ILH Group Limited (Administrators Appointed)

ACN 120 394 194

Report by Administrators

20 January 2015

Contents

1 Executive summary .................................................................................................................................... 1 1.1 Appointment of Administrators ............................................................................................................ 1 1.2 Purpose of report ................................................................................................................................. 1 1.3 Administrators recommendation ......................................................................................................... 1

2 Appointment of Administrators ................................................................................................................... 2 2.1 Progress of Administration .................................................................................................................. 2 2.2 Object of Administration ...................................................................................................................... 3 2.3 Prior involvement with the Company ................................................................................................... 4 2.4 First meeting of creditors ..................................................................................................................... 4 2.5 Second meeting of creditors ............................................................................................................... 4 2.6 Receipts and payments of Administration ........................................................................................... 5

3 Company background ................................................................................................................................ 6 3.1 History of the Company ....................................................................................................................... 6 3.2 Company registration details ............................................................................................................... 7 3.3 Company shareholders ....................................................................................................................... 7 3.4 Security interests ................................................................................................................................. 7 3.5 Company directors .............................................................................................................................. 7 3.6 Company secretaries .......................................................................................................................... 8 3.7 Related entities .................................................................................................................................... 8 3.8 Events leading up to Administration .................................................................................................... 9 3.11 Historical financial performance ........................................................................................................ 11

4 Realisations of assets .............................................................................................................................. 12 4.1 Realisations summary ....................................................................................................................... 12 4.2 Status of trading subsidiaries ............................................................................................................ 12

5 Investigations ........................................................................................................................................... 14 5.1 Administrators investigations ............................................................................................................ 14 5.2 Overview of Administrators investigations ........................................................................................ 14 5.3 Approach to preliminary investigations ............................................................................................. 14 5.4 Offences under the Act by the directors ............................................................................................ 14 5.5 Potential recovery actions available to a liquidator ........................................................................... 15 5.6 Offences ............................................................................................................................................ 21 5.7 Limitation of investigations ................................................................................................................ 21 5.8 Conclusion ......................................................................................................................................... 21

6 Alternatives available to creditors ............................................................................................................ 22 6.1 Explanation of alternatives available to creditors .............................................................................. 22

7 Estimated return to creditors .................................................................................................................... 23 8 Remuneration and disbursements of Administrators ............................................................................... 23 9 Further information ................................................................................................................................... 24

Liability limited by a scheme approved under Professional Standards Legislation Page i

Appendix 1 Declaration of Independence, Relevant Relationships and Indemnities Appendix 2 Notice of Meeting Appendix 3 Form 532 Appointment of Proxy Appendix 4 Form 535 Formal Proof of Debt Appendix 5 Summary of receipts and payments Appendix 6 Group structure Appendix 7 Historical financial performance Appendix 8 Remuneration report

Liability limited by a scheme approved under Professional Standards Legislation Page ii

1 Executive summary

1.1 Appointment of Administrators We, Michael Brereton and Cliff Rocke, were appointed as Administrators of ILH Group Limited (the Company or ILH) on 17 December 2014 pursuant to Section 436A of the Corporations Act 2001 (Commonwealth) (the Act).

1.2 Purpose of report The purpose of this report is to table the findings of our investigations of the Companys business, property, affairs and financial circumstances, as well as our opinion on the various options available to creditors in deciding the future of the Company at the Second Meeting of Creditors scheduled for 10:00am on Wednesday, 28 January 2015.

1.3 Administrators recommendation During the week ended 16 January 2015, the Administrators received a number of expressions of interest in relation to restructuring ILH by way of a Deed of Company Arrangement (DOCA). At this stage, none of the proposals received are sufficiently progressed to a form such that they may be considered by creditors.

In accordance with Section 439A of the Act, it is the Administrators obligation to make a recommendation to creditors on which option for the future of the Company is in the best interests of creditors. In this regard, the Administrators are required to recommend one of following:

The Company to execute a DOCA The Administration to end, or The Company to be wound up.

As the DOCA proposals received are at a preliminary stage, have not been thoroughly investigated by the Administrators and are not in a form incapable of acceptance, the Administrators are unable to recommend an option that is in the best interest of creditors at the date of this report.

We therefore consider it would be in creditors best interest to resolve to adjourn the Second Meeting of Creditors for a period not exceeding 45 business days as it will, amongst other things allow: Further time for interested parties to formulate and put forward a DOCA proposal to creditors and to

allow the Administrators further time to progress the potential restructure of the Company The Administrators to report back to creditors with sufficient information to accurately determine whether

entering into a DOCA (if one capable of acceptance is received) provides a better return to creditors as compared to an immediate winding up of the Company.

We note there is no certainty a DOCA proposal will be received which is capable of acceptance. However, in our opinion, while there are costs associated with adjourning the Second Meeting of Creditors there is potentially a substantial benefit to creditors from a DOCA that will only be possible if the meeting is adjourned for a period not exceeding 45 business days.

If creditors elect at the Second Meeting of Creditors to adjourn the meeting, as recommended, the Administrators will continue to seek expressions of interest for ILH, work with interested parties to develop DOCA proposals capable of acceptance, and compile a supplementary report to creditors.

If the Second Meeting of Creditors is adjourned, the reconvened second meeting of creditors would be held on or before Tuesday, 31 March 2015.

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2 Appointment of Administrators

2.1 Progress of Administration Michael Brereton and Cliff Rocke were appointed as Administrators of on 17 December 2014 pursuant to Section 436A of the Act.

The appointment was limited to ILH. ILH is the listed parent entity for eight subsidiaries (collectively the Group). ILH held limited tangible assets and undertook minimal trading activity in its own right.

The subsidiaries of ILH, as listed in the table below, continued to operate for a short period of time on a business as usual basis. This provided the opportunity for the Administrators to effect, where possible, expeditious sales of the subsidiaries which were necessary to preserve and maximise value for creditors.

ILH subsidiaries

Trading subsidiaries 100% ownership

Rockwell Olivier (Perth) Pty Ltd (Administrators Appointed) (ROP) ACN 126 990 949

Rockwell Olivier (Sydney) Pty Ltd (Administrators Appointed) (ROS) ACN 133 488 383

Signet Lawyers Pty Ltd (Administrators Appointed) (Signet) ACN 152 480 281

Civic Legal Pty Ltd (Civic Legal) ACN 126 959 206

Law Central Co Pty Ltd (Law Central) ACN 091 824 225

Capricorn Investment Partners Limited (CIPL) ACN 095 998 771

Trading subsidiary 49% ownership

Rockwell Bates Pty Ltd (ROM) ACN 133 027 317

Dormant subsidiaries 100% ownership

Rockwell Olivier Pty Ltd (ROPL) ACN 160 338 241

RO International Tax Services Pty Ltd (RO Tax) ACN 168 005 249

On appointment we assumed control of the Companys operations and assets, communicated with all key stakeholders of the Company including principals and directors of the subsidiaries, employees and major creditors, and implemented new controls for banking and other areas of critical risk.

