3 Aug 11 ERAIS Admin. Report To Creditors

ERA Insurance Services Pty Limited (Administrators Appointed)
ACN 109 873 010
Administrators’ Report to Creditors
3 August 2010
ERA Insurance Services Pty Ltd (Administrators Appointed) ACN 109 873 010
3 August 2010
Table of Contents
1. Introduction........................................................................................................................ 1
1.1 Purpose of Report ..................................................................................................... 1
1.2 Executive Summary .................................................................................................. 1
1.3 Glossary.................................................................................................................... 2
1.4 Disclaimer ................................................................................................................. 2
2. Administration Milestones ................................................................................................ 2
2.1 Appointment of the Former Administrators ................................................................ 2
2.2 First Meeting of Creditors .......................................................................................... 2
2.3 Second Meeting of Creditors..................................................................................... 3
3. Future of the Company...................................................................................................... 3
3.1 Resolutions Available to Creditors............................................................................. 3
3.2 Adjournment of the Second Meeting of Creditors ...................................................... 3
3.3 The Company Execute a DOCA................................................................................ 4
3.4 The Company be Wound Up..................................................................................... 4
3.5 The Administration be Terminated ............................................................................ 4
4. Administrators’ Independence.......................................................................................... 4
5. Background Information about the Company.................................................................. 5
5.1 Information disclosed in ASIC records....................................................................... 5
5.2 Company Group........................................................................................................ 6
6. Business Activities of the Company and Events Leading to Administration ................ 6
6.1 Introduction ............................................................................................................... 6
6.2 The ERA System....................................................................................................... 6
6.3 Joint Venture with Ken Armstrong ............................................................................. 6
6.4 Expansion to the United States and Europe .............................................................. 7
6.5 Revenue and Profitability of the Company decline .................................................... 7
6.6 Falling out between the Directors and Ken Armstrong/Peter Sellwood ...................... 7
6.7 Loss of NZ client base............................................................................................... 8
6.8 Sellwood Proceedings............................................................................................... 8
6.9 Outsourcing of Insurance Advice............................................................................... 8
6.10 Armstrong Proceedings............................................................................................. 8
6.11 ERAIL withdraws financial support ............................................................................ 9
6.12 Appointment of Former Administrators ...................................................................... 9
6.13 Outstanding Winding Up Applications ....................................................................... 9
7. Financial Records of the Company .................................................................................. 9
7.1 Documents received from the Company ................................................................... 9
7.2 Directors’ RATA ........................................................................................................ 9
8. Financial Statements for 2006 to 2009............................................................................ 10
8.1 Statements of Financial Performance...................................................................... 10
8.2 Statements of Financial Position ............................................................................. 10
8.3 Statements of Cash Flow ........................................................................................ 12
9. Estimate of Financial Position on 7 July 2010 ............................................................... 13
10. Dealings with Related Parties ......................................................................................... 16
10.1 Introduction ............................................................................................................. 16
10.2 Letter of Comfort ..................................................................................................... 16
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10.3 ERA Related Party Creditors................................................................................... 16

10.4 Armstrong Related Party Creditors.......................................................................... 17
10.5 Management Fees .................................................................................................. 17
10.6 Dividends paid to Shareholders............................................................................... 17
10.7 Loans to Directors ................................................................................................... 17
11. Reasons for the Failure of the Company........................................................................ 18
11.1 Explanation of the Directors .................................................................................... 18
11.2 Explanation of Ken Armstrong/Peter Sellwood ........................................................ 18
11.3 Explanation of the Administrators............................................................................ 18
12. Administrators’ Objectives and Actions ........................................................................ 18
12.1 Objective................................................................................................................. 18
12.2 Practical Restrictions Imposed of Administrators..................................................... 19
12.3 Investigations and Asset Preservation..................................................................... 19
12.4 Investigations Undertaken....................................................................................... 19
12.5 Further Investigatory Options .................................................................................. 20
13. Assets and Legal Rights of the Company...................................................................... 20
13.1 Plant and Equipment............................................................................................... 20
13.2 Recovery of Receivables......................................................................................... 20
13.3 AFS Licence............................................................................................................ 22
13.4 Sellwood Proceedings............................................................................................. 23
14. Contraventions of the Act ............................................................................................... 23
14.1 Compliance with Section 286 of the Act .................................................................. 23
14.2 Other Contraventions by the Company ................................................................... 23
14.3 Contraventions by a Current or Former Officer........................................................ 23
15. Potential Claims by a Liquidator..................................................................................... 24
15.1 Introduction ............................................................................................................. 24
15.2 Proving Insolvency .................................................................................................. 24
16. Solvency of the Company ............................................................................................... 25
16.1 Definition of Insolvency ........................................................................................... 25
16.2 Indicators of Insolvency........................................................................................... 25
16.3 Provisional Opinion on Insolvency........................................................................... 26
16.4 Matters Material to Provisional Opinion on Insolvency ............................................ 26
16.5 Presumption of Insolvency ...................................................................................... 27
17. Liquidator Recoveries Where Insolvency Must be Proved ........................................... 27
17.1 Unfair Preferences (Section 588FA)........................................................................ 27
17.2 Uncommercial Transactions (Section 588FB) ......................................................... 28
17.3 Loans (Section 588FD) ........................................................................................... 29
17.4 Insolvent Trading by Directors (Section 588G) ........................................................ 29
17.5 Insolvent Trading by Subsidiary (Section 588V) ...................................................... 30
17.6 Related Party Transactions (Section 588FE(4)) ...................................................... 31
17.7 Obstruction of Creditors’ Rights (Section 588FE (4))............................................... 31
18. Liquidator Recoveries Where Insolvency Does Not Need to be Proved ...................... 31
18.1 Unreasonable Director Related Transactions (Section 588FDA) ............................. 31
19. Financial Capacity to Pay Judgment Debt ..................................................................... 31
19.1 Asset Position of Directors ...................................................................................... 31
19.2 D&O Insurance ....................................................................................................... 31
20. DOCA Proposal ................................................................................................................ 32
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21. Forecast return to Creditors............................................................................................ 32

22. Administrators’ Opinion on the Resolutions Available to Creditors ............................ 33
22.1 The Company execute a DOCA .............................................................................. 33
22.2 The Administration to end ....................................................................................... 33
22.3 The Company be Wound Up................................................................................... 33
22.4 Administrators’ Recommendation............................................................................ 33
23. Receipts and Payments ................................................................................................... 34
24. Remuneration of Administrators .................................................................................... 34
24.1 Work undertaken..................................................................................................... 34
24.2 Remuneration sought.............................................................................................. 34
25. Questions, Feedback and Information ........................................................................... 35
Schedule 1: Glossary................................................................................................................. 36
Schedule 2: DIRRI ...................................................................................................................... 38
Schedule 3: Structure of Group and Relationship to Other Entities ....................................... 40
Schedule 4: Letter of Comfort................................................................................................... 41
Schedule 5: IPA Creditor Information Sheet ............................................................................ 42
Schedule 6: Forecast Return to Creditors................................................................................ 44
Schedule 7: Receipts and Payments since 19 July 2010 ........................................................ 45
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1. Introduction
1.1 Purpose of Report
This Report is designed to provide Creditors of the Company with sufficient

information to allow them to make informed decisions about the future of the
Company at the Second Meeting of Creditors which will be held at 9:00am on
Wednesday, 11 August 2010 at Taylor Woodings Chartered Accountants, Level 15,
50 Pitt Street, SYDNEY NSW 2000.
1.2 Executive Summary
An Executive Summary of the preliminary findings and recommendations of the

Administrators as detailed in this Report appears as Table 1. The Executive
Summary must be read in conjunction with the entire report and must not be relied
on without first reading the entire report including all qualifications, limitations and
comments.
Table 1: Executive Summary
Preliminary Findings & Recommendations Analysis
Contraventions of the Act The Directors and Peter Sellwood may have contravened Section 14
the Act, but further investigations are required before a
concluded view can be reached.
Date of Insolvency The Company may have been insolvent from Section 16
August 2009 to date. A critical factual matter for
resolution with respect to this issue is whether the
Company had the financial support of related parties
including ERAIL during that period.
Unfair Preferences The Administrators have identified a number of Section 17.1

transactions which may give rise to successful Unfair
Preference recovery actions.
Uncommercial The Administrators have identified one transaction which Section 17.2
Transactions may constitute an Uncommercial Transaction.
Insolvent Trading Claim The Administrators consider that the Company may have Section 17.4
Insolvent Trading claims against the Directors and Fred
Marfleet (Former Director) for damages of at least
$170,000 if the Company did not have the financial
support of related parties including ERAIL.
Estimated Return to The Administrators’ estimated return to Ordinary Non- Sections

Unsecured Creditors Priority Creditors of the Company under a number of 10.2 & 21
Liquidation scenarios ranges between NIL and 15 cents in
the dollar. The return will lie at the lower end of the range
unless a substantial recovery from ERAIL occurs
pursuant to the letter of comfort dated 6 May 2010.
Company Future The Creditors should give serious consideration to Section 22

adjourning the Second Meeting of Creditors to allow the
Administrators time to consider and report to Creditors on
a DOCA proposal which the Administrators have been
advised will be provided to them by ERAIL.
In the absence of an acceptable DOCA proposal being

received by the Administrators, the Administrators
recommend that the Company be wound up.
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1.3 Glossary
A glossary of the defined terms used in this report appears as Schedule 1.
1.4 Disclaimer
This report is based on information sourced from the Company’s books and
documents and information provided by Ken Armstrong (former CEO of the
Company), Peter Sellwood (former General Manager), the Company’s Auditor and
external Accountants and clients of the Company. The Administrators have
reviewed the books, documents and information and whilst limited independent
verification of the information has been conducted, but no audit has been
undertaken.
The Administrators have no reason to doubt the information contained in this report.
The statements and opinions given in this Report are given in good faith and in the
belief that such statements and opinions are not false or misleading. The
Administrators reserve the right to alter any conclusions reached on the basis of any
changed or additional information which may become available before the Second
Meeting of Creditors.
Neither the Administrators, Taylor Woodings nor any employee thereof undertakes
any responsibility in any way whatsoever to any person in respect of any errors in
this Report arising from incorrect information provided to the Administrators.
This Report is not for general circulation, publication, reproduction or any other use
other than to assist Creditors in evaluating their position as Creditors of the
Company and must not be disclosed without the written approval of the
Administrators.
The Administrators do not assume or accept any responsibility for any liability or loss
sustained by any Creditor or any other party as a result of the circulation, publication,
reproduction or any other use of the report.
Creditors must seek their own independent legal advice as to their rights and the
options available to them at the Second Meeting of Creditors.
2. Administration Milestones
2.1 Appointment of the Former Administrators
On 7 July 2010, the Company appointed the Former Administrators as

administrators of the Company pursuant to Section 436A of the Act.
2.2 First Meeting of Creditors
The Former Administrators convened the First Meeting of Creditors pursuant to

