the proposed Deed of Company Arrangement ("the Deed") for the Company ("the Deed Administrators");
  • The Deed Administrators will endeavour to maintain the corporate shell in order that it can be sold (subject to shareholder meetings approving the restructuring);
  • The Deed Administrators will undertake a sale process and invite expressions of interest to recapitalise the corporate shell;
  • Following receipt by the Deed Administrators of any monies from the sale of the corporate shell, the Deed Administrators shall be authorised to deduct from such monies any further costs and expenses incurred by the Deed Administrators (either in their capacity as Deed Administrators or when acting as Voluntary Administrators) of or incidental to getting in that amount in priority to any other creditor;
  • The Deed Administrators will create a fund (''the Fund") for the payment of participating creditors' claims. The Fund shall comprise the realisation, and conversion to cash, of all assets of the Company plus any amount received from the sale of the corporate entity.
  • The fund will be paid to creditors in accordance with section 556 of the Corporations Act.
  • The Deed will terminate when the Fund has been disbursed in full to creditors or otherwise in accordance with schedule 8A of the Corporations Regulations;
  • The Deed Administrators shall be indemnified by the Company against any liability arising from their administration of the Deed, other than such liability as may be attributable to any negligence, default, breach of duty, or breach of trust on their part;
  • All creditors must accept any entitlements payable under the Deed in full satisfaction and complete discharge of all debts and claims which they have or claim to have against the Company as at the date of the appointment of the Administrators and all debts and claims within the meaning of s. 553 of the Corporations Act 2001 will be discharged by the operation of the Deed and each of them will, if called upon to do so, execute and deliver to the Company such forms of release of any such claims that is required;
  • During the term of the Deed control of the Company shall remain with the Deed Administrators; and
  • The remuneration of the Deed Administrators is to be approved by the creditors.The remuneration of the Administrators and their partners and staff shall be calculated with reference to the scale of rates adopted by Ferrier Hodgson for insolvency work from time to time plus GST (in accordance with the schedule attached) and the Administrators shall be entitled to be reimbursed for all expenses and other expenses incurred by them in the administration of this Deed.

9.2 Key Commercial Features


The proposed DOCA includes the following key commercial features:


A DOCA would allow for the sale of the corporate shell, which may generate a return for creditors. A sale of the corporate shell would not be available to a liquidator.


There are no expected recoveries to be made by a liquidator, resulting from unfair preference, uncommercial transactions or breaches of director duties; therefore there is no commercial benefit to creditors from this course of action.


Section 439A(4)(a) Report by Administrators

11 March 2008

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10. Creditors' Options, Dividend Estimates and Cost Estimates


Pursuant to Section 439A(4)(b) of the Act, I am required to provide creditors with a statement setting out my opinion on whether it is in the creditors' interests for the:

  • Administration to end;
  • Company to be wound up;
  • Company to execute a DOCA.


In forming my opinion, it is necessary to consider an estimate of the dividend creditors might expect, and the likely costs, under each option.


10.1 Administration to End


Creditors may resolve that the administration should end if it appears the Company is solvent or, for some other reason, control of the Company should revert to its directors.


Based on my preliminary investigations and analysis of the Company's financial information, the Company is insolvent. There appears no valid commercial reason why control of the company should revert to its directors.


If the administration were to end, there is no mechanism controlling an orderly realisation of assets and distribution to creditors. I am unable to say what the Company might ultimately pay creditors or what costs it might incur.


Therefore, my opinion is that it is not in the creditors' interest for the administration to end. It is appropriate that the Company's affairs be dealt with under Part 5.3A of the Act under one of the options detailed in Section. 10.2 or 10.3 below.


10.2 Winding up of Company


Based upon the information in this report, where the Company is wound up, I estimate that a dividend will not be payable to any class of creditor.


10.3 Execution of Proposed DOCA


At present it is impossible to calculate the likely return to secured creditors, as the sale of the corporate shell will be sold to the highest bidder (subject to shareholder approval). At the date of this report, no expressions of interest have been received.


Due to the extent of secured creditors, there will be no dividend paid to unsecured creditors.


11. Administrators' Opinion


As stated in section 10.1 above, the option of the administration ending is clearly not viable. The only remaining options available to creditors are to wind up the Company or accept the proposed DOCA.


Although I am unable to provide a reliable estimate of the return to secured creditors under the proposed DOCA, I believe that it provides the opportunity to exceed the estimated return under a winding up of the Company.


The proposed DOCA is likely to provide a better return to creditors because:


Section 439A(4)(a) Report by Administrators

11 March 2008

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  • Funds from the sale of the corporate shell under the proposed DOCA would not otherwise be available to creditors in a winding up of the Company;
  • In a liquidation, recoveries from the voidable and other transactions referred to in Section 8 of this report are unlikely;


Based on the above, it is my opinion that creditors should resolve that the Company enter into the proposed DOCA.