It became quickly evident following our appointment that there would be insufficient funds available to support the continuing operations of ILH, and its subsidiaries. There was limited cash available to the Administrators, no future cash income and no ability to source funding to maintain operations.

The Administrators strategy was designed around this precarious situation and the need to maximise the proceeds from asset sales, and to minimise ongoing costs so as to obtain the highest return possible for creditors.

To minimise costs, all non-essential employees were made redundant shortly after our appointment.

It was critical to the Administrators strategy to complete the sale of individual legal practices as soon as possible following the appointment due to:

The poor financial position of ILH The financial position of the subsidiaries, which could not continue operating indefinitely without support

from ILH The need to ensure that sufficient cash was generated to meet on-going costs The need to preserve value in the subsidiaries given the value resided in the clients, principals and staff,

all of whom had the ability to walk out the door.

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Based on the implementation of the asset sale strategy described above, the Administrators expect to realise proceeds of approximately $4.5 million.

The expected proceeds from the sale of the ILHs assets will be insufficient to meet the debts owing to the secured creditor or to employees. The secured debt as at the date of appointment was $15.3 million, and ILH employee entitlements totalled approximately $0.2 million.

The secured creditor has a charge over all of the Group, excluding one dormant entity, and has the ability to appoint a receiver and manager to each of these entities. We have entered into a deed of forbearance which permits the secured creditor to appoint a receiver and manager to ILH at any time.

The secured creditor has had oversight of each of the sales completed by ILH, and or its subsidiaries, and has reviewed and approved each of the sale agreements prior to providing its consent to the release of its security over the assets being sold.

Given the shortfall to the secured creditor from the realisation of ILHs assets, if the Company is wound up there will be no return to the unsecured creditors of ILH.

Negotiating the sale of ILHs six trading subsidiaries, in their entirety or in part, to achieve the highest return for creditors has required extensive resources and has been the primary focus of the Administration. Further detail on the ILH asset realisations is included at Section 4 of the report.

The other major tasks we have performed since our appointment include the following:

Communicating with principals, employees, customers and creditors Attending to statutory and ASX notifications and lodgements Liaising with and providing regular updates to the secured lender in respect of the conduct of the

Administration and proposed sale of the ILH subsidiaries Calculating employee entitlements and the distribution of employee entitlement packs Collecting books and records of ILH and completing a forensic backup of servers Holding the first meeting of creditors of the Company Undertaking preliminary investigations into the Company Undertaking preliminary review of various expressions of interest in ILH and DOCA proposals.

Based on the significant amount of work that has been completed in the first five weeks of the Administration, we believe that substantially all of the major issues have been identified and addressed. The key remaining tasks for the Administration include a few minor asset realisations, and further exploration of the expressions of interest and DOCA proposals put forward.

2.2 Object of Administration Section 435A of the Act states that the objects of the Administration provisions of the Act are to provide for the business, property and affairs of an insolvent company to be administered in a way that:

1. Maximises the chance of the company, or as much as possible of its business, continuing in existence, or

2. If it is not possible for the company or its business to continue in existence, results in a better return for the companys creditors and members than would result from an immediate winding up of the company.

This report has been prepared in accordance with Section 439A (4) of the Act.

This report has been prepared from information obtained from the Companys records, the directors and management of the Company and from our own enquiries.

Our investigations into the Companys affairs have been limited due to the short time period provided under the Act within which we must issue a report about the Companys business, property, affairs and financial circumstances for the Second Meeting of Creditors.

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We 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. Except where otherwise stated, we reserve the right to alter any conclusions reached on the basis of any changed or additional information which may become available to us between the date of this report and the date of the Second Meeting of Creditors.

Neither KordaMentha nor any member or employee thereof undertakes responsibility in any way whatsoever to any person in respect of any errors in this report arising from incorrect information provided to us.

2.3 Prior involvement with the Company Our Declaration of Independence, Relevant Relationships and Indemnities (DIRRI), which was included with the First Report to Creditors, is attached for your reference at Appendix 1. There has been no change to the position since the DIRRI was first issued to creditors.

2.4 First meeting of creditors Section 436E of the Act requires us to conduct a meeting of the creditors of the Company in Administration within eight business days of being appointed (the First Meeting of Creditors).

The First Meeting of Creditors for the Company was held on 31 December 2014.

At the First Meeting of Creditors, we advised that a Committee of Creditors may be formed for the Company however due to the limited size and complexity of the Administration we were of the opinion that there was limited benefit in a Committee of Creditors being formed. There was no proposal from the creditors present at the meeting to appoint a Committee of Creditors for the Company.

A resolution was passed by the creditors present at the meeting not to appoint a Committee of Creditors.

2.5 Second meeting of creditors We are required to convene a second meeting of creditors of the Company in Administration pursuant to Section 439A of the Act (the Second Meeting of Creditors) to consider the future of the Company.

Before the Second Meeting of Creditors, we must prepare a report on the relevant Companys business, property, affairs and financial circumstances and provide opinions on certain matters, which is the purpose of this report. This allows creditors to be in a position to vote at the Second Meeting of Creditors on the options available to them, as to whether it would be in the creditors interests for:

The Company to execute a DOCA The Administration to end, or The Company to be wound up.

As discussed in Section 1 of the report, we consider it would be in creditors best interest to resolve to adjourn the Second Meeting of Creditors for a period not exceeding 45 business days as it will, amongst other things allow:

Further time for interested parties to formulate and put forward a DOCA proposal to creditors and to allow the Administrators further time to progress the potential restructure of the Company

The Administrators to report back to creditors with sufficient information to accurately determine whether entering into a DOCA (if one capable of acceptance is received) provides a better return to creditors as compared to an immediate winding up of the Company.

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We advise that the Second Meeting of Creditors will be held at the offices of KordaMentha, Level 5 Chifley Tower, 2 Chifley Square, Sydney NSW 2000, on Wednesday, 28 January 2015 at 10:00am. Formal notice of the meeting is attached at Appendix 2. Registration for the meeting will commence at 9:30am.

A Form 532 Appointment of Proxy also accompanies this report at Appendix 3. If you intend to appoint another person to act on your behalf at the meeting, or you are a corporate creditor, you are required to complete the Proxy Form appointing your representative. Proxy forms may be sent to KordaMentha, Level 5 Chifley Tower, 2 Chifley Square, Sydney NSW 2000 or by facsimile addressed to Andrew Hudson +61 2 8257 3099 or by email to ahudson@kordamentha.com no later than 4:00pm, Tuesday, 27 January 2015.