Section 436E of the Act for 19 July 2010. At that meeting:
the Former Administrators resigned following an unproven allegation that the

Former Administrators had a conflict of interest which precluded them from
continuing to act as administrators of the Company; and
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the Creditors appointed the Administrators as the replacement administrators

of the Company.
At the First Meeting of Creditors, Creditors were also permitted to appoint a

Committee of Creditors but they did not exercise that right.
2.3 Second Meeting of Creditors
The Administrators have convened the Second Meeting of Creditors pursuant to

Section 439A of the Act for 9:00am on Wednesday, 11 August, 2010. The principal
function of the Second Meeting of Creditors is to decide the future of the Company
by reference to the 3 options which appear in the next section of this Report.
3. Future of the Company

3.1 Resolutions Available to Creditors
The Creditors must pass one of the following 3 resolutions to decide the future of the
Company at the Second Meeting of Creditors:
the Company execute a DOCA;
the Company be wound up; or
the Administration be terminated.
The Administrators describe the effect of those resolutions below after first
considering the right of Creditors to adjourn the Second Meeting of Creditors for a
period not exceeding 45 business days. The Administrators’ opinion on which of the
3 resolutions is in the best interests of Creditors appears at section 22 of the Report.
3.2 Adjournment of the Second Meeting of Creditors
As an alternative to passing one of the above 3 resolutions on 11 August 2010,

Creditors may resolve to adjourn the Second Meeting of Creditors for a period not
exceeding 45 business days.
It is common for Creditors to adjourn a Second Meeting of Creditors where they

consider that the additional time may allow a DOCA proposal to be formulated which
may lead to Creditors receiving a better return than they would receive if the
Company is wound up. The concept of a DOCA proposal is explained in greater
detail below.
The Administrators anticipate receiving a DOCA proposal before the Second

Meeting of Creditors from ERAIL. The Administrators consider that such a DOCA
proposal has the potential to provide Creditors with a greater, timelier and more
certain return than they would receive in a liquidation. The Administrators do not
consider the financial position for Creditors will deteriorate or the dividend available
to Creditors will diminish if the Second Meeting of Creditors is adjourned.
As such, the Administrators consider that Creditors should give serious consideration
to adjourning the Second Meeting of Creditors to a future date not more than
45 business days after 11 August 2010. Creditors will then be required to pass one
of the following 3 resolutions when the Second Meeting is reconvened.
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The Administrators will provide a revised recommendation on the future of the

Company if a DOCA proposal is received.
3.3 The Company Execute a DOCA
A DOCA is intended to:
provide the means by which Creditors receive a greater return on their debts
than they would if the Company is wound up; and
allow the Company to free itself of its debt burden and (usually) to continue
(or resume) trading.
A DOCA requires a source of funds to finance the payment of a dividend to Creditors

and a motivated entity to organise it. The usual procedure is that the entity
proposing the DOCA submits its proposal to the Administrators who, on behalf of
Creditors, consider the proposal and make a recommendation to Creditors as to
whether the DOCA should be accepted and if so, on what terms.
If creditors resolve that the Company execute a DOCA:
the Company will not be wound up; and
Creditors will be bound by the terms of the DOCA.
3.4 The Company be Wound Up
If Creditors resolve that the Company be wound up, the Company will be placed into
liquidation and liquidators appointed. The liquidators will be required to complete
the investigation commenced by the Administrators into the past dealings, actions
and affairs of the Company, its Directors and Related Parties.
The liquidators will also:
realise the assets of the Company;
commence certain recovery actions (if merits and funding allow): See
sections 15 to 19 for further details of those potential recovery actions; and
make a distribution to Creditors in accordance with the Act if funds are

available.
3.5 The Administration be Terminated
If Creditors resolve that the Administration be terminated, control of the Company will
revert back to the Directors and the Company will be placed in a position similar to
that existing prior to the appointment of the Former Administrators.
4. Administrators’ Independence
The Act requires the Administrators:
to be independent of the Company, its Directors and any dominant creditor; and
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to be seen to be independent of the Company, its Directors and any dominant

creditor.
Immediately before the First Meeting of Creditors, the Administrators delivered a DIRRI to
the Former Administrators. At the First Meeting of Creditors, the Administrators provided a
copy of the DIRRI to all creditors who attended the meeting in person or by proxy. After the
First Meeting of Creditors, the Administrators sent a copy of the DIRRI to all known
Creditors with their initial circular.
Since signing the DIRRI, no new matters have occurred which could compromise the
independence of the Administrators or preclude the Administrators from acting as the
administrators of the Company. A copy of the DIRRI appears as Schedule 2.
5. Background Information about the Company

5.1 Information disclosed in ASIC records
All companies incorporated or registered in Australia have a statutory obligation to

provide certain information to ASIC. The relevant information held by ASIC with
respect to the Company is summarised below.
Table 2: Company Information
Date of Incorporation: 2 July 2004

Registered Office: Level 1, 1049 Victoria Road
WEST RYDE NSW 2114
Principal Place Suite 1204 St Kilda Road Towers
of Business: 1 Queens Road
MELBOURNE VIC 3004
Table 3: Directors of the Company since 2009
Name Domicile Position Appointed Resigned

Kenneth Armstrong Australia Director 02-Jul-04 01-Apr-09
Frederick Marfleet United Kingdom Director 26-Nov-07 06-Jul-10
Ronald Clucas United Kingdom Director 03-Mar-08 Current
Anthony Dormer Australia Director 17-Nov-08 Current
Table 4: Other Directorships and Shareholdings of the Directors
Name Directorships Shareholdings

Ronald Clucas ERAG
ERAA
ERA Travel Management Services Pty Ltd
ERA Consulting Pty Ltd
Anthony Dormer ERAG Alime Pty Ltd
ERAA Olimbay Pty Ltd
Australia Business Foundation Limited
Dormers Corporate Pty Limited
J.S Herbert & Co Pty Limited
Kreston Dormers Financial Services Pty Limited
Kreston Dormers Accountants & Business Advisors Pty Ltd
Kreston Dormers Consulting Pty Limited
New Business Chamber Limited
Olimbay Pty Ltd
Prydove Pty Limited
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Table 5: Existing Shareholders Structure
Shareholder Note Class Number Value Fully Paid

$ $
ASMM 1 Ordinary 49 49 49
ERAA Ordinary 51 51 51
Note 1
ASIC has not recorded the transfer of ASMM’s shares to ERAIL which occurred in about February
2009.
5.2 Company Group
The Company is part of the ERA Group of Companies. A diagram showing the
structure of the Group and its relationship to other entities appears as Schedule 3.
6. Business Activities of the Company and Events Leading to

Administration
6.1 Introduction
This section is designed to provide external Creditors of the Company with a general
understanding the business activities of the Company and the events leading to the
Administration of the Company. The section is not designed to be a comprehensive
account of all the Company’s dealings since incorporation and not all events material
to the claims of all Creditors are included.
6.2 The ERA System
ERAG (a company associated with the Company) owns and sells ERA franchises
across Australia and New Zealand. Those franchises provide franchisees with a
system to help ERA clients reduce business expenditure across a range of expense
categories.
In return for identifying and implementing cost savings for an ERA client, ERAG and
the ERA franchisee receive a fee equivalent to 50% of the cost savings derived by
the ERA client over a 2 year period. The fee is apportioned between ERAG and the
ERA franchisee on a 15/85 basis.
6.3 Joint Venture with Ken Armstrong
On about 1 March 2004, ERAG granted a non-exclusive franchise (then known as a

licence) to Armstrong Consulting, being a company controlled by Ken Armstrong. At
the time, the ERA system did not offer cost saving strategies for insurance products.
On about 31 August 2004, Ken Armstrong and ERAG formed a Joint Venture to offer
cost saving strategies on insurance products across Australia and New Zealand.
As part of the joint venture:
ERAG and ASMM (being a company associated with Ken Armstrong)

incorporated the Company;
The Company procured an AFS licence from ASIC to allow it to advise on

insurance matters with Ken Armstrong being nominated as the key person;
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ERA clients retained the Company for advice on their insurance requirements;
An ERA client paid the Company a fee equivalent to 50% of the cost savings
derived by the ERA client over a 2 year period which it shared with the
introducing ERA franchisee on a 60/40 or 50/50 basis (depending on the
franchisee);
The Company paid 15% of its revenue to ERAG as a royalty;
AASM/Ken Armstrong received a total management fee/salary of $360,000 pa

indexed to CPI after 30 June 2007 (subject to certain adjustments relating to
the financial performance of the Company); and
The balance of the income of the Company (after payment of expenses and
shareholder loans) was to be paid by dividend to AASM and ERAG.
6.4 Expansion to the United States and Europe
Initially, the Company’s operations were profitable. In late 2007, ERAIL (a company
incorporated in the UK) and Ken Armstrong sought to replicate in the United States
and Europe what the Company had achieved in Australia and New Zealand.
This resulted in:
The incorporation of ERAGICS with ERAIL and Ken Armstrong as

shareholders;
ASMM transferring its shares in the Company to ERAIL in about

February 2009;
Mr Armstrong receiving shares in ERAGICS;
ASMM and Mr Armstrong entering into a Consultancy Agreement with

ERAGICS; and
The termination of the joint venture between ERAG and ASMM.
6.5 Revenue and Profitability of the Company decline
In about November 2007, the Company appointed Peter Sellwood as General

Manager to allow Ken Armstrong to concentrate on his work for ERAGICS.
Without the day to day involvement of Mr Armstrong, the revenues and profitability of
the Company declined and by 2009, the Company was dependant on financial
support from ERAIL to continue trading.
In February 2009, Ken Armstrong resigned as Director of the Company and in