12. Administrators' Remuneration Report


Pursuant to Section 446E of the Act, I enclose as Annexure 2 the Administrators' Remuneration Report. At the second meeting of creditors, I intend seeking approval of the remuneration set out in the remuneration report. Details of disbursements incurred are also included in the remuneration report.


13. Further Queries


I will advise creditors in writing, if practicable, of any additional matter that comes to my attention after the dispatch of this report that, in my view, is material to creditors' deliberations.


In the meantime, should creditors have any queries, please do not hesitate to contact Ian Morton.


DATED this 11th day of March 2008.


Signed

PETER MCCLUSKEY

ADMINISTRATOR


Section 439A(4)(a) Report by Administrators

11 March 2008

Page 19



Complete text of this document may be found at www.ferrierhodgson.com.au/caseprofiles/details.cfm?objectID=54




Stand against Dipidio Demolition

March 14, 2008

We condemn Acts of Greed and Human Rights Violations against the Indigenous Peoples of Kasibu, Nueva Viscaya , Philippines :

SAVE THE INDIGENOUS PEOPLES’ FROM FORCED DISPLACEMENT! STOP DEMOLITION OF DWELLINGS AND DESTRUCTION OF PROPERTIES OF MINING-AFFECTED COMMUNITIES!

Time is fast overtaking the indigenous residents of Barangay Didipio, Kasibu, Nueva Viscaya , Philippines.

On March 18, 2008 , the 20-day Temporary Restraining Order (TRO) that the indigenous community successfully obtained from the local court against the demolition of their houses and the clearing of their lands by an Australian mining company will end-- after which they will face anew continued and intensified attempts to destroy their homes and drive them away.

The indigenous residents have been fighting tooth and nail to defend their houses and communities against the wrecking crew of the Australian mining firm, Oceana Gold Philippines. Their lands are the site the mining company’s planned gold-copper project. Since December 2007 until the first week of January this year, 17 houses were torn down. Last February 10, 2008 , six more houses were destroyed.

Last March 3, 2008, the indigenous community joined other mining-affected communities in challenging the constitutionality of the Financial and Technical Assistance Agreement (FTAA) under the Philippine Mining Act of 1995 before the Supreme Court. The FTAA has been granted by the government in 1994 and invoked by Oceana Gold Philippines, to justify its repeated attempts to clear the area of the proposed mining project’s 425-hectare primary impact area right at the heart of the resisting upland communities. The FTAA is one of the means granted by the Philippine Mining Act of 1995 for foreign companies to explore, develop and extract the country’s mineral resources. The Indigenous Peoples in Didipio, led by the Didipio Earthsavers Multi-Purpose Association (DESAMA) have stiffly resisted large-scale mining incursions into their communities since 1994.

The Legal Rights and Natural Resources Center-Kasama sa Kalikasan/Friends of the Earth-Philippines (LRC-KsK/FoE-Philippines) condemns in the strongest possible terms, these reported acts of aggression and violence as well as human rights violations by the Oceana Gold Philippines against the Didipio residents who reject mining operations in their communities. The Australian company stands accused of taking properties of Indigenous Peoples, after it failed to convince the residents to sell their lands to the firm. We denounce the arrogance of the company, including its officials, as they reportedly ordered their contractors to “demolish houses and then negotiate later”, and in justifying their inhuman acts through their so-called “rights” under the Mining Act of 1995 and its FTAA.

We also deplore the reported complicity of elements of the Provincial Philippine National Police (PNP) as well as local officials of the Department of Environment and Natural Resources (DENR), Mines and Geosciences Bureau (MGB)–as they also stand accused of aiding and abetting the Australian mining company in its demolition activities.

We condemn all these reported acts and incidents as they violate due process and human rights of the indigenous peoples of Didipio, Kasibu, Nueva Viscaya , Philippines .

We call on all justice organizations, human rights and indigenous peoples advocates to support and extend solidarity to the indigenous peoples in Didipio and other communities in Nueva Vizcaya similarly affected by mining. WE URGENTLY ASK YOU TO:

1) Join hands with the indigenous peoples in Nueva Vizcaya to assert and defend their rights against the demolition and other acts of violence committed against them;

2) Stand with them in calling for justice and human rights and to prevent the residents’ forcible evictions once the TRO is lifted;

3) Demand an investigation and prosecution of those involved in unlawful and criminal acts, including the reported accomplices from implicated government agencies and personnel;

4) Urge the Department of Environment and Natural Resources (DENR), the Commission of Human Rights to investigate and punish alleged erring government personnel in Nueva Viscaya;

5) Call for the respect for the rule of law and the human rights of all peoples in mining-affected communities and areas in the Philippines .

6) Demand for the cancellation of the FTAA of Oceana Gold and all mining permits issued by the Philippine government;

7) Demand for the scrapping of the Philippine Mining Act of 1995!