If you are representing a company, please ensure that your proxy is executed pursuant to Section 127 of the Act or your representative is appointed pursuant to Section 250A of the Act, otherwise you will not be entitled to vote at the meeting.

Creditors are required to have lodged proofs of debt no later than 4:00pm on Tuesday, 27 January 2015, failing which they may be excluded from voting at the meeting. A Form 535, Formal Proof of Debt or Claim, accompanies this report at Appendix 4. Proofs of Debt may be sent to KordaMentha, Level 5 Chifley Tower, 2 Chifley Square, Sydney NSW 2000 or by facsimile addressed to Andrew Hudson +61 2 8257 3099 or by email to ahudson@kordamentha.com.

Those creditors who have already lodged a Proof of Debt are not required to lodge a further proof (unless they wish to amend their claim).

Arrangements have been made for creditors outside of Sydney to attend the meeting via conference call facilities. Creditors intending to use the conference call facility are required to notify us of their intention and collect conference call details at least 24 hours prior to the meeting.

A copy of this report, together with other information relating to the Company, can be found on the KordaMentha web site at www.kordamentha.com in the Creditor Information section.

2.6 Receipts and payments of Administration Attached as Appendix 5 is a summary of the receipts and payments for the period 17 December 2014 to 16 January 2015. Further details in relation to the receipts and payments are available on request, provided sufficient notice is given to comply with the request.

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3 Company background

3.1 History of the Company ILH became a publicly listed company in August 2007 and was established as a vehicle under which various professional services firms and related businesses could operate independently but service a national network of clients.

The initial listed entity was Integrated Legal Holdings Ltd. In May 2013, the business was renamed ILH Group Limited. At the time of listing, ILH consisted of three Perth based businesses - Talbot Olivier, Brett Davies Lawyers and Law Central.

Talbot Olivier and Brett Davies Lawyers are legal practises located in Perth, with Law Central a complementary online business that provides access to standard legal documentation through an online platform. At the time of listing, ILH had annual revenues of approximately $10 million.

ILHs strategy since listing was to grow both organically and through acquisition of established practices. ILH has acquired the following businesses and as a result developed a national footprint and a unique position in the Pacific region:

ILH acquisitions

November 2008 Argyle Lawyers Pty Ltd Sydney Legal Services

March 2009 Signet Lawyers Pty Ltd Sydney Legal Services

February 2011 Civic Legal Pty Ltd Perth Legal Services

July 2011 Pacific Legal Network Pty Ltd Sydney and Pacific Region Legal Services

July 2012 Rockwell Bates Pty Ltd (49% shareholding) Melbourne Legal Services

September 2013 Capricorn Investment Partners Limited (and business assets of The Pentad Group comprising Eaton Capital Partners)

Sydney Corporate advisory and Wealth Management

In May 2013, the law firms of Talbot Olivier, Argyle Lawyers and Rockwell Bates combined to become the national law firm Rockwell Olivier. Pacific Legal Network had been trading as Argyle Lawyers since acquisition.

In May 2014, Eaton Capital Partners was sold, with shareholder approval given at the annual general meeting, to Symon Capital Pty Ltd, as the business had not met the Board or managements performance expectation since acquisition.

As at the date of our appointment, ILH had three complementary business units: Legal Services (Rockwell Olivier), On-line legal services (Law Central), and Corporate Advisory and Wealth Management (CIPL).

Rockwell Olivier provided a range of corporate and commercial legal services to companies and businesses in Australia, across the Pacific region (Pacific Legal Network) and internationally, as well as private client and personal legal services in the form of advice on superannuation, estate planning, family law, trusts, taxation, property and employment (Argyle Private).

Law Central provided standard legal documents on the internet for use predominantly by accountants and financial planners. Law Central also provided a legal information service as well as training and education products.

CIPL provided advice to individuals and small businesses in areas including financial planning, life insurance, and share trading and managed funds, and business consulting services.

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3.2 Company registration details Detailed below is information regarding the Company as included in a company search obtained from the Australian Securities and Investments Commission (ASIC) as at the date of our appointment.

Company details

Date of incorporation 27 June 2006 Company type Australian Public Company Registered office Level 22, 1 Market Street, Sydney, NSW 2000 Principal place of business Level 22, 1 Market Street, Sydney, NSW 2000

3.3 Company shareholders Detailed below is a summary of the 20 largest shareholders as per the Companys register of members. The Companys records indicate there were 167 million shares on issue to 920 shareholders. In total the top 20 shareholders represented approximately 49% of the shares on issue by the Company.

Shareholder name Number of shares held Class of share Fully paid up Lavalhars Pty Ltd 13,710,281 Ordinary Yes Australian Share Finance Pty Ltd 7,823,673 Ordinary Yes Legal Australia Pty Ltd 7,412,821 Ordinary Yes Bobbin Ed Pty Ltd 6,038,405 Ordinary Yes Capricorn Investment Partners Ltd 5,312,031 Ordinary Yes Abn Amro Clearing Sydney Nominees Pty Ltd 4,869,313 Ordinary Yes Mr Michael John Cranny 4,567,669 Ordinary Yes Alford Consultants Pty Ltd 3,105,392 Ordinary Yes Mr Lance Livermore & Mrs Pamela Livermore 3,105,392 Ordinary Yes Primeyield Pty Ltd 3,105,392 Ordinary Yes Mr John Paul Olivier 3,068,340 Ordinary Yes Mr Graeme Hilton George Fowler 2,724,996 Ordinary Yes Mr Graeme Hilton Fowler & Mrs Louise Fowler 2,607,711 Ordinary Yes Aloa Pty Limited 2,536,428 Ordinary Yes Yeras Pty Ltd 2,259,913 Ordinary Yes Mrs Anna Catelli & Mr Gray Porter 2,191,672 Ordinary Yes Muzbird Pty Ltd 2,119,812 Ordinary Yes Mr Stephen Peter Skinner and Mrs Erin Skinner 2,055,000 Ordinary Yes Pango Road Pty Limited 2,028,782 Ordinary Yes Brendalis Pty Ltd 2,000,349 Ordinary Yes

Total (920 in Total) 167,611,336 Ordinary Yes

3.4 Security interests Detailed below is information regarding the Company obtained from a search of the Personal Properties Securities Register (PPSR) as at the date of appointment.

Security interests Registered PPSR registration No. Collateral class Westpac Banking Corporation Limited 30 Jan 2012 201201190088602 All Pap No Except

Westpac Banking Corporation Limited (Westpac) has a registered security interest over the Company and the majority of its subsidiaries. At the time of appointment the amount due to Westpac was $15.3 million.

3.5 Company directors Detailed below is information regarding the directors of the Company obtained from ASIC as at the date of our appointment. Included in this list are details of past directors whose appointment ended within 12 months of our appointment (collectively the directors).