April 2009, Ken Armstrong resigned as the key person for the ASIC AFS licence
after expressing concerns about the solvency of the Company.
6.6 Falling out between the Directors and Ken Armstrong/Peter Sellwood
By mid 2009, tensions existed between the Directors on the one part and Peter
Sellwood on the other. By about August 2009, the Directors of the Company held
concerns that Peter Sellwood (possibly in association with Ken Armstrong) was
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intending to use the intellectual property of the Company to establish a business in

competition with the Company. During that month, Peter Sellwood resigned from the
Company by giving 3 months notice and the 3 remaining employees of the Company
were summarily dismissed. (There is an issue as to whether those dismissals are
valid at law.)
On 22 October 2009, ERAG purported to terminate the non-exclusive franchise

granted to Armstrong Consulting on 1 March 2004. Armstrong Consulting disputed
the right of ERAG to terminate the non-exclusive franchise and asserted that ERAG
had engaged in repudiatory conduct. On 2 February 2010, Armstrong Consulting
accepted the repudiation of ERAG and terminated the non-exclusive franchise.
6.7 Loss of NZ client base
In about November 2009, the Company’s right to provide advice to all new ERA
Clients in New Zealand was terminated. This limited the future cash flows from ERA
Clients in New Zealand to 50% of the cost savings derived on the insurance policy
renewals in the 2010 policy year for existing ERA Clients.
The Administrators have not, as yet, determined the circumstances surrounding the
purported termination and whether the Company has potential claims as a
consequence of that purported termination.
6.8 Sellwood Proceedings
On 12 November 2009, Peter Sellwood commenced the Sellwood Proceedings

seeking payment of unpaid employment entitlements which are estimated by Peter
Sellwood to be in excess of $150,000.
The Company is defending the proceedings. It has also filed a cross claim against
Peter Sellwood and Josh Tobin (a former employee of the Company) for passing off
and misleading and deceptive conduct. Peter Sellwood and Josh Tobin are
defending the cross claim.
The Company has lodged $20,000 as security for Mr Tobin’s defence costs.
6.9 Outsourcing of Insurance Advice
On 29 March 2010, the Company purported to outsource the provision of advice to

ERA clients in Australia to ITS. Further, details about the outsourcing arrangement
appear at paragraph 13.2. This outsourcing arrangement (and the earlier loss of the
right to provide services to ERA clients in New Zealand) significantly diminished the
future income generating opportunities for the Company.
6.10 Armstrong Proceedings
On 5 May 2010, ASMM and Armstrong Consulting commenced the Armstrong

Proceedings against, amongst other parties, the Company. ASMM claims, in part,
that the Company breached a contract to pay $117,300 to ASMM by way of dividend
on account of its share of retained earnings for the calendar year ended
31 December 2007. AASM relies, in part, on assurances given to it that the payment
would be made in 3 installments on 30 September 2009, 31 December 2009 and
31 March 2010. The Company is defending the proceedings.
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6.11 ERAIL withdraws financial support
On 6 May 2010, Fred Marfleet on behalf of ERAIL (the Company’s parent in the
United Kingdom) confirmed in writing to the Company’s Auditor that ERAIL would
provide to the Company such amounts as the Company required to pay all debts
owing to “third party creditors” of the Company.
On about 6 July 2010, ERAIL purported to withdraw that financial support

notwithstanding a written assurance that the financial support would remain in place
until at least 6 May 2011. On the same date, Mr Marfleet also resigned as Director
of the Company.
6.12 Appointment of Former Administrators
The Directors of the Company formed the opinion that, in the absence of financial
support from ERAIL, the Company was or may become insolvent and on
7 July 2010, the Directors appointed the Former Administrators as administrators of
the Company.
6.13 Outstanding Winding Up Applications
As at 7 July 2010, there were no applications to wind up the Company pending

before a Court in Australia.
7. Financial Records of the Company

7.1 Documents received from the Company
The Company’s external Accountants have provided us with:
the audited accounts of the Company for the years ended 31 December 2006
to 31 December 2009;
the MYOB file used to prepare the accounts of the Company which was
current to 7 July 2010; and
various source documents including bank statements and tax invoices.
A summary of the audited accounts for the period to 31 December 2009 and of the
management accounts for the period after 31 December 2009 appear at Section 8.
7.2 Directors’ RATA
On 27 July 2010, the Directors received a RATA from the Directors. The RATA
provides summary information about the assets and liabilities of the Company as at
7 July 2010. An outline of the RATA and the Administrators’ comments on the RATA
appear at Section 9.
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8. Financial Statements for 2006 to 2009

8.1 Statements of Financial Performance
The most detailed Statements of Financial Performance extracted from the audited
accounts for the calendar years 2006 to 2009 as supplemented by the MYOB file for
the 6 months to June 2010 appear as Table 6.
The statements show that:
the Company’s income peaked in 2007 and then fell significantly in 2008 and
2009;
the Company’s income in 2010 has, so far, been negligible in the context of
previous years; and
the Company has been unable to reduce expenses in line with the decline in
its income.
Table 6: Statements of Financial Performance
Note 2006 2007 2008 2009 2010

Audited Audited Audited Audited Management
Accounts
$ $ $ $ $
Revenue 1 953,745 1,701,273 1,218,576 410,517 34,709

953,745 1,701,273 1,218,576 410,517 34,709
Employee Costs (177,683) (211,914) (434,613) (319,636) 0

Depreciation and amortisation expenses (6,412) (4,329) (6,227) (8,969) 0
Marketing Expenses (2,266) (20,641) (14,514) (30,882) (1,106)
Administration expenses (544,676) (538,226) (178,840) (243,521) (1,831)
Occupancy expenses (36,755) (55,579) (66,577) (50,002) (1,208)
Client Billings - AU Assoc Share (13,965)
Royalty Payable - ERAG (5,528)
(767,792) (830,689) (700,771) (653,010) (23,638)
Finance costs (662) (1,932) (5,195) (4,887) 0

Other expenses from ordinary activities (238,750) (552,833) (522,081) (378,950) (4,871)
Profit/ (loss) before income tax 6,541 315,819 (9,471) (626,330) 12,276
Income tax benefit / (expense) (5,852) (96,893) 7,605 0 0
Profit/ (loss) after income tax 689 218,926 (1,866) (626,330) 12,276
Note 1 - Revenue
2006 2007 2008 2009 2010

Accounts
$ $ $ $ $
Fees 953,745 1,698,999 1,211,212 402,688 33,303
Interest Received 0 2,274 7,364 7,829 0
Royalty Income 0 0 0 0 753
Override Fee Income 0 0 0 0 502
Marketing Levy Income 0 0 0 0 151
953,745 1,701,273 1,218,576 410,517 34,709
8.2 Statements of Financial Position
The most detailed Statements of Financial Position at 31 December of the years

2006 to 2009 as extracted from the audited accounts as supplemented by the MYOB
file appear as Table 7.
The statements show that:
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the Company (like many professional service firms) has not owned significant
plant and equipment;
the Company first experienced negative equity in 2009; and
during 2010, the Company’s liability to related entities has nearly doubled
from $179,643 to $356,043, which is consistent with the Company being
reliant on related entity support to pay trade creditors during that period.
Table 7: Statements of Financial Position
Notes 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 30-Jun-10

Accounts
$ $ $ $ $
Assets
Current Assets
Cash and Cash Equivalents 1 162,496 219,538 232,823 52,734 4,122
Trade and other receivables 2 206,112 453,769 553,474 204,364 101,719
Current tax receivable 0 0 0 1,484 0
Prepayments 12,959 10,210 38,480 10,263 4,314
Total Current Assets 381,567 683,517 824,777 268,845 110,155
Non-Current Assets
Property, Plant And Equipment 3 11,397 16,876 16,393 14,311 14,310
Intangible assets 825 0 0 0 0
Total Non-Current Assets 12,222 16,876 16,393 14,311 14,310
Total Assets 393,789 700,393 841,170 283,156 124,465
Liabilities
Trade and other payables 4 363,372 373,024 561,926 676,181 693,736
Short-term borrowings 14,173 0 0 0 0
Current tax liabilities 5 0 92,199 45,939 0 28,767
Total Liabilities 377,545 465,223 607,865 676,181 722,503
Net Assets 16,244 235,170 233,305 (393,025) (598,038)
Note 1 - Cash assets
31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 30-Jun-10

Management
Audited Audited Audited Audited Accounts
$ $ $ $ $
Cash on Hand 100 100 100 100 100
Bank Balances 67,806 124,848 130,835 18,004 4,022
Short-term deposits 94,590 94,590 101,888 34,630 0
162,496 219,538 232,823 52,734 4,122
Note 2 - Recievables

Management
$ $ $ $ $
Trade Receivables 198,629 450,178 629,255 200,023 111,352
Provision for impairment of receiveables (3,349) 0 (79,372) (13,224) (13,224)
Other related parties 0 0 0 13,974 0
Other receivables 10,832 3,591 3,591 3,591 3,591
206,112 453,769 553,474 204,364 101,719
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3 August 2010
Note 3 - Plant, Property & Equipment

Management
$ $ $ $ $
Plant and equipment at cost 17,963 23,957 33,756 40,643 40,642
Less: Accumulated depreciation (7,209) (10,349) (20,465) (29,124) (29,124)
Total plant and equipment 10,754 13,608 13,291 11,519 11,518
Furniture, fixtures and fittings at cost 709 3,697 3,697 3,697 3,697
Less: Accumulated depreciation (66) (429) (595) (905) (905)
Total plant and equipment 643 3,268 3,102 2,792 2,792
11,397 16,876 16,393 14,311 14,310
Note 4 - Trade and other payables
Notes 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 30-Jun-10

Management
$ $ $ $ $
Trade Payables 1 100,280 199,919 255,102 407,690 315,237
Sundry payables and accrued expenses 166,846 76,859 210,580 88,848 22,456
Related party loans 96,246 96,246 96,244 179,643 356,043
363,372 373,024 561,926 676,181 693,736
Note 1: Trade Payables

Includes as at 30-Jun-10 an amount of $202,847 owed to Related Parties on account of Royalties and similar payments.
Note 5 - Tax assets and liabilities