We also call on you to write an Urgent Letter of Concern addressed to the following:

1. H. E. Gloria Macapagal-Arroyo

President of the Republic of the Philippines

Malacanang Palace,

JP Laurel St., San Miguel

Manila Philippines

Tel: +632.564.1451 to 80

Fax:+632.742.1642/929.3968

Cell: +63.919.898.4622 / +63.917.839.8462

Email: corres@op.gov.ph / opnet@ops.gov.ph

2. Hon. Purificacion V. Quisumbing

Chairperson, Philippine Commission on Human Rights

SAAC Blg., UP Complex

Commonwealth Avenue

Diliman, Quezon City , Philippines

Tel: 928.5655/926.6188

Fax: +632.929.0102

Email: drpvq@yahoo.com

3. Sec. Jose L. Atienza Jr

Department of Environment and Natural Resources (DENR)

Central Office, Visayas Avenue

Diliman, 1100, Quezon City , Philippines

Tel: 928.06.91 to 93 loc. 2003, 2008

Email: osec@dem.gov.ph

4. OcenaGold Corporation

a. Australia

James E. Askew-Chairman

Corporate Office

Level 5, 250 Collins Street , Melbourne , Australia

Tel: +61.3.9656.5300

Fax: +61.3.9656.5333

b. Philippines

Jose P. Leviste

2nd Floor, CJV Building

108 Aguirre Street, Legaspi Village

1229 Makati City , Philippines

Tel: +6.32.8926643

Fax: +6.32.892.8399



Investors spooked by ANZ bad debt provisions

AAP

February 18, 2008



ANZ Banking Group led a share market run on the big banks after it surprised investors by revealing a worse-than-expected exposure to potential bad corporate debts.


Australia's third-biggest bank said a higher provisions charge to cover potential bad loans - headlined by a one-off $US200 million ($A220.68 million) exposure to a US bond insurer - was now so large it would ``offset'' strong profit growth.


The ANZ's trading update came only a week after the Commonwealth Bank (CBA) delivered interim earnings that fell short of expectations.


Like CBA, ANZ blamed its profit problems on the higher cost of wholesale funding and the need to put more money aside to cover bad corporate loans.


Investors cut ANZ's share price by $1.45, or 6.06% to $22.46 by the close of trading, and punished the other big banks.


It was the lowest closing level since it ended at $21.90 on September 2, 2005.

ANZ pencilled in a potential $US200 million loss on its exposure to ACA Capital Holdings after the US monoliner had its credit rating slashed last year.


Like other US-based bond insurers, ACA Capital has run into grief with its CDOs (collateralised debt obligations), which had some US subprime mortgage liabilities.


Adding to the ANZ's provision pain was a rating downgrade for one of its commercial property clients, resulting in an extra $90 million provision charge.

The property client is believed to be struggling supermarket owner Centro Properties Group.


UBS has estimated that ANZ had a $500 million unsecured exposure to Centro, a $700 million secured exposure and a $150 million exposure to US-based lender Countrywide.


ANZ posted another $51 million one-off provision to cover Lafayette Mining Ltd, which went into administration last year after a series of problems at its mine in the Philippines .


Grilled by industry analysts during a briefing today, ANZ boss Mike Smith was adamant his bank had no direct exposure to the US sub-prime mortgage crisis.


''For ANZ to experience an actual loss on this exposure (to ACA Capital) it would require a significant number of what is a large and well-diversified portfolio of corporate names to go belly-up around the world,'' he said.


''If that happens we're looking at an Armageddon situation. Really we would be the last thing you would have to worry about if that happened.''


Mr Smith said he expected that ANZ would eventually end up ``writing back most, if not all of this provision''..


The bank's underlying business was in good shape, he said. ``It's no surprise to anyone that credit costs have risen.


''They have been well below normal for quite some time and that was clearly unsustainable. The credit cycle has changed.''


ANZ was likely to increase revenues ``a little faster'' than many expected and, if anything, its revenue momentum was actually accelerating, Mr Smith said.


On the industry front, Mr Smith said the Australian banking system was standing up to the international credit crunch much better than European and US lenders.


''I would recommend all of you to visit London and New York in the near future just to see the effect of what is really happening there,'' he said.


''This is a financial services bloodbath. The Australian banking system is in remarkably good shape in comparison.''


So far this financial year, ANZ has raised term wholesale funding of $12 billion and is on track to meet its full-year term funding target of at least $25 billion.


The cost of the funding increased significantly and had only been partially offset by higher interest rates for customer lending, the bank said.


ANZ last month increased its variable rate for home loans by 20 basis points independently of the central bank..


ANZ said consumer credit quality in Australia remained solid, with low arrears and actual losses modestly below initial expectations.


Paul Xiradis, chief executive at fund manager Ausbil Dexia Ltd, said the ANZ's revelations had caught the market by surprise.


''We've seen the market react negatively as a consequence of that,'' Mr Xiradis said.


''It's bringing down the whole of the banking sector and raising concerns about the banks' exposure to these one-off factors.''