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Director name Appointment date Cessation date Owen Glendower Evans 01-Dec-14 N/A David Mckay French 01-Oct-14 N/A Matthew William Driscoll 01-Oct-14 N/A Graeme Hilton George Fowler 25-Apr-08 01-Dec-14 Anne Patricia Tregonning 06-Oct-06 01-Oct-14 John Sydney Dawkins 06-Oct-06 01-Oct-14 Stephen Moss 26-Sep-13 15-Aug-14

3.6 Company secretaries Detailed below is information regarding the secretaries of the Company obtained from ASIC as at the date of our appointment. Included in this list are details of past secretaries whose appointment ended within 12 months of our appointment.

Secretary name Appointment date Cessation date Reena Minhas 01-Sep-14 N/A Jean-Marie Rudd 28-Aug-08 01-Sep-14

3.7 Related entities A diagram showing the corporate structure including the Company and its subsidiaries is provided at Appendix 6.

Detailed below is a summary of related entities of the Company, who are also debtors or creditors of the Company. The amounts owed to or owing by these related entities arose in the ordinary course of business via the intercompany loan accounts maintained by ILH.

Related entity Nature of claim Debtor/Creditor Amount

Rockwell Olivier (Perth) Pty Ltd (Administrators Appointed) Intercompany loan Debtor 11,967,425

Rockwell Olivier (Sydney) Pty Ltd (Administrators Appointed) Intercompany loan Debtor 4,891,912

Signet Lawyers Pty Ltd Intercompany loan Debtor 2,275,933

Total 19,135,270

Related entity Nature of claim Debtor/Creditor Amount

Civic Legal Pty Ltd Intercompany loan Creditor 11,156

Law Central Co Pty Ltd Intercompany loan Creditor 100,214

Capricorn Investment Intercompany loan Creditor 3,053,198

Total 3,164,568

The above creditor claims have not yet been adjudicated. However, if the Company is placed in liquidation and there are sufficient funds realised for the liquidators to make a distribution to creditors, the related entities will each be required to provide a Proof a Debt, which will then be adjudicated.

No return from the intercompany debtor position is expected.

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3.8 Events leading up to Administration The officers of the ILH have provided the following explanation of the events leading up to the appointment of Voluntary Administrators:

In September 2013, ILH acquired the shares in CIPL, and the business and assets of The Pentad Group which comprised Eaton Capital Partners, for consideration of $9.2 million. The consideration comprised $4.5 million cash and 52.7 million ILH shares with a market value of $0.09 per share, with an additional contingent consideration of $5.0 million payable over a two year period in scrip and cash if certain performance conditions were satisfied. This acquisition required ILH to increase its external borrowings by $4.0 million resulting in total external debt for ILH of approximately $14.0 million.

On 31 December 2013, ILH breached its bank funding interest cover ratio (ICR). This breach was not rectified until September 2014, when the secured lender agreed to reduce the ICR covenant on the condition ILH would make certain debt repayments. The first repayment was due on 4 December 2014.

In FY14, ILH incurred one-off acquisition related costs of $1.4 million relating to the CIPL purchase and a potential international acquisition. The international acquisition was ultimately unsuccessful.

ILHs legal practice significantly underperformed against forecast, in particular the Perth practice, which recorded a loss before tax of $3.9 million. This was primarily due to the decline in revenue following the loss of several senior legal professionals and a downturn in economic conditions in Western Australia. In addition, Eaton Capital Partners significantly underperformed expectations recording a loss of $447,000 in the year ended 30 June 2014.

On 15 August 2014, ILH announced the sale of the Eaton Capital Partners due to the business not meeting the Boards expectations.

Between September 2014 and November 2014, the legal practice continued to underperform in comparison to forecast raising concerns about the overall financial stability of ILH and its subsidiaries.

On 1 October 2014, long standing Board members John Dawkins and Anne Tregonning resigned and were replace by Matthew Driscoll, an independent director, and David French, Managing Director of CIPL.

On 1 December 2014, Graeme Fowler resigned as ILH Director and CEO. Owen Evans, a director of CIPL, replaced Mr Fowler on the Board and David French was appointed CEO.

On 3 December 2014, the ILH Board of directors appointed 333 Capital (an affiliate of KordaMentha) to assist with the Boards review and implementation of a strategic plan for ILH and its subsidiaries.

As part of the strategic plan the Board sought to divest ROP as a result of the significant deterioration in business performance. The divestment of ROP, however, was not feasible due to ROPs long term lease commitment, which was no longer considered commercial, as it was guaranteed by ILH.

In addition, ILH and the majority of its subsidiaries were subject to a Deed of Cross Guarantee which hindered the divestment of any of the underperforming subsidiaries.

On 4 December 2014, ILH was unable to make a debt repayment to the secured lender of $250,000. In early December 2014, the Board determined that ILH required $0.5 million of additional funding to

enable ILH and its subsidiaries to operate through to the end of January 2015. By the 16 December 2014, the Board had exhausted all funding avenues, and as a result, on

17 December 2014 the ILH Board resolved to place ILH into administration. The officers of ILH have advised the financial position for ILH and its subsidiaries can be attributed to: A failure to fully integrate the subsidiaries and no attainment of economies of scale A focus on acquisitions rather than performance improvement, organic growth and integration of the

acquired businesses Significant corporate overheads and duplication of corporate and support functions across each of the

subsidiaries Significant deterioration of performance in the legal services subsidiaries against budget in FY14

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The loss of a number of senior legal professionals in the Perth legal practice and the coinciding downturn in the Western Australian economy

Limited financial and operating controls in relation to debtors, resulting in ad-hoc collections and substantial provisioning requirements

Deterioration in working capital and insufficient reserves to trade through the Christmas holiday period.

The Administrators generally concur with the above assertions made by the officers of the Company, and also note ILH appears to have overpaid on the acquisition of some of its subsidiaries given the consideration paid and the subsequent earnings achieved.

3.9 Deed of Cross Guarantee The Group (excluding Rockwell Olivier Pty Ltd) (the ILH Cross Guarantee Group) entered into a Deed of Cross Guarantee which was registered with ASIC on or about 30 June 2008 (the Cross Guarantee).

The Cross Guarantee provides that each member of the ILH Cross Guarantee Group (Cross Guarantee Group Entity) guarantees the debt of each other Cross Guarantee Group Entity One of the circumstances where this guarantee becomes enforceable is on a creditors voluntary winding up under Part 5.5 Division 3 of the Act. This means that currently, each Cross Guarantee Group Entity is responsible for the debts of each other Cross Guarantee Group Entity, and a creditor of a Cross Guarantee Group Entity is a creditor of every other Cross Guarantee Group Entity.