Management
$ $ $ $ $
Income tax 0 92,199 45,939 0 0
GST Collected 0 0 0 0 58,304
GST Paid 0 0 0 0 (64,120)
PAYG Payroll Accruals Payable 0 0 0 0 37,530
Superannuation Payable 0 0 0 0 2,720
ATO Integrated Account 0 0 0 0 (28,408)
Prov'n for Payroll Tax 0 0 0 0 21,614
Prov'n for Income Tax 0 0 0 0 (1,484)
Willis PI Preium - loan pymt 0 0 0 0 2,611
0 92,199 45,939 0 28,767
8.3 Statements of Cash Flow
The most detailed Statements of Cash Flow extracted from the audited accounts for
the calendar years 2006 to 2009 appear as Table 8. The Administrators have not
prepared a Statement of Cash Flow for 2010.
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3 August 2010
Table 8: Statements of Cash Flow
Notes 2006 2007 2008 2009

Audited Audited Audited Audited
$ $ $ $
Cash from operating activities:
Receipts from customers 806,822 1,451,343 1,111,507 750,314
Payments to suppliers and employees (769,760) (1,274,593) (1,055,992) (880,519)
Interest paid (662) (1,932) (5,195) (4,887)
Income taxes paid (10,900) (4,694) (38,655) (45,939)
Interest received 6,294 2,273 7,364 7,829
Net cash provided by/ (used in) operating activities 1 31,794 80,198 19,029 (173,202)
Cash flows from investing activities:

Payments for property, plant and equipment (6,803) (8,983) (5,744) (6,887)
Net cash provided by / (used in) investing activities (6,803) (8,983) (5,744) (6,887)
Cash flows from financing activities:
Intercompany
Repayment of borrowings 0 (14,173) 0 0
Net cash provided by / (used in) financing activities 0 (23,156) 0 0
Net increase / (decrease) in cash held 24,991 57,042 13,285 (180,089)

Cash and cash equivalents at beginning of financial year 137,505 162,496 219,538 232,823
Cash and cash equivalents at end of financial year 2 162,496 219,538 232,823 52,734
Note 1 - Reconciliation of Cash Flow from Operations with Profit from Ordinary Activities after Income Tax
2006 2007 2008 2009

$ $ $ $
Net income for the period 689 218,926 (1,866) (626,330)
Cash flows excluded from profit from ordinary
activities attributable to operating activities
Non-cash flows in profit from ordinary activities
Depreciation 6,114 4,329 6,227 8,969
Changes in assets and liabilities
(Increase) in trade and term receivables (140,629) (242,159) (99,705) 347,626
(Increase) in prepayments (3,963) (2,749) (28,270) 28,217
(Increase)/decrease in intangible assets 298 0 0 0
Increase in trade payables and accruals 180,185 9,652 188,903 114,255
Increase in income tax payable (10,900) 92,199 (46,260) (45,939)
Cashflow from operations 31,794 80,198 19,029 (173,202)
Note 2 - Cash assets
2006 2007 2008 2009

$ $ $ $
Cash on Hand 100 100 100 100
Bank Balances 67,806 124,848 130,835 18,004
Short-term deposits 94,590 94,590 101,888 34,630
162,496 219,538 232,823 52,734
9. Estimate of Financial Position on 7 July 2010

The Administrators have prepared an estimate of the Company’s Financial Position on
7 July 2010 based on the RATA and the results of investigations so far undertaken. The
estimate appears as Table 9. Assets and liabilities are valued on 3 bases in the table:
as per the RATA;
ERV (estimated realisable value) High Range; and
ERV Low Range.
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3 August 2010
The ERV High and Low Range valuations take in account matters in addition to the RATA
which have been disclosed to the Administrators. The nature of the Company’s assets and
its liabilities (some of which are subject to legal proceedings) restricts the ability of the
Administrators to provide more definitive guidance as to the realisable value of the assets
and the admissible value of claims against the Company beyond noting that the
Administrators consider that those values are likely to fall within the High and Low ranges
set out in Table 9.
Table 9: Estimated Financial Position as at 7 July 2010
Notes RATA ERV ERV

High Low
07-Jul-10 07-Jul-10 07-Jul-10
$ $ $
Current Assets
Cash And Cash Equivalents 1 2,094 2,094
Trade And Other Receivables 1 194,376 220,376 NIL
194,377 222,470 2,094
Non-Current Assets
Property, Plant And Equipment 300 NIL NIL
300 NIL NIL
Total Assets 194,677 222,470 2,094
Liabilities
Employees
Wages 2 NIL NIL 36,840
Superannuation 2 NIL NIL 18,405
Bonus 2 NIL NIL 96,834
NIL NIL 152,079
Ordinary Creditors
Trade Creditors 3 113,738 113,025 119,778
ERA Related Party Creditors 4 558,891 526,446 589,689
Armstong Related Party Creditors 5 NIL 29,450 206,865
Statutory Creditors: ATO/SRO 32,322 43,452 43,452
704,951 712,373 959,784
Contingent Creditors
Cost orders NIL NIL 139,543
Less: Security NIL 20,000 20,000
NIL (20,000) 119,543
Total Liabilities 704,951 692,373 1,231,405
Estimated Surplus/(Shortfall) (510,274) (469,903) (1,229,312)
Page 14
3 August 2010
Note 1: Trade and Other Receivables
Notes RATA ERV ERV

High Low
07-Jul-10 07-Jul-10 07-Jul-10
$ $ $
ERA Insurance Inc (USA) 42,568 42,568 NIL

Kevin Franks 990 990 NIL
Freelance 100,000 100,000 NIL
Avron Newstadt 718 718 NIL
Willis Australia 2,100 2,100 NIL
TasRacing 48,000 54,000 NIL
Insurance Tenderers Estimate Unknown 20,000 NIL
194,376 220,376 NIL
Please refer to paragraph 13.2 for an account of the steps that the Administrators have, so
far, taken to recover those Receivables.
Note 2: Employees
RATA ERV ERV

Low Low
Related Unrelated
Party Party
07-Jul-10 07-Jul-10 07-Jul-10
$ $ $
Wages NIL 6,333 30,507
Superannuation NIL 6,944 11,461
Bonus NIL NIL 96,834
NIL 13,277 138,802
Note 3: Trade Creditors
RATA ERV ERV

High Low
07-Jul-10 07-Jul-10 07-Jul-10
$ $ $
Eloim Pty Ltd 13,800 13,800 13,800
Ferrier Hodgson 13,882 13,882 13,882
Horton Rhodes 5,552 5,552 5,552
Insurance Tender Services P/L 713 NIL 713
MSM Compliance Services 715 715 715
Sans Regis Superannuation Fund NIL NIL 6,040
The Pennywise Nominees Pty Ltd 2,965 2,965 2,965
Truman Hoyle 72,372 72,372 72,372
Willis Australia Limited 2,611 2,611 2,611
Rosebery Bookkeeping Pty Limited 1,128 1,128 1,128
(In Liquidation)
113,738 113,025 119,778
Prior to the First Meeting of the Company, 11 ERS Clients lodged proofs of debt for "fees
owed to ERAIS". Subsequently, 2 of those ERA Clients withdrew their proofs of debt and the
Administrators consider that further proofs of debt may be withdrawn before the Second
Meeting of Creditors. The claims of the ERA Clients have not been considered in this
analysis of the Trade Creditors of the Company.
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3 August 2010
Note 4: ERA Related Party Creditors
Please refer to paragraph 10.3 for details of the ERA Related Party Creditors.
Note 5: Armstrong Related Party Creditors
Please refer to paragraph 10.4 for details of the Armstrong Related Party Creditors.
10. Dealings with Related Parties

10.1 Introduction
The Company has had dealings with parties that at the time of the dealings were
related parties of the Company. The IPA Code requires those dealings to be
disclosed to Creditors in this Report.
The Administrators have not completed their investigation with respect to those
dealings due to time constraints.
10.2 Letter of Comfort
On 6 May 2010, and as part of the requirements of the Company’s Auditor for
preparing the audited accounts of the Company for the 2009 calendar year, ERAIL
(the Company’s ultimate holding company) issued a letter to the Company’s Auditor.
The complete letter appears as Schedule 4. The letter states in part:
“[ERAIL] … will provide the necessary financial support to ERAA and its
subsidiaries [including the Company] to ensuring all third party creditors are
paid as and when they fall due for payment. … This above financial support
will remain in place for at least twelve months from the date of this letter.”
In reliance on that letter, the Company’s Auditor certified that the Company was able
to trade as a going concern.
On 6 July 2010, ERAIL withdrew its financial support notwithstanding its assurance
to keep the support in place for at least 12 months.
The Administrators have written to ERAIL demanding payment of $448,075.09 on

the basis that the letter constitutes a binding obligation to pay to the Company the
amount which the Company owed to third party creditors as at 6 July 2010. In
quantifying the third party creditors, the Administrators have presently excluded the
debts owing to the ERA and Armstrong Related Creditors to which we refer at
section 9 on the basis that they may not be third party creditors.
ERAIL denies that the letter issued to the Company’s Auditor gives rise to any legal
obligation to pay to the Company the amount which the Company owed to third party
creditors as at 6 July 2010.
10.3 ERA Related Party Creditors
The records of the Company, the RATA submitted by the Directors and proofs of
debt submitted disclose the existence of the ERA Related Party Creditors. Details of
those creditors appear in Table 10. The Administrators note that there appears to a
discrepancy between the records of the Company ($356,043) and the RATA
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3 August 2010
($558,890) and the proofs of debt submitted before the First Meeting of Creditors
($574,802) as to the amount owing to ERA Related Party Creditors. The
Administrators will seek to resolve that discrepancy before the Second Meeting of
Creditors.
Table 10: ERA Related Party Creditors
Creditor Relationship Note Liability MYOB RATA POD ERV

