hiding villains, page-6

Shall do when I get time R100. Have now finished going through Deloitte's report for OCV Ltd.

RE:Insolvency
The biggest EH!!! moment is half way down page 23 "we consider that as at 22 January 2008 OCV should have identified that it may have been BALANCE SHEET INSOLVENT [emphasis added]because ...".

(Talk about a red rag to the PTQ bull!!!)

Hang-on chiefs, para 3 of Sect1.1 says "We believe that the Company and the Group may have become insolvent during the period from 4 February 2008 to 4 June 2008".

So which is it then? Jan or Feb-Jun? Do I need an accounting degree to understand 'balance sheet insolvency'?

Or is Deloitte's just throwing enough ambiguity in so they won't get injured in the OCV creditor crossfire?

Of course there's the main conclusion at page 2 "We have not identified sufficient evidence to date that would allow us to form a conclusive view as to when insolvent trading may have occurred or commenced". Soft!!

Then at page 42 is this JACKPOT:

"Within the Fortress DOCA proposal is a condition that the Company not pursue a claim against Fortress or the Receivers. This should be considered in light of the following comments:
• Prior to 22 January 2008 Fortress held UNSECURED [emphasis added]guarantees from OCV for facilities provided to Octaviar related investments, Young Village Estates and OPI Pacific Investments
• On 22 January 2008 a deed was executed with the effect of CONVERTING [emphasis added]the aforementioned guarantees to a SECURED [emphasis added]position, under the Fortress facilities previously advanced to Octaviar Castle, incorporating OCV.
Creditors have asked us to investigate the circumstances surrounding that conversion."

"We have considered if the CONVERSION [emphasis added] could be regarded as a VOIDABLE TRANSACTION [emphasis added]. For that to be the case the relevant Octaviar companies or Group would have to been insolvent on 22 January 2008 when the document was executed. We consider that UNLIKELY [emphasis added] based on our findings to date." But that's not really what Deloitte's said on page 2 is it now - "not identified sufficient evidence to date that would allow us to form a conclusive view". And what about "BALANCE SHEET INSOLVENT" on page 23??

Let's just remind ourselves how much Fortress would lose if the securitisation transaction is deemed void?? Fair bit isn't it now. "[F]acility of $250M". "debt was ultimately retired in February 2008". "at the time [18 January 2008?], OCV had a $189 million debt facility (the Fortress Facility) due for repayment in March 2008" . Fortress is still owed $38M aren't they.

No wonder PTQ is going after a more accurate insolvency date. Because Deloitte's look like they dodged the issue and are inviting PTQ to go for it with e.g in bold on page 24: "The above investigations would be continued by a LIQUIDATOR TO ESTABLISH THE DATE [emphasis added] when the Group became insolvent, however, the Administrators preliminary view is that this may have occurred on 4 February 2008 but no later than 4 June 2008." But that conflicts with what Deloitte's said on page 2 and 'balance sheet insolvency' on page 23. And there's that magic word "preliminary". 7 occurances. My favourite is half way down page 25 under 9.2 Insolvency Trading: "our investigations have been extensive but PRELIMINARY [emphasis added]" and then 2 paras later "Based on the above PRELIMINARY [emphasis added]investigations outlined above, further investigations would be required by a LIQUIDATOR [emphasis added]."

Oh and p23 also states "We consider that upon the execution of the Stella sale agreement in January 2008 that a substantial and permanent diminution in the carrying value of Stella occurred. The need for the urgent sale of Stella AROSE BECAUSE [emphasis added]debt facilities provided by FORTRESS [emphasis added]were due to be repaid in February 2008." Could this be the debt facility that was secured on 22 Jan? For how much?? The $38M or was it the $189M or both?

RE Director Responsibility: (Love this bit)
One of my favourite sections is 9.2. (See also S1.1 paras 4-6, S1.2 para 2). Basically Deloitte's is saying that the laws in place to punish directors for insolvent trading are ineffectual. "Claims for insolvent trading are often difficult to prove and directors have a number of defences available to them." MFS Directors, at shareholders/creditors expense, appointed 333, Freehills and another law firm and hence are likely to "have a defense available to them". I.e. it will cost too much to get the money out of them - "assessment of a company’s solvency is complex and comes down to a question of fact in the circumstances which requires detailed examination"

I'm a PIF unit holder. (Anyone want to buy them? ;) )