3.10 Report as to Affairs The directors have provided a Report as to Affairs (RATA) to us. A RATA provides information on the financial position of the Company as at the date of our appointment. This financial information is purely in relation to the Company and does not include financial information in relation to the subsidiaries.

3.10.1 Extract from the directors RATA

A summary of the RATA is detailed below:

Report as to Affairs Book or cost valuation Estimated realisable value

Assets not specifically secured (see breakdown below) 36,201,274 5,308,317

Assets subject to specific security interests (net of specific security interests) 0 0

Total assets 35,289,415 5,308,317

Less payable in advance of secured parties (54,343) (54,343)

Less amounts owing and secured by debenture or circulating security interest over assets

(13,399,098) (13,399,098)

Less preferential claims ranking behind secured parties 0 0

Balances owing to partly secured parties 0 0

Balances owing to unsecured creditors (316,087) 0

Contingent assets 0 0

Contingent liabilities 0 0

Estimated surplus/(deficiency) subject to the costs of the Administration 0 0

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The assets not specifically charged comprised of the following:

Assets not specifically charged Book or cost valuation

Estimated realisable value

Intercompany loans to ILH subsidiaries 16,071,931 102,879

Cash on hand 95 95

Plant and equipment 5,343 5,343

Other assets 20,123,905 5,200,000

Subtotal as per directors RATA 36,201,274 5,308,317

We note the directors RATA supports the position that the Company was effectively an ultimate holding company with limited tangible assets and minimal trading activity in its own right. Substantially all of the assets and trading activity occurred in the subsidiary entities.

A review of the intercompany loans from ILH to its subsidiaries appear to be significantly overstated as goodwill on the acquisition for several of the subsidiaries has been erroneously recorded in the loan accounts.

Other assets primarily comprise of the investment in its subsidiaries, in particular CIPL, which had a book value of $13.6 million.

In our view the Estimated Realisable Value of the assets is a reasonable estimate.

3.11 Historical financial performance The Groups consolidated audited financial statements were last prepared as at 30 June 2014. We note monthly consolidated management accounts were prepared by ILH, with the last set of accounts prepared as at 30 November 2014.

Detailed in Appendix 7 is a summary of the comparative consolidated balance sheets and profit and loss statements of the Group, extracted from the Groups books and records, for the previous three financial years.

The Groups historical results are analysed in Section 5.

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4 Realisations of assets ILH ceased to trade on appointment of Administrators. Accordingly, since our appointment we have focussed extensively on asset realisations. This has primarily involved the sale of ILHs shares in the subsidiaries and or assisting the facilitation of the sale of the business assets to the principals in each of the subsidiaries.

The principals of the subsidiaries are the natural buyers of their practices, and should attribute a higher value to their practices than an external party. In this regard, following our appointment we met with the majority of the subsidiary principals to negotiate sales of their businesses. The offers received were considered by the secured lender.

The secured creditor has a charge over all of ILHs trading subsidiaries, and accordingly is required to provide its consent to release its security over the assets being sold. Accordingly, the secured creditor has had oversight of each of the sales completed by ILH, and or its subsidiaries, and has reviewed and approved each of the sale agreements.

The Administrators of ILH expect to receive proceeds of approximately $4.5 million through the asset realisation strategy. Several sales for certain business asset have been negotiated at the subsidiary level. The proceeds from these sales will be for the benefit of the subsidiarys employee entitlements or the secured lender.

The expected proceeds from the sale of the ILHs assets will be insufficient to meet the debts owing to the secured creditor or to the ILH employees. The secured debt as at the date of appointment was $15.3 million, and ILH employee entitlements totalled approximately $0.2 million.

4.1 Realisations summary Realisations to date (as at 17 January 2015) ($000)

Cash at bank on appointment 133

Asset Realisations

CIPL sale of shares and business assets 3,500

Law Central sale of shares 1,025

4,658

4.2 Status of trading subsidiaries

4.2.1 Capricorn Investment Partners Limited (CIPL)

An unconditional offer for 100% of the CIPL shares and sale of the business assets was received shortly after our appointment. The offer was an all in-cash offer of $3.5 million, executed on 24 December 2014, with completion scheduled for 27 February 2015. All CIPL employees were transferred in the transaction.

The sale was supported and approved by the secured lender and net sale proceeds will be applied against the bank debt.

4.2.2 Law Central Co Pty Ltd (Law Central)

An unconditional offer for 100% of the Law Central shares was received shortly after our appointment. The offer was an all-cash offer of $1.025 million, executed on 24 December 2014 with completion scheduled on 30 January 2015.

The sale was supported and approved by the secured lender and net sale proceeds will be applied against the bank debt.

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4.2.3 Rockwell Olivier (Perth) Pty Ltd (Administrators Appointed)(ROP)

ROP was placed into Voluntary Administration on 4 January 2015. Cliff Rocke, Michael Brereton and John Bumbak of KordaMentha were appointed as Administrators.

The Administrators have sold certain business assets to the ROP principals. The sales included the transfer of a significant proportion of the employee entitlements. We do not expect a return to ILH in respect of its shareholding in ROP. Any surplus proceeds from the realisation of the ROP assets will be for the benefit of the remaining ROP employee entitlements and the secured lender.

4.2.4 Signet Lawyers Pty Ltd (Administrators Appointed)(Signet)

John Vouris of PKF Lawler was appointed Administrator of Signet on 13 January 2015.

We do not expect a return to ILH in respect of its shareholding in Signet. Any surplus proceeds from the realisation of the Signet assets will be for the benefit of the Signet employee entitlements and the secured lender.

4.2.5 Rockwell Olivier (Sydney) Pty Ltd (Administrators Appointed)(ROS)

Michael Brereton, Cliff Rocke and Rahul Goyal of KordaMentha were appointed Voluntary Administrators of ROS on 16 January 2015.

Prior to the appointment of Administrators, ROS effected two business asset sales to principals within the business. The sales included the transfer of certain employee entitlements. The secured lender supported and approved these sales. The net proceeds of the sales will be applied against the bank debt.

We do not expect a return to ILH in respect of its shareholding in ROS. Any surplus proceeds from the realisation of remaining ROS assets will be for the benefit of the ROS employee entitlements and the secured lender.

4.2.6 Rockwell Bates Pty Ltd (ROM)

ILH holds a 49% interest in ROM. ROM is a legal practice located in Melbourne.

We are currently in discussions with the majority shareholder of ROM concerning the sale of ILHs shareholding in ROM. The realisable value of these shares is currently unknown. Any net sale proceeds from the sale of the shares will be for the benefit of the secured lender.

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5 Investigations

5.1 Administrators investigations Under the Act, we are required to investigate the Companys business, property, affairs and financial circumstances.