High Low
$ $ $ $ $
ERAGICS Related Company Management fee: 90% of EBITDA 17,557 17,557 17,557 NIL 17,557
ERAG Related Company Royalty 144,019 144,019 158,769 144,019 158,769
ERAG Related Company Shareholder Loan 59,782 59,782 59,782 59,782 59,782
ERAG Related Company 1 Shareholder Loan 63,603 63,603 48,716 48,716 63,603
ERAIL Related Company Loans 33,963 33,963 33,963 33,963 33,963
ERAGM Related Company Loans: Jun-09; Mar-10-Jun-10 196,229 196,229 212,278 196,229 212,278
Kreston Dormers Controlled by Director Accounting fees 43,737 43,737 43,737 43,737 43,737
558,890 558,891 574,802 526,446 589,689
Note 1: ERAG Shareholder Loan
The MYOB file records a further balance of $6,464 as a 'Shareholder Loan'. The Administrators have disregarded this
balance as there is no identifiable transaction history.
10.4 Armstrong Related Party Creditors
The Armstrong Related Party Creditors have lodged proofs of debt with the Former
Administrator as detailed in Table 11. The Administrators consider those Creditors
may have been related parties of the Company at the time the events giving rise to
the proofs of debt arose.
Table 11: Armstrong Related Party Creditors
Creditor Relationship Liability RATA POD ERV

High Low
$ $ $ $
Armstrong Consulting Controlled by Former Consulting fee in relation to JV NIL 27,096 27,096 27,096
Director
ASMM Controlled by Former Share of 2007 retained earnings NIL 177,415 NIL 177,415
Director including interest and legal costs
Armstrong, KA Former Director Reimbursement of equipment NIL 2,354 NIL 2,354
purchased
Armstrong, MA Related to Former Salary and Superannuation NIL 4,996 NIL 4,996
Director
NIL 211,861 27,096 211,861
10.5 Management Fees
ASMM received an annual management fee for services rendered in the period to
the termination of the joint venture arrangement with ERAG. The Administrators do
not consider that the payment of the management fee directly caused the
Administration of the Company.
10.6 Dividends paid to Shareholders
The Company’s audited financial statements do not disclose the payment of any
dividends to shareholders of the Company. AASM alleges in the Armstrong
Proceedings that for the calendar year ended 31 December 2007, the Company
failed to declare a dividend of $235,070 to which AASM was entitled $117,300.
10.7 Loans to Directors
The Company’s audited financial statements do not disclose the existence of any
loans to or from the Directors of the Company.
Page 17
3 August 2010
11. Reasons for the Failure of the Company

11.1 Explanation of the Directors
The Administrators sought an explanation from the Directors for the Company’s
financial difficulties and subsequent failure. The Directors consider that the failure of
the Company is attributable to the disruptions to the Company’s business (and
associated expense) caused by:
The falling out between the Directors and Peter Sellwood/Ken Armstrong; and
The defence of the Sellwood and Armstrong Proceedings.
11.2 Explanation of Ken Armstrong/Peter Sellwood
The Administrators also sought a similar explanation from Ken Armstrong and
Peter Sellwood. They consider that the following matters contributed to the failure of
the Company:
The decline of revenues following the Company losing the right to advise ERA
clients in New Zealand in about November 2009; and
The decline of revenues following the “outsourcing” of advice to ERA clients in

Australia to ITS in about March 2010.
11.3 Explanation of the Administrators
The Administrators consider that a number of factors may have caused or

contributed towards the failure of the Company. Those factors include:
The departure of Ken Armstrong from the day to day management of the
Company in late 2007/early 2008;
The inability of the Company to source work from the ERA client base
following the departure of Ken Armstrong;
The lack of work which could be generated from the ERA client base;
The failure of the Company to address the decline of revenues following the
departure of Mr Armstrong;
The inability of the Directors and Mr Armstrong to work collaboratively to

restore the Company to profitability after the were aware or should have been
aware of the on-going decline in revenues during 2008; and
The Company losing the right to advise ERA clients based in New Zealand
and the outsourcing of advice in Australia to ITS.
12. Administrators’ Objectives and Actions

12.1 Objective
The primary objective of an Administration is:
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3 August 2010
To maximise the chances of the Company, or as much as possible of its

business, continuing in existence;
or if that is not possible:
To obtain a better return for the Company’s creditors than would result from
an immediate winding up of the Company.
12.2 Practical Restrictions Imposed of Administrators
The Administrators were limited in the options available to them when appointed.
The Company did not trade in any meaningful way and the Company did not have
any business to sell as a going concern. The Company did not have any employees
and did not own any plant and equipment beyond a lap top computer.
The Company’s business was essentially confined to the collection of debtors and
the management of the Services Contract with ITS.
12.3 Investigations and Asset Preservation
As the Administrators were unable to take any steps to restructure or re-organise the
Company’s business, their focus turned towards investigating the Company’s
business, affairs and financial circumstances to, amongst other things:
identify and preserve the assets and legal rights of the Company: See
Section 13 for further details.
identify possible contraventions of the Act: See Section 14 for further details.
identify potential legal claims that may be available to liquidators if the

Company is wound up: See Sections 15 and following for further details.
Please also refer to the IPA information sheet entitled Offences, Recoverable
transactions and Insolvent Trading which appears as Schedule 5 for full details of
potential offences under the Act and potential recoveries available to liquidators.
The relatively short duration since our appointment means that our findings are only
preliminary. Further investigations may take place if the Company is wound up.
12.4 Investigations Undertaken
In investigating the Company’s business, affairs and financial circumstances, the

Administrators have:
Examined the accounting records maintained by the Company;
Liaised with the Company and its external Accountants;
Sought and received information and documents from the Company, its
Directors, Auditor and external Accountants, Ken Armstrong, Peter Sellwood
and other parties; and
Conducted various searches of publicly available records.
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3 August 2010
12.5 Further Investigatory Options
The Administrators will be unfunded if the Company is wound up and they are
appointed as liquidators of the Company. In the absence of funding, the
Administrators’ ability to undertake further investigations and/or commence recovery
actions will be significantly compromised.
Any Creditor willing to provide funding should let us know the proposed
amount and terms of that funding as soon as possible. Should funding be
made available, it may be possible to undertake further investigations,
including potentially the examination of the Directors and other persons
associated with the Company in the Supreme Court of NSW.
If no funding is made available and the Company is wound up, the Administrators (if
appointed as liquidators) intend to submit an application to ASIC under the AA Fund.
ASIC operates the AA Fund to finance investigations and reports by a liquidator into
the failure of a company with few or no assets. ASIC reviews the report and decides
whether or not to commence or fund enforcement action against parties associated
with the Company.
13. Assets and Legal Rights of the Company

13.1 Plant and Equipment
The Company advised that it has disposed of the assets disclosed in its balance
sheet other than a notebook computer of negligible value.
13.2 Recovery of Receivables
The Administrators have received $8,442.29 on account of debts owed to the

Company on 7 July 2010.
The Administrators have also sent letters of demand to the Debtors of the Company
whose details appear in the Company’s books and in the Directors’ RATA. The
Creditors have not, as yet, received any payments in response to those letters of
demand.
The attention of Creditors is drawn to the following issues concerning the recovery of
those debts:
Freelance Global: $100,000
In about June 2010, the Company and Freelance Global executed a deed by which:
Freelance Global agreed to pay $160,000 in instalments to the Company.

Freelance Global has so far paid $60,000. The balance is payable in 10
monthly instalments of $10,000 each commencing 15 July 2010. Freelance
Global has not made any of those monthly instalments.
If the 2010 Fee (as quantified by reference to the deed) is less than
$101,490.50, the Company must re-imburse the difference to Freelance
Global. The Administrators understand that the 2010 Fee cannot be
quantified until December 2010.
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3 August 2010
Freelance Global has not made any instalment payments since 7 July 2010 because
of concerns about the Company’s ability to perform its contractual obligations.
Discussions are continuing between the Administrators and Freelance Global to
reach agreement on the basis on which Freelance Global will resume paying the
instalment payments. If no agreement is reached, the Administrators will consider
taking legal action to enforce payment of the debt.
TasRacing: $26,937.50
On about June 2009, TasRacing retained the Company to implement insurance cost
reduction strategies. The services were provided to TasRacing under the
supervision of Ken Armstrong.
The fee payable by TasRacing is $26,937.50 with the possibility of a similar fee
being due later this year or in 2011.
Mr Armstrong claims that TasRacing retained his consulting company, Armstrong

Consulting to perform the work and it is Armstrong Consulting rather than the
Company who is entitled to the fees payable by TasRacing.
TasRacing has advised that it will not make any payment in the absence of
agreement between the Company and Armstrong Consulting or order of the Court.
The Administrators have engaged in discussions with Ken Armstrong concerning the
terms on which TasRacing payments should be made.
FCA: $54,000
Armstrong Consulting has lodged a proof of debt claiming its 50% share ($27,000) of
a payment owing to the Company by FCA ($54,000). At the time of the First Meeting
of Creditors, it was unclear whether FCA had made the payment to the Company.
FCA has advised orally that it has made the payment to the Company in instalments
there is no debt owing by FCA on account of the transactions giving rise to the proof
of debt lodged by Armstrong Consulting. The Administrators are awaiting written
confirmation from FCA.
The Company has advised that that its relationship with FCA generates an on-going
monthly fee which, when paid, will be available to unsecured creditors. The
Administrators will not disclose the quantum of this fee for reasons of commercial
sensitivity.
ITS: Unknown
On 29 March 2010, the Company and ITS executed a Services Contract. There is a
measure of uncertainty about the rights and obligations imposed under the Services
Contract and the Administrators are examining the legal effect of the contract.
The Administrators understand that the intention of the parties was that:
ITS would perform the work previously undertaken by the Company in

