(Administrators Appointed) (Dr Roebucks) Second Meeting of - PowerPoint PPT Presentation

Dr Roebuck’s Australia Pty Ltd (Administrators Appointed) (Dr Roebuck’s) Second Meeting of Creditors 17 June 2020 1

Agenda Introduction  Meeting formalities – Purpose of meeting – Declaration of Independence, Relevant Relationships and Indemnities ( DIRRI ) – Overview of Dr Roebuck’s and the Voluntary Administration – Voluntary Administration of Dr Roebuck’s  Events leading to the Voluntary Administration – Overview of the Administration – Financial position and performance and reasons for failure – Administrators’ sale process – Investigations – Return to creditors – Administrators’ recommendation for the future of Dr Roebuck’s  Resolutions regarding the future of Dr Roebuck’s  Remuneration resolutions  Questions  2

Formalities Open meeting  Administrator Chairperson: IPR 75-50  Introductions:  Barry Kogan (Administrator) – Damien Pasfield (McGrathNicol Director) – Louise Mann (McGrathNicol Senior Manager) – Attendance register  Quorum: IPR 75-105  Administrators ’ report to creditors pursuant to IPR 75 -225 ( the Administrators’ Report )  Proofs of debt and proxies  DIRRI  Voting  3

Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) Initial DIRRI issued on 14 May 2020 and tabled at the First Meeting of Creditors on 22 May 2020.  The Administrators remain of the view that there are no potential conflicts of interest.  The Administrators have not received any indemnities or up-front payments.  4

Purpose of meeting Creditors of Dr Roebuck’s to resolve one of the following: enter into a Deed of Company Arrangement enter into Liquidation be returned to the Directors creditors may also resolve that the meeting be adjourned for up to 45 business days In the Administrators’ opinion, it is in the best interests of the creditors that the meeting be adjourned for up to 45 business days. 5

Overview of Dr Roebuck’s Shareholders Shareholders 100% Catherine Shannon Holdings Pty Ltd ACN 607 717 144 Directors: Kim Devin, Zoe Kelly 100% Key Majority shareholder United States entity 9646396 Canada Inc. (“DRRC”) Dr Roebuck’s Australia Pty Ltd Canadian entity Corporation No. 964639-6 ACN 611 946 073 Directors: Kim Devin, Zoe Kelly, Alixe Boyer Directors: Zoe Kelly, Carl Dumbrell Australian entities Current shareholdings Dr Roebuck’s Corporation (“DRRUS”) Administrators appointed California Corporate No. C41199722 Dr Roebuck’s Grou p Directors: Kim Devin, Zoe Kelly 6

Events leading to Administration Significant growth in global distribution and retail networks Feb 2018 Jan 2011 Feb 2016 April 2016 Mar 2020 US company Canadian Dr Roebuck’s Dr Roebuck’s Dr Roebuck’s Pty incorporated company Australia Pty Ltd operations Ltd (now dissolved) incorporated incorporated in paused incorporated in Australia Australia June 2017 Feb 2018 2011 12 May 2020 Trading Commences Trading Voluntary commenced trading in commenced Administrators under Dr Australia under appointed to Roebuck’s and Dr Roebuck’s and Dr Roebuck’s DRRC DRRC Jan 2020 Intellectual property transferred from Dr Roebuck’s to DRRC as security for 3rd party funding Feb 2020 - KSLA Ventures Shareholder and loan notes provided to DRRC/DRRUS - funding passed through appointed to seek sale or equity to Dr Roebuck’s injection 7

Overview of the Administration Appointment Moratorium period Outcome of VA 26 May 2020 Sale process underway 12 May 2020 22 May 2020 10 June 2020 17 June 2020 Potential 1 st meeting of creditors Administrators take control 2 nd meeting of creditors held Administrators’ Report issued Transaction of Dr Roebuck’s held Execution Options: (i) DOCA (ii) Liquidation (iii) Return to Directors 26 May 2020 Administrators recommend Data room opens for that creditors resolve to: interested party viewing Adjourn the meeting 8

Administrators’ actions to date Sale of business Statutory process obligations Creditors Investigations 9

Books and records  Section 286 of the Corporations Act 2001 requires a company to maintain financial records that: correctly record and explain its transactions and financial position and performance; and – would enable true and fair financial statements to be prepared and audited. –  Failure to maintain books and records in accordance with Section 286 of the Act provides a presumption of insolvency.  Dr Roebuck’s did not comply with the requirements of Section 286 and true and fair accounts were not be able to be prepared.  Accordingly, the Administrators have no comfort in the records of the Company and the discussion that follows in the historical financial section is for illustrative purposes only. 10

Financial performance Sales relate to online sales to Australian customers only. No recognition of intercompany transfers or sales of inventory. Dr Roebuck’s recorded a net loss for each year of operation since 2017. 11

Financial position The Administrators consider both the book value of inventory and intercompany balances overstated having regard to the stock reports we were provided and as a result of the absence of entries relating to intercompany sales or the transfer of inventory. Documentation suggests the underlying ‘shareholder loan’ and convertible note’ loans are owed by DRRC. The accounts recorded a negative net asset position for each year of operation. 12

Reasons for failure Directors’ reasons for failure The Directors attribute the failure to the inability to access ongoing funding. Without payments or financial support from  DDRC and DRRUS, Dr Roebuck’s was unable to continue trading or meet its commitments to creditors. The Directors indicate that the inability of DRRC and DRRUS to provide ongoing payment/funding was due to COVID-19.  Administrators’ reasons for failure Whilst the Administrators note the reasons provided by the Directors, we consider the following also contributed to the failure  of the Company: insufficient equity and cash reserves; – reliance on funding and payments from the broader Group (until the Group was unable to provide such support); – no external income sources; and – poor record keeping and cash flow monitoring, meaning the Directors were unable to project the Company’s financial – position and mitigate its failure. 13

Administrators’ sale process Administrators have offered Dr Roebuck’s assets alongside those of Canada and the US for sale / recapitalisation  Sale process timeline 12 May 2020 25 May 2020 4 June 2020 4 June 2020 to 10 June 2020 to Current position to 4 June 2020 9 June 2020 ongoing Appointment of The Administrators, Administrators EOI opens and Non-Binding and DRRC and DRRUS Confirmation of Discussions with data room indicative offers interest and second round are considering the available due NBIO review parties NBIOs with the intention that binding offers are submitted in the near future. The Administrators 60 potential parties contacted recommend an adjournment of the meeting to enable the 20 parties enter the data room sale to be finalised 10 parties submit NBIOs 14

Investigations Claims that may be available in a liquidation Books and Insolvent trading Discharge of Voidable records Directors’ duties transactions Director defences Litigation costs and delay Considerations and defences 15

Options available to creditors Dr Roebuck’s be returned to the Directors Not a viable option  Dr Roebuck’s remains insolvent with no access to funding  Dr Roebuck’s enters liquidation May occur in due course (limited downside delay)  Dr Roebuck’s enters into a DOCA No DOCA put forward  Meeting is adjourned Recommended to allow the option for the sale to be structured via a DOCA  16

Administrators’ Recommendation In the Administrators’ opinion, it is in the best interests of the creditors that the meeting be adjourned for up to 45 business days.  The Administrators believe that it is in the best interest of creditors to adjourn the meeting for up to 45 business days in order to allow the sale process to be finalised.  If possible, the Administrators will re-convene the meeting at an earlier time, providing a supplementary report to creditors with a further recommendation so that creditors may vote on the future of the Company.  Given the Company’s assets, operations and claims, we do not consider that there is a material detriment to Creditors in this regard. 17