Pursuant to Regulation 5.3A.02 of the Act, we are also required to investigate and report to creditors on any possible recovery actions that would be available to a liquidator, if creditors resolve to place the Company into liquidation. However, we note we currently have limited funds available to us, which would not extend to pursuing any such actions in the capacity as liquidator, and have incurred costs in acting as Administrators which would rank in priority to any creditors claims in a liquidation.

Our investigations are at a preliminary stage and we are not in a position to provide any final comments about potential offences that may have been committed or amounts of money that may be recoverable in the event of the Company being placed into liquidation. It should be noted that further investigations would need to be undertaken by a liquidator (if appointed), and independent legal advice sought in order to determine the likely success of any actions contemplated in respect to the matters detailed below.

5.2 Overview of Administrators investigations Our investigations to date have focused on the following matters:

Breaches of duty and other offences under the Act by the directors Potential actions by a liquidator (if appointed).

5.3 Approach to preliminary investigations Throughout our preliminary investigations, we:

Analysed and where required, maintained the integrity and security of the IT systems of the Company. We were required to take immediate steps to stop any intrusions into the Companys IT systems.

Held discussions with the directors of the Company Held discussions with key employees, including the Financial Controller Held discussions with the principals of the subsidiaries Identified, reviewed, reconstructed where required, and analysed financial information in both hard copy

and electronic form Undertook searches of various publicly available databases, including ASIC, ASX and Office of State

Revenue records Spoke with various external parties, including service suppliers of the Company.

5.4 Offences under the Act by the directors Section 438D of the Act requires an Administrator to lodge a report with ASIC if it appears that:

A past or present officer, or member, of the Company may have been guilty of an offence in relation to the Company, or

A person who has taken part in the formation promotion, Administration, management or winding up of the Company may have misapplied money or property of the Company or may have been guilty of negligence, default, breach of duty or trust in relation to the Company.

We set out below and our comments as to whether investigations are warranted in relation to particular offences.

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5.4.1 Books and records

Failure to maintain adequate books and records may be relied upon by a liquidator in an application for compensation for insolvent trading and other actions for recoveries pursuant to Division 2 of Part 5.7B of the Act.

From our investigations to date, we consider the Company has maintained books and records in accordance with the requirements of the Act and therefore does not warrant a report pursuant to Section 438D of the Act. However, further investigations may be conducted in the event we are appointed liquidators of the Company.

5.4.2 Care and diligence and duty to act in good faith

The duty to act in good faith includes the following:

To act honestly To exercise powers in the interests of the Company To avoid conflicts of interest To use their position properly To use information only for its proper purpose.

From our investigations to date, we have not found any evidence the directors have breached their duty to act with due care and diligence and to act in good faith, nor have they used their position improperly or used information improperly.

5.5 Potential recovery actions available to a liquidator

5.5.1 Voidable transactions

Unfair preferences

If the Company is placed into liquidation, various provisions of the Act enable the liquidator to recover certain payments that were made by the Company to a creditor prior to the Company being placed into Voluntary Administration, referred to as unfair preferences. These are transactions where the payment results in a creditor receiving more than it would have received in the winding up of the Company. A liquidator is able to look back at the preceding six months to determine whether or not any such transactions occurred. In this instance a liquidator is able to review transactions between the period 18 June 2014 to 17 December 2014.

In order to prove a creditor received an unfair preference payment, the liquidator must first show that the Company was insolvent at the time of the payment.

The creditor has a defence to an unfair preference claim by a liquidator if it proves that it entered into the transaction in good faith and, at the time the benefit was received, the creditor had no reasonable grounds for suspecting that the Company was insolvent or would become insolvent through entering into the transaction and valuable consideration was given, nor would a reasonable person in the creditors position have suspected that the Company was insolvent or would become insolvent.

A preliminary review of the Company's records indicates that no preferential payments were made to creditors under the provisions of Section 588FA of the Act. There were however several payment plans entered into with certain creditors, in particular the ATO, in the months prior to appointment. Payment arrangements with creditors and demand notices, can be an indicator of preferential payments. We note that at this stage of our investigation, we are unable to confirm if any recovery actions are warranted and if so, their likelihood of success.

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Uncommercial transactions

A transaction of a company is an uncommercial transaction if the following elements are established by a liquidator:

The transaction was entered into or given effect to within two (2) years of the date of appointment of the Administrator

At the time the transaction was entered into, or when given effect to, the Company was insolvent or became insolvent as a result of the transaction

A reasonable person in the Companys circumstances would not have entered into the transaction having regard to the benefits and detriments to the Company in entering into the transaction and the respective benefits to other parties.

The defences available to a party involved in an uncommercial transaction claim are, in effect, the same as those for an unfair preference.

From our investigations to date we are unaware of any uncommercial transactions entered into by the Company. However, further investigations will be conducted if we are appointed liquidators to the Company.

Unfair loans

Essentially an unfair loan is a loan agreement where the interest or charges are considered to be extortionate. Unfair loans made to the Company any time prior to the appointment of the Administrators may potentially be overturned by a subsequently appointed liquidator, whether or not the Company was insolvent at any time after the loan was entered into.

From our investigations, we are not aware of any unfair loans entered into by the Company. However, further investigations will be conducted if we are appointed liquidators to the Company.

5.5.2 Insolvent trading

Under the Act, a director is personally liable to the Company if the director fails to prevent a company from incurring a debt when, at the time of incurring that debt, the Company is insolvent, or becomes insolvent by incurring the debt, and there existed reasonable grounds to suspect that the Company was or would become insolvent. This claim must be proven by the liquidator against each individual director. Creditors should be aware that a successful claim for insolvent trading requires extensive analysis and would generally require legal action. Further, we would point out to creditors that such proceedings may often be drawn out and involve significant cost.

Creditors should also be aware that any successful claim may be set-off by the directors against amounts due to that individual by way of unsecured advances or loan account.

The Act provides a number of possible defences to directors to a claim for insolvent trading. These defences are:

At the time the debt was incurred the directors had reasonable grounds to expect and did expect that the Company was solvent and would remain solvent if it incurred that debt and any other debts that it had incurred at that time.

At the time the debt was incurred the directors had reasonable grounds to believe and did believe that a competent and reliable person was responsible for providing information about the Company's solvency and that person was fulfilling that responsibility.

The directors through illness or some other good reason were not taking part in the management of the Company at the time the debt was incurred.

The directors took all reasonable steps to prevent the Company from incurring the debt.

It is crucial to note that, with the exception of unfair loans, in order for a liquidator to be able to set aside a transaction or obtain compensation from a director for insolvent trading, the liquidator must first be able to show that at a relevant point in time the Company was insolvent.

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The Act states the Company is considered to be solvent if, and only if, the Company is able to pay its debts as and when they become due and payable. A Company that is not solvent is insolvent.