Australia;
ITS is required to make a payment to the Company each month calculated as

follows:
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3 August 2010
(i) for work performed after 29 March 2010: 28% of gross receipts from
ERA clients comprising a royalty of 15%, a marketing levy of 3% and
an override of 10%;
(ii) for payments made to ITS from ERA clients on account of work
previously undertaken by the Company, in addition to the royalty,
marketing levy and override, 50% of the balance of the payment.
ITS was to retain the balance of the payments made by the ERA clients.
It is unclear what, if any payments, should have been made by ITS to the Company
under the Services Contract and the Administrators are undertaking further
investigations. The Administrators note:
Between 29 March 2010 and 30 June 2010, ITS appears to have received
payments from ERA clients totalling $82,474;
ITS has not, as yet, reported on the payments received from ERA clients
during July 2010;
The Company has advised that it has 9 existing contracts with ERA Clients.
The Company has not quantified the fees which will be generated from those
ERA Clients as the insurance savings for the ERA Clients have not been
determined.
13.3 AFS Licence
The Company is the holder of AFS Licence 288862. The licence authorises the
Company to provide financial advice regarding general insurance products and to
arrange general insurance products for clients.
Anthony Dormer has advised that he became the key person under the AFS Licence
on the resignation of Ken Armstrong.
The Company has advised that there is no bond or similar security issued (including
money held on deposit) to secure its obligations under the licence. An amount of
$35,981 previously held in a NAB term deposit account was applied towards
operating expenses when it expired on about 19 February 2010.
The conditions of the AFS Licence required the Company to, amongst other things,
remain solvent and be able to:
pay all its debts as and when they become due and payable;
have total assets that exceed total liabilities, or adjusted assets that exceed
adjusted liabilities, as shown in the licensee's most recent balance sheet
lodged with ASIC; and
have no reason to suspect that both the licensee's total assets would not
exceed its total liabilities and its adjusted assets would not exceed its
adjusted liabilities on a current balance sheet.
The Company may not have satisfied those conditions for at least 10 months prior to
7 July 2010 as it may have been insolvent during that period. Please refer to the
Page 22
3 August 2010
examination of the Company’s solvency at Section 16 of this Report for further

details.
13.4 Sellwood Proceedings
As noted at paragraph 6.8, the Company has commenced legal action against Peter
Sellwood and Josh Tobin. The Administrators have not, as yet, quantified the range
of damages to which the Company may be entitled if successful in the action.
14. Contraventions of the Act

14.1 Compliance with Section 286 of the Act
Section 286 of the Act requires a company to keep written financial records that
correctly explain its transactions and financial records and performance and would
enable true and fair financial statements to be prepared and audited.
The Administrators consider that the Company has, prima facie, complied with
Section 286 of the Act. The Company has audited financial statements for the years
to 31 December 2009. Further, the external Accountants maintain the financial
records of the Company and those records have been prepared to 7 July 2009.
14.2 Other Contraventions by the Company
The Administrators are not aware of any other potential contraventions of the Act by
the Company.
14.3 Contraventions by a Current or Former Officer
The Administrators have identified 2 matters which warrant further investigation and
which may be consistent with a current or former officer of the Company
contravening the Act. It is premature, however, to reach any concluded views on
those matters.
ITS: Good faith in the best interests of the Company
The Services Contract made between the Company and ITS has some unusual
aspects which may lead to the conclusion that the Directors, when entering into the
Services Contract, did not act in good faith and in the best interests of the Company.
The Services Contract exhibits a number of indicia of a device used to shield income
from Creditors. Specifically:
the Company does not appear to have derived a material financial advantage
from the Services Contract. ITS did not make an upfront payment to secure
its right to provide insurance advice to ERA clients. ITS also appears entitled
to retain a proportion of payments made by ERA clients for work performed by
the Company before the Services Contract commenced. Further, it appears
that most (if not all) of the payments received by the Company must be on-
paid to ERAG as royalty/marketing expenses; and
a former senior employee of the Company now works for ITS; and
a search of the ASIC AFS discloses that ITS may not hold an AFS licence.
Page 23
3 August 2010
On the other hand, the Administrators have not identified any connection (or other
arrangement) between the shareholders of ITS on the one part and the Company
and the wider ERA Group on the other which would lead to a conclusion that the
Company/ERA Group has a financial interest in ITS.
Peter Sellwood: Use of Information to gain Advantage
The claims made against Peter Sellwood in the Sellwood Proceedings may, if
proven, establish a contravention of the Act by Mr Sellwood if his conduct was
reckless or intentionally dishonest. Mr Sellwood has denied the allegations in his
defence to cross claim.
15. Potential Claims by a Liquidator

15.1 Introduction
Part 5.7B of the Act gives liquidators (but not administrators) the right to commence
certain legal proceedings to recover money, property or other benefits for the benefit
of the unsecured creditors of a company.
In the context of the Company, those legal proceedings cannot be commenced if the
Creditors of the Company resolve that the Company execute a DOCA. As such,
when considering how to vote at the Second Meeting of Creditors, Creditors must
give consideration to the prospect of a liquidator being able to successfully recover
money, property or other benefits for the benefit of Creditors.
As an initial comment, Creditors should note that recovery actions:
have the potential to add to the funds available to Creditors;
are usually expensive, lengthy and have unpredictable outcomes;
should not be commenced unless defendants have the financial resources to

satisfy any judgment; and
must be funded out of the existing assets or where (as in the case of the
Company) such assets do not exist, by creditors or by external litigation
funders (who are likely to require a significant share of the proceeds of any
judgment as a condition of funding the litigation).
15.2 Proving Insolvency
Creditors should also note that certain recovery actions under Part 5.7B of the Act,
namely those relating to Unfair Preferences, Uncommercial Transactions and
Insolvent Trading require liquidators to demonstrate that the Company was insolvent
at the time of the transaction (or in the case of Insolvent Trading, when the debt was
incurred).
In all but the clearest of cases, proving insolvency is a relatively complex exercise,
will be subject to conjecture and ordinarily involves some measure of time and
expense.
Page 24
3 August 2010
16. Solvency of the Company

16.1 Definition of Insolvency
Section 95A of the Act provides that a company is insolvent if, and only if, the
company is unable to pay all its debts, as and when they become due and payable.
A significant body of case law has developed with respect to this definition.
The exercise of proving solvency requires a consideration of a company’s financial

position taken as a whole but with specific reference the company’s cash flow.
16.2 Indicators of Insolvency
The primary indicator of insolvency is a shortfall between:
the funds available to the Company at a particular point in time; and
the total commitments the Company which are due and payable at that time.
The funds available to the Company include any available overdraft account and
financial support from the Directors and Related Parties. In the context of the
Company, this will involve an examination of the enforceable rights of the Company
against ERAIL.
Further indicators of insolvency include:
A low current ratio (being current assets/current liabilities). As rule of thumb,

a trading company will be insolvent if its current ratio is less than one and will
be solvent if its current ratio is greater than two. Where a trading company
has a current ratio of between 1 and 2, then its solvency status will depend on
a number of factors specific to the Company and the industry in which it
operates.
The Company exhibiting some or all of the “usual indicia of insolvency”.

Those indicia have been accepted by Courts in Australia as being the typical
characteristics of an insolvent company. Those indicia include:
unpaid group tax, payroll tax and worker compensation premiums or

superannuation contributions;
outstanding taxation returns;
inability to produce timely audited accounts;
dishonoured cheques;
suppliers insisting on COD terms;
the issue of post dated or round sums cheques;
special arrangements with creditors;
demands from bankers to reduce overdraft and other evidence of

deteriorating relations with bankers; and
Page 25
3 August 2010
receipt of letters of demand, statutory demands and court processes

for debt collection.
16.3 Provisional Opinion on Insolvency
The Administrators consider that the Company may have been insolvent no later
than August 2009 and remained insolvent from that time to 7 July 2010. This opinion
assumes (contrary to the letter of comfort) that the Company did not have the
financial support of ERAIL during 2009 and 2010.
The resolution of that issue may turn, in part, on the position which ERAIL takes with
respect to the letter of comfort and what explanations the Company can provide as
why, if financial support was available, it failed to discharge its taxation liabilities as
and when they became due and payable.
Creditors should note this is only a provisional opinion. Liquidators will undertake a
more detailed investigation to determine the period during which the Company was
insolvent if the Company is wound up.
16.4 Matters Material to Provisional Opinion on Insolvency
The Administrators took into account the following matters when reaching their
provisional opinion on Insolvency.
Current Ratio
Chart 1 shows the current ratio (being current assets/current liabilities) of the
Company calculated from the Company’s management accounts for the period from
January 2009.
The Company’s current ratio was less than 1 in the entire period from August 2009.
This is consistent with the Company being insolvent.
Chart 1: Current Ratio
1.6
1.4
1.2
1.0
Ratio
0.8
0.6
0.4
0.2
0.0
Ju 9
Ju 0
Fe 9
M 9
Ap 9
M 09
09
Au 9
Se 9
O 9
D 9
Ja 9
Fe 0
M 0
Ap 0
M 10
10
N 9
-0
-1
0
0
-0
l-0
-0
-0
1
-1
-0
n-
n-
n-
n-
b-
r-
g-
p-
b-
r-
ay
ay
ov
ec
ar
ar
ct
Ju
Ja
Page 26
3 August 2010
Indicia of Insolvency
The Company’s exhibited a number of indicia of insolvency in the period following

August 2009. The most significant were:
Unpaid taxes
On 22 May 2010, the Company reached agreement with the ATO to pay an
outstanding tax liability of 26,337.84 in 13 monthly instalments.
On 25 June 2010, the Company reached agreement OSR Victoria to pay an

outstanding pay roll tax liability of $21,413.64 in 3 monthly instalments.
The periods during which those outstanding tax liabilities arose are presently
unknown.
Outstanding taxation returns
The Company has not lodged its income tax return for the financial year
ended 30 June 2009.
16.5 Presumption of Insolvency
Other than claims against a non-related party for recovery of an unfair preference,
the Act creates, subject to certain minor exceptions, a rebuttable presumption of
insolvency for the period during which the Company failed to comply with section
286 of the Act. See section 14.1 above.
The Company is presumed to be insolvent during the period unless it is proved to the
contrary. As indicated in section 14.1, the Administrators do not consider that the
Company failed to comply with section 286 at any time prior to 7 July 2010.
17. Liquidator Recoveries Where Insolvency Must be Proved

17.1 Unfair Preferences (Section 588FA)
Transactions (including a payment of money) between the Company and an

unsecured creditor in the period 7 January 2010 to 7 July 2010 (being the 6 month
period prior to the appointment of the Former Administrators) may constitute an
unfair preference if the Company was insolvent at the time of the transaction. The
party benefiting from the transaction will have a defence if it did not suspect and
should not have suspected the Company was insolvent. The quantum of the claim
may also be reduced if the unsecured creditor operated a running account with the
Company.
Payments by the Company
In the 6 month period prior to 7 July 2010, the Company made payments out of its
bank account totalling $250,399.
Of those payments, the Administrators have, so far, identified payments warranting

further examination to a collective value of $122,701. Although further investigations
are required, the Administrators consider that there are some prospects that the
Page 27
3 August 2010
recipients of those payments were unsecured creditors of the Company who may
have suspected that the Company was insolvent at the time of the payments.
A summary of those payments is set out in Table 12 below.
Table 12: Potential Unfair Preferences
Amount
$
Australian Taxation Office 24,080
ERA Group 76,758
Kreston Dormers 21,863
122,701
Liquidators will further investigate the circumstances surrounding those payments if

the Company is wound up including whether:
the ERA Group and/or Kreston Dormers operated a running account with the
Company; and
the Company was, by reason of financial support from ERAIL, solvent at the
time of the payments.
Payments by the ERA Group
In the 6 month period prior to 7 July 2010, the Company also appears to have
caused the ERA Group to make payments totalling $258,101 as evidenced by
journal entries in the Company’s accounts. It is possible that those payments may
also constitute unfair preferences if made at the request of the Company to
discharge its liability to Unsecured Creditors.
If the Company is wound up, liquidators will also investigate those transactions
before forming a concluded view as to whether they can constitute unfair
preferences. Transactions made by third parties at the request of an insolvent
company can be unfair preferences. However, the evidentiary burden tends to be
more difficult than when the insolvent company makes a direct payment to an
unsecured creditor.
17.2 Uncommercial Transactions (Section 588FB)
A transaction is an uncommercial transaction if a reasonable person in the

Company’s circumstances would not have entered into the transaction and the
transaction occurred in the period after 7 July 2008 (or where the transaction is with
a related party, in the period after 7 July 2006) at a time when the Company was
insolvent (or presumed to be insolvent).
ITS Service Contract
It is possible that liquidators, if funded, may further investigate the circumstances

leading to and the motives of the Company in executing the Services Contract as in
the absence of a credible explanation the payments which ITS receives (and which
the Company has foregone) from ERA clients under the Services Contract does not
appear commensurate with benefits that the Company enjoys under the contract.
Page 28
3 August 2010
Creditors should, however, note that the quantum of recoveries (if any) by the
Company should liquidators take action are likely to be relatively modest after the
costs of any investigation and Court proceedings are taken into account. This is
because ITS does not appear to have generated significant income (less than
$85,000) since the Services Contract commenced.
17.3 Loans (Section 588FD)
The Administrators have not identified any loans which have the potential to be
characterised as unfair loans.
17.4 Insolvent Trading by Directors (Section 588G)
Introduction
A director of a company has a positive duty to prevent a company incurring debts

whilst insolvent. Should a company incur such debts, a liquidator is entitled to
commence proceedings against a current or former director to recover damages
equivalent to the amount of the debts incurred during their directorship which remain
unpaid by the company.
A director can raise one of the following defences to an insolvent trading claim:
the director had reasonable grounds to expect that the company was solvent
and would continue to be solvent when the debt was incurred;
the director relied on a competent and reliable person to provide information

regarding the company’s solvency and, on the basis of the information so
provided the director expected the company was solvent and would continue
to be solvent when the debt was incurred;
due to illness (or other good reason) the director was not involved in the
management of the company; or
the director took all reasonable steps to prevent the debt being incurred.
Recoverable damages
A director liable for insolvent trading is required to pay to the Company damages
equivalent to the amount of the unpaid debts incurred during the time that person
was a director and the company was insolvent.
Table 13 below discloses the Administrators’ best estimate of when the unpaid debts
disclosed in the Company’s accounts were recorded as being due for payment.
Page 29
3 August 2010
Table 13: Period in which unpaid debts were due for payment
Period Note Amount

$
July to December 2007 34,710
January to June 2008 0
July to December 2008 15,394
January to June 2009 40,919
July to August 2009 14,488
September to December 2009 60,461
January to June 2010 109,500
July to December 2010 1 24,000
January to June 2011 1 16,000
315,472
Note 1: 2010/2011
Franchisee’s share of the future proceeds of settlement from Freelance Global.
Those periods, whilst not determinative, provide a guide as when the Company’s
unpaid debts were incurred for insolvent trading purposes. As a guide, the Company
may have incurred debts of at least $170,000 after August 2009 (being the date on
which the Administrators consider the Company may have become insolvent in the
absence of financial support from ERAIL). (The Administrators also recognise that
further unpaid debts which are recorded on the Company’s balance sheet may have
also been incurred during that or earlier periods.)
If the Company is wound up, liquidators may undertake further investigations to

determine when all the Company’s debts were in fact “incurred” and whether the
Company was insolvent at the time.
Defences
It would only be upon a liquidator formally commencing an insolvent trading claim

that the defences, if any, which the Directors may raise could be properly
considered.
At this stage, the Administrators consider that the Directors may allege that they had
reasonable grounds to expect the Company was solvent on the basis that ERAIL
had agreed to financially support the Company. This defence may be problematic
for, at least, Fred Marfleet as he was also a director of ERAIL at all material times.
Mr Marfleet is, however, domiciled in the United Kingdom and this is likely to
complicate any claim that is made against him.
17.5 Insolvent Trading by Subsidiary (Section 588V)
A “holding company” of an insolvent subsidiary may also be liable in damages in

circumstances similar to those where a director may be liable. A “holding company”
has defences similar to those available to a director.
ERAA will be classified as a “holding company” of the Company at all times since the
incorporation of the Company as it has always held more than one-half of the issued
share capital of the Company.
ERAIL may also be classified as a holding company of the Company (especially after
February 2009 when it acquired 49% of the issued share capital from ASMM) as it
may have controlled (through a combination of its direct and indirect shareholdings)
Page 30
3 August 2010
the composition of the Company’s board or at least 50% of the voting at a general
meeting of the Company.
17.6 Related Party Transactions (Section 588FE(4))
Save for related party transactions specifically commented on elsewhere, the

Administrators have not identified any other related party transactions which are
capable of challenge.
17.7 Obstruction of Creditors’ Rights (Section 588FE (4))
Save for matters specifically commented on elsewhere (specifically the ITS Services
Contract), the Administrators have not identified any other dealings capable of
constituting an obstruction of Creditors’ rights.
18. Liquidator Recoveries Where Insolvency Does Not Need to be

Proved
18.1 Unreasonable Director Related Transactions (Section 588FDA)
The Administrators have not identified any unreasonable director related

transactions.
19. Financial Capacity to Pay Judgment Debt

19.1 Asset Position of Directors
Ordinarily, it is imprudent to bring claims against a party without funds to satisfy a

judgment debt and associated legal costs. As required by the Code, the results of
the Administrators’ interim investigations as to the financial position of the Directors
are set out below.
Those investigations have been confined to Real Property Searches and written
questions asked of the Directors.
Anthony Dormer
Mr Dormer had not disclosed his financial position to us. A LPI search
discloses that Mr Dormer is the registered proprietor of a property situated in
or around Berry. The property is encumbered with a mortgage in favour of
National Australia Bank Limited. The value of the property and amount of the
mortgage is unknown.
Ron Clucas
Mr Clucas has not disclosed his financial position to us. A LPI search
discloses that Mr Clucas does not own any real estate in NSW.
19.2 D&O Insurance
The Administrators are not aware of the any Insurance Policy which may respond to
any claims made against the Directors.
Page 31
3 August 2010
20. DOCA Proposal

As previously noted at paragraph 3.2, the Administrators expect to receive a DOCA
proposal from ERAIL.
The Administrators will provide a further update regarding such a DOCA proposal no later
than the Second Meeting of Creditors. Please note that any potential DOCA proposal
recommended by the Administrators must provide Creditors with a greater, timelier and
more certain return than they would receive if the Company is wound up.
21. Forecast return to Creditors

In the absence of a DOCA proposal, the Administrators can only forecast a return to
Creditors under a liquidation scenario.
The Administrators have forecast returns to Creditors under the following 3 scenarios as
summarised in Table 14. The underlying assumptions for those scenarios appear as
Schedule 6:
High: This assumes that pre-appointment receivables are collected and there is a
significant recovery under the ERAIL letter of comfort. Under this scenario, there is
unlikely to be any antecedent transaction claims as the Company will, on balance
have been solvent at all material times. The Administrators consider that the costs
of enforcing the ERAIL letter of comfort may be significant.
Medium: This assumes that some pre-appointment receivables are collected, there
is no recovery under the ERAIL letter of comfort but a modest amount recovered
from the antecedent transaction claims. It also assumes that the quantum of claims
lies towards the lower end of ERV;
Low: This assumes no further pre-appointment receivables are collected and there
are no recoveries from the antecedent transaction claims. It also assumes that the
quantum of claims lies towards the higher end of ERV.
Table 14: Summary of Forecast Returns
Liquidation
High Medium Low
$ $ $
Funds Available for Employees 261,912 NIL NIL
Employee Claims 152,079 152,079 152,079
Estimated Return to Employees 100 cents NIL NIL
Funds Available for Ordinary Non-Priority Creditors 109,833 NIL NIL

Total Unsecured Creditors Claims 742,373 742,373 1,079,327
Bad debt increasing adjustment 8,755 10,275 10,889
Estimated Return to Ordinary Non-Priority Creditors 15 cents NIL NIL
Creditors should note when considering the scenarios that there is always a measure of
imprecision associated with the forecasting of returns so early in an Administration. The
Administrators consider that the High and Medium Scenarios, whilst theoretically
Page 32
3 August 2010
possible, are unlikely and that the Low Scenario is more likely to reflect the actual
return that Creditors will receive if the Company is wound up.
22. Administrators’ Opinion on the Resolutions Available to Creditors

The Act requires the Administrators to present their opinion with reasons on whether it is in
the Creditors’ interests to pass one of the 3 resolutions available to Creditors at the Second
Meeting of Creditors as detailed at section 3, namely:
the Company execute a DOCA;
the Administration to end; or
the Company be wound up.
The Administrators’ current opinion and reasons are as follows:
22.1 The Company execute a DOCA
There is presently no DOCA proposal so this option is presently not available to