The Courts have tended to use a cash flow test rather than a balance sheet test for determining insolvency, however the determination of solvency involves a consideration of the Companys financial position in its entirety and in the context of commercial reality. A temporary lack of liquidity will not necessary mean that a company is insolvent. Such a situation is to be contrasted with an endemic shortage of working capital.

Results of investigations

In relation to our investigations into the financial affairs of the Company it should be noted that the Company did not trade in its own right, rather trading was conducted by the subsidiaries. Our analysis, except where otherwise stipulated is based upon the financial performance of the Group as presented in its consolidated accounts.

The Groups annual financial statements are prepared on a consolidated basis and accordingly, all commentary in respect of the Groups financials are reported on such basis. We understand monthly balance sheets for the individual subsidiaries of the Group were prepared on an individual basis, excluding shared head office costs, which were either accounted for separately or were recorded in the accounts of the Group.

The financial analysis below has been undertaken from the Groups annual financial statements, which were audited by the Groups auditor Ernst and Young (EY). Where financial information is not derived from the annual financial statements, the various sources of financial information including managements monthly financial accounts and ledgers have been clearly marked.

In respect of the Group, at the time of writing, an exact date of insolvency has not been determined, however we make the following comments in respect of the solvency of the Group.

Financial ratios

We have reviewed the current ratio and net assets for the Group from its end of year accounts for the three years ending 30 June 2011, 2012 and 2013.

Financial year ended

30-Jun-2012 30-Jun-2013 30-Jun-2014

Current ratio 0.90 0.80 0.40

Net assets ($000) 19,062 19,958 14,577

Current assets less current liabilities ($000) 8,325 10,089 (10,547)

Working capital is a critical element of an organisation and sufficiency of working capital is often closely associated with solvency. A key measure of working capital is the current ratio which is the ratio of current assets to current liabilities. A current ratio of greater than one would generally indicate the company has a surplus of short term assets to short term liabilities.

We note in the above analysis the current ratio was lower than one at every point in time reviewed. This means the Group has historically traded with a deficiency of working capital.

As at 30 June 2014, there was a significant decline in the current ratio. This was attributable to the reclassification of the Groups bank debt to due and payable under the terms of the funding facility as a result of a breach of the ICR covenant on the facility as at 30 June 2014. This breach was rectified in September 2014, following the secured lenders agreement to reduce the ICR covenant on the condition ILH would make certain debt repayments. Accordingly, by 30 September 2014 the Groups borrowings were no longer classified as current.

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Monthly management accounts (unaudited)

The following table has been prepared using information extracted from the monthly management accounts of the Group. We note that this financial information has not been audited.

Month ended

31-Aug-14 30-Sep-14 31-Oct-14 30-Nov-14

Current ratio 0.53 1.03 1.01 1.12

Net assets ($000) 14,786 13,985 14,771 16,906

Current assets less current liabilities ($000) (10,243) 302 154 1,077

Management has advised that the improvement in the current ratio and net assets in November 2014 was related to the conversion of the $1.5 million cash liability payable to CIPL into ILH shares, as approved at the AGM in November 2014.

Cash flow analysis

We have reviewed the consolidated cash flows for the Group from its audited end of year accounts for the three years ending 30 June 2012, 2013 and 2014. These are summarised below:

Financial year ended

30-Jun-2012 ($000)

30-Jun-2013 ($000)

30-Jun-2014 ($000)

Net cash inflow (outflow) from operating activities (1,338) (18) (966)

Net cash inflow (outflow) from investing activities (2,082) (2,766) (4,716)

Net cash inflow (outflow) from financing activities 2,264 2,635 4,000

Net increase (decrease) in cash and cash equivalents (1,156) (149) (1,681)

ILH has recorded a net cash flow shortfall in each of the past three financial years. This cash flow

shortfall has been support by cash reserves. The net cash flow shortfall is principally attributable net cash operating outflows, indicating the

consolidated Group was loss making over these three years. The investing activities for ILH have been funded by equivalent increases in external borrowings.

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Profitability

The Groups profit and loss statements for the three financial years ending 30 June 2012, 2013 and 2014 is summarised below:

Profit and loss statement for the years ending 30 June 2014 2012 2013 2014 ($'000) ($'000) ($'000) Continuing operations Revenue 31,690 31,719 27,476 Other income 717 590 782 Occupancy expenses (2,815) (2,812) (3,023) Salaries and employee benefits expenses (22,325) (21,642) (22,346) Depreciation and amortisation expenses (530) (610) (715) Advertising and marketing expenses (460) (577) (531) Administrative expenses (3,630) (4,112) (5,174) Other expenses (836) (667) (1,962) Finance costs (351) (523) (1,102) Share based payments expense (42) (37) (29) Profit (Loss) before tax from continuing operations 1,419 1,330 (6,625) Income tax benefit / (expense) (303) (309) 2,129 Profit (Loss) for the year from continuing operations 1,116 1,021 (4,496) Discontinued operations - - - Profit/(loss) after tax for the year from discontinued operations - - (4,459) Net profit/(loss) for the year 1,116 1,021 (8,955) Other comprehensive income/(loses) for the year, net of tax (1) 1 2 Total comprehensive income/(loss) for the year 1,115 1,022 (8,953)

As explained in the audited financial report for year ended 30 June 2014, the reduction in revenue of $4.2 million was primarily due to the underperformance of the legal practices, in particular Perth, one off acquisition costs and the newly acquired corporate advisory arm of CIPL, Eaton Capital Partners, not meeting Board expectations. Excluding the revenues achieved by the newly acquired wealth management arm of CIPL, the comparable year on year reduction equates to $7.6 million.

In addition to the decline in revenue, ILH experienced an increase in corporate overhead expenses and finance costs.

Furthermore, between year ended 30 June 2013 and 30 June 2014 there was an increase in the bad and doubtful debts of $1.1 million.

Losses from continuing operations (before tax) in the year ending 30 June 2014 totalled $6.6 million, an increase of $7.9 million from year ended 30 June 2013.

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Monthly management accounts (unaudited)

The following table has been prepared using information extracted from the monthly management accounts of ILH. We note that this financial information has not been audited.

Statements of Financial Performance (monthly)

Aug-2014

($000) Sep-2014

($000) Oct-2014

($000) Nov-2014

($000)

Legal services fees 2,300 2,409 2,167 1,824

Business consulting revenue 5 13 6 13

Wealth management revenue 305 357 343 421

Total revenue 2,610 2,779 2,516 2,258

Total direct costs 1,005 1,554 1,322 1,141

Total gross margin 1,605 1,226 1,194 1,116

Total other revenue 18 35 3 24

Total operating expenses 1,545 959 1,228 1,374

Operating EBITDA 78 301 (31) (234)

Net profit after tax 55 134 (173) (408)

From a month on month review of the consolidated management accounts, revenue and earnings softened towards the end of the 2014 calendar year, which is typical in a service based business.