Creditors. This situation will change if a DOCA proposal is (as expected) formulated
before the Second Meeting of Creditors.
22.2 The Administration to end
This option is impractical as the Company is insolvent. Further, under this option,
liquidator recovery actions cannot be commenced.
22.3 The Company be Wound Up
As no DOCA has yet been proposed and the Company appears insolvent (following
ERAIL’s withdrawal of its financial support), the winding up of the Company presently
represents the only potential opportunity for a dividend to be paid to unsecured
creditors. The Administrators note, however, that in the absence of a substantial
recovery from ERAIL the prospect of a dividend to any class of creditors is remote.
The prospects of a successful recovery from ERAIL cannot be determined until the
full matrix of facts surrounding the letter of confort including details of other earlier
assurances from the ERAIL is known.
22.4 Administrators’ Recommendation
Given the matters discussed in this Report and the absence of any DOCA proposal,
the Administrators:
Are unable to recommend that the Company execute a DOCA;
Do not recommend that the Administration Ends;
In the absence of any forthcoming DOCA Proposal, recommend that the

Company be wound up.
For the reasons discussed at paragraph 3.2, the Creditors are entitled to adjourn
their decision on the future of the Company for up to 45 business days after
11 August 2010. In reaching their decision on what resolutions to pass on that date,
Page 33
3 August 2010
Creditors must give consideration to whether an adjournment will lead to a DOCA

Proposal being formulated which will provide Creditors with a greater, timelier and
more certain return than they would receive if the Company is wound up.
23. Receipts and Payments

A summary of receipts and payments received and paid by the Administrators since
19 July 2010 appears as Schedule 7.
24. Remuneration of Administrators

24.1 Work undertaken
The Administrators have completed the following work since their appointment at the
First Meeting of Creditors:
Attended the Company’s offices and inspected (and where appropriate

removed) the books of the Company;
Made demands for payment to the Debtors of the Company;
Reviewed all litigation matters involving the Company;
Examined the trading history of the Company;
Examined and investigated the financial position of the Company and the
Directors;
Liaised with the Directors, the external Accountant, Ken Armstrong and Peter
Sellwood concerning the affairs of the Company;
Convened the Second Meeting of Creditors;
Investigated the reasons for the failure of the Company;
Investigated and identified prospective claims that a liquidator may be able to

bring for the benefit of unsecured creditors; and
Prepared this Report.
24.2 Remuneration sought
The Administrators will request Creditors to pass resolutions to approve the drawing
of their past and future remuneration out of the assets of the Company at the Second
Meeting of Creditors.
The Remuneration Report (which accompanies this Report) provides details of:
the nature and cost of the work ($29,332 plus GST) undertaken by the
Administrators in the period to 30 July 2010;
the nature and estimated cost of the work ($15,000 plus GST) which may be
undertaken by the Administrators in the period 30 July 2010 to
10 August 2010;
Page 34
3 August 2010
Schedule 1: Glossary
Abbreviation Definition
AA Fund Assetless Administration Fund
Accountant Kreston Dormers
Act Corporations Act 2001 (Cth)
Administrators Quentin James Olde and Peter Bernard Allen
ASIC Australian Securities and Investments Commission
ASMM Armstrong Strategic Management and Marketing Pty Ltd

ACN 005 709 928
ATO Australian Taxation Office
Auditor Geoff Adcock of Storey Blackwood
CEO Chief Executive Officer
Code The IPA Code of Professional Practice
Company ERA Insurance Services Pty Limited (Administrators Appointed)

ACN 109 873 010
Creditors Creditors of the Company who have a claim admissible to proof in

the DOCA or Liquidation of the Company
Directors Anthony Dormer and Ronald Clucas, the current directors of the
Company
DIRRI Declaration of relevant relationships, past work and indemnities

prepared in accordance with section 436DA of the Act
DOCA Deed of Company Arrangement
ERAA Expense Reduction Analysts Australasia Pty Limited ACN 095

591 665
ERAG Expense Reduction Analysts Group Pty Limited ACN 008 852
926
ERAIL Expense Reduction Analysts International Limited, a company

incorporated in the United Kingdom
ERV Estimated Realisable Value
Page 36
3 August 2010
Abbreviation Definition
First Meeting of Creditors The First Meeting of Creditors convened in accordance with
section 436E of the Act
Former Administrators Roderick MacKay Sutherland and Sule Arnautovic
Group The ERA Group of Companies the structure of which appears as

Schedule 3
GST Goods and Services Tax
IPA Insolvency Practitioners Association of Australia
ITS Insurance Tender Specialists Pty Limited ACN 141 122 009
LPI Land Property Information, a division of the Department of Lands
RATA Report as to Affairs prepared by the Directors in accordance with

section 438B of the Act
Second Meeting of Creditors The Second Meeting of Creditors convened in accordance with
Section 439A of the Act
Page 37
3 August 2010
Schedule 2: DIRRI
Page 38
3 August 2010
Page 39
3 August 2010
Schedule 3: Structure of Group and Relationship to Other Entities
ERA Consulting (NZ) ERA International

ASMM Pty Ltd
Limited Limited (UK)
Share transfer
Feb-09
20% 80%
ERA Australasia Pty

Limited
(ERAA)
100% 50.1% 49.9%
ERA Insurance
ERA Group Pty LImited
Services Pty Limited ITS Pty Ltd
(ERAG)
(Company)
Services Contract
Mar-10
Page 40
3 August 2010
Schedule 4: Letter of Comfort
Page 41
3 August 2010
Schedule 5: IPA Creditor Information Sheet
Page 42
3 August 2010
Page 43
3 August 2010
Schedule 6: Forecast Return to Creditors

Notes Liquidation
High Medium Low
$ $ $
Assets
Cash and Cash Equivalents 15,536 15,536 15,536
Trade and other receivables 220,376 85,000 NIL
Contingent Creditors: Repayment of Costs Security 10,000 NIL NIL
Payment from ERAIL (Letter of Comfort) (after costs) 240,000 NIL NIL
Deed Contribution NIL NIL NIL
Deed Contribution: Top Up
Recoveries from Antecedant Transactions (after Costs) NIL 30,000 NIL
Recoveries from Insolvent Trading (after Costs) NIL 25,000 NIL
Available to Liquidator 485,912 155,536 15,536
Less: Expenses and Fees of External Administrator 1

Trading Liabilities NIL NIL NIL
Administrators' Other Expenses 5,000 5,000 5,000
Administrators’ Fees 45,000 45,000 45,000
Deed Administrators' Expenses and Fees NIL NIL NIL
Liquidators’ Expenses and Fees 174,000 140,000 85,000
224,000 190,000 135,000
Funds Available for Employees 261,912 NIL NIL

Employee Claims 152,079 152,079 152,079
Estimated Return to Employees 100 cents NIL NIL
Funds Available for Ordinary Non-Priority Creditors 109,833 NIL NIL

Unsecured Trade Creditors 113,025 113,025 119,778
ERA Related Party Creditors 526,446 526,446 589,689
Armstrong Related Party Creditors 29,450 29,450 206,865
Statutory Creditors: ATO/SRO 43,452 43,452 43,452
Preferred Creditors (repayment of unfair preferences) 30,000 30,000 NIL
Contingent Creditors NIL NIL 119,543
Total Unsecured Creditors Claims 742,373 742,373 1,079,327
Bad debt increasing adjustment 8,755 10,275 10,889
Estimated Return to Ordinary Non-Priority Creditors 15 cents NIL NIL
The estimated returns set out above should be regarded only as estimates. The actual return to
creditors depends on the actual amounts recovered from debtors, the amounts recovered in
litigation, the amount of administrative costs and the actual quantum of creditors’ claims and the
costs associated with any appeal against the determination of the proofs of debt.
Note 1
Before GST
Page 44
3 August 2010
Schedule 7: Receipts and Payments since 19 July 2010
Amount
$
Reciepts
Cash at bank at appointment 2,093.73
Administration Funding 5,000.00
Debtors 8,442.29
Payments
Nil 0.00
Net Receipts/(Payments) 15,536.02
Cash at Bank as at 2 August 2010 15,536.02
Page 45

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ERA Insurance Services Pty Limited (Administrators Appointed)

ACN 109 873 010

Administrators’ Report to Creditors

10.3 ERA Related Party Creditors................................................................................... 16

21. Forecast return to Creditors............................................................................................ 32

This Report is designed to provide Creditors of the Company with sufficient

1.2 Executive Summary

An Executive Summary of the preliminary findings and recommendations of the

Table 1: Executive Summary

Preliminary Findings & Recommendations Analysis

Unfair Preferences The Administrators have identified a number of Section 17.1

Estimated Return to The Administrators’ estimated return to Ordinary Non- Sections

Company Future The Creditors should give serious consideration to Section 22

In the absence of an acceptable DOCA proposal being

A glossary of the defined terms used in this report appears as Schedule 1.

On 7 July 2010, the Company appointed the Former Administrators as

2.2 First Meeting of Creditors

The Former Administrators convened the First Meeting of Creditors pursuant to

the Former Administrators resigned following an unproven allegation that the

the Creditors appointed the Administrators as the replacement administrators

At the First Meeting of Creditors, Creditors were also permitted to appoint a

2.3 Second Meeting of Creditors

The Administrators have convened the Second Meeting of Creditors pursuant to

3. Future of the Company

the Company execute a DOCA;

the Company be wound up; or

the Administration be terminated.

3.2 Adjournment of the Second Meeting of Creditors

As an alternative to passing one of the above 3 resolutions on 11 August 2010,

It is common for Creditors to adjourn a Second Meeting of Creditors where they

The Administrators anticipate receiving a DOCA proposal before the Second

The Administrators will provide a revised recommendation on the future of the

3.3 The Company Execute a DOCA

A DOCA is intended to:

A DOCA requires a source of funds to finance the payment of a dividend to Creditors

If creditors resolve that the Company execute a DOCA:

the Company will not be wound up; and

Creditors will be bound by the terms of the DOCA.

3.4 The Company be Wound Up

The liquidators will also:

realise the assets of the Company;

make a distribution to Creditors in accordance with the Act if funds are

3.5 The Administration be Terminated

to be seen to be independent of the Company, its Directors and any dominant

5. Background Information about the Company

All companies incorporated or registered in Australia have a statutory obligation to

Table 2: Company Information

Date of Incorporation: 2 July 2004

Table 3: Directors of the Company since 2009

Name Domicile Position Appointed Resigned

Table 4: Other Directorships and Shareholdings of the Directors

Name Directorships Shareholdings

Table 5: Existing Shareholders Structure

Shareholder Note Class Number Value Fully Paid

5.2 Company Group

6. Business Activities of the Company and Events Leading to

6.2 The ERA System

6.3 Joint Venture with Ken Armstrong