In the two months prior to our appointment the Group experienced net after tax losses of $0.2 million (October 2014) and $0.4 million (November 2014).

Auditors comments regarding going concern

The Group engaged EY as its auditor for the years 2010 to 2014.

We note that potential risks to the going concern of the Group were identified in the notes to the financial statements for the 2014 financial year and comments were included in the Independent Auditors report dated 30 September 2014 as follows:

Emphasis of Matter

Without qualifying our audit opinion expressed above, attention is drawn to the following matter. The conditions described in Note 2a Basis of Preparation - Going Concern, indicate the existence of a material uncertainty that may cause significant doubt about the consolidated entitys ability to continue as a going concern and therefore the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

Causes of the failure of the Company

The officers of the ILH have advised the financial position for ILH and its subsidiaries can be attributed to: A failure to fully integrate the subsidiaries and no attainment of economies of scale A focus on acquisitions rather than the performance improvement, organic growth and integration of the

acquired businesses Significant corporate overheads and duplication of corporate and support functions across each of the

subsidiaries Significant deterioration of performance in the legal service subsidiaries against budget in FY14 The loss of a number of senior legal professionals in ROP and the coinciding downturn in the Perth

economy Limited financial and operating controls in relation to debtors, resulting in ad-hoc collections and

substantial provisioning requirements

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Insufficient working capital reserves to trade through the Christmas holiday period.

In the event we are appointed as liquidators of the Company, detailed investigations will be undertaken to determine a date of insolvency and whether any action for insolvent trading against the directors will be pursued.

Any claim for insolvent trading against the directors of the Group would need to be assessed on commercial grounds including:

Likelihood that pursuing a claim of insolvent trading would be successful, taking into account the defences available to the directors

Cost of litigation Likelihood of recovery against the directors of the Group Further, and as stated above, the Act provides directors with a number of defences to a claim for

insolvent trading.

5.5.3 Costs

The costs of pursuing voidable transactions and insolvent trading would be met out of the assets of the Company or funding from creditors of the Company. Alternatively, the liquidators could seek litigation insurance funding.

5.6 Offences Our investigations to date do not reveal that the directors have committed any offences prior to our appointment. However, our investigations are incomplete and ongoing and in the event that creditors resolve that the Company be wound up, further extensive investigations will be completed.

5.7 Limitation of investigations All opinions outlined in this report are based on investigations undertaken by our office into the Groups affairs, business and financial position. Our investigations have been based on the following information:

Representations of the directors of the Group The details of the Groups assets and liabilities as established by our office The books and records of the Group.

5.8 Conclusion We are not aware of any serious offences in relation to the Company that may have been committed by the directors of the Company. We are not aware of any persons, who have taken part in the formation or management of the Company, misapplying or retaining money or property of the Company. We are not aware of any persons who have been guilty of negligence, breach of duty or trust of the Company. Accordingly, we have not reported to the ASIC under Section 438D of the Act.

However, we have concerns regarding the collectability of the Group debtor book, and whether the Group debtor position was in fact overstated. Given the accounts have recently been issued and audited this may give rise to a potential claim against the auditors and or directors. This will be further investigated in any liquidation of the Company.

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6 Alternatives available to creditors

6.1 Explanation of alternatives available to creditors It is our obligation to make a recommendation to creditors on which alternative is in the best interests of creditors. We make the following general comments in respect to each option:

6.1.1 Deed of company arrangement

During the course of the Administration, the Administrators have been approached by interested parties who expressed an interest in proposing a DOCA, but required further time to put forward a more formal (and detailed) proposal.

As the Administrators have not received a DOCA proposal which is capable of creditor acceptance at this point in time, this option is not available to creditors at this time. However, as noted in Section 1 of the report, we recommend the Second Meeting of Creditors be adjourned for a period of up to 45 business days to allow this option to be more fully explored.

6.1.2 Bringing the Administration to an end

It is possible that creditors may consider ending the Administration and returning the Company to the existing directors. This is not a commercial proposition at this stage given the financial position of the Company and the professional assistance the Company requires to trade out of its difficulties. The Companys directors would resume control of the assets and be able to deal with them as they deem appropriate. This will not prevent creditors from initiating legal proceedings for the recovery of their debts or petitioning to the Court to have the Company wound up at their own expense.

Should creditors resolve that the Administration be terminated, the Company will be placed in a similar position to that existing prior to our appointment as Administrators.

6.1.3 Winding up the Company

At the Second Meeting of Creditors, creditors may resolve that the Company be wound up. Should they do so, the Company will be placed into liquidation and the Company is taken to have nominated us as the Administrators to be the liquidators. The liquidators are required to realise and distribute the assets in accordance with Section 556 of the Act (subject to Section 545 of the Act) and will also be required to complete a thorough investigation into the Companys past dealings and affairs, and the past actions of the directors.

The effects of the liquidation of the Company include:

1. The moratorium available under the Voluntary Administration process will cease 2. The liquidators will be empowered to recover potential voidable transactions, as outlined in Section 5.5

of this report 3. The liquidators will be required to conduct an investigation into the affairs of the Company pursuant to

Section 533 of the Act and lodge a report with the ASIC in respect of the same.

It is clear at this stage the Company has a deficiency of assets to liabilities and further that it is now insolvent, in that it cannot meet its debts as and when they fall due.

If the Company is placed into liquidation, employees (other than excluded employees) may be eligible for payment of their outstanding employee entitlements (excluding unpaid superannuation) under Fair Entitlements Guarantee (FEG), a scheme operated by the Federal Government.

Given the shortfall to the secured creditor from the realisation of ILHs assets, and the outstanding employee entitlements, if the Company is wound up there will be no return to the unsecured creditors of ILH.

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6.1.4 Adjournment of second meeting

As the DOCA proposals received are at a preliminary stage, have not been thoroughly investigated by the Administrators and are in a form incapable of acceptance, the Administrators are unable to recommend an option that is in the best interest of creditors at the date of this report.

We therefore consider it would be in creditors best interest to resolve to adjourn the Second Meeting of Creditors for a period not exceeding 45 business days as it will, amongst other things allow: Further time for interested parties to formulate and put forward a DOCA proposal to creditors and to

allow the Administrators further time to progress the potential restructure of the Company The Administrators to report back to creditors with sufficient information to accurately determine whether

entering into a DOCA (if one capable of acceptance is received) provides a better return to creditors as compared to an immediate winding up of the Company.

We note there is no certainty a DOCA proposal will be received which is capable of acceptance. However, in our opinion, while there are costs associated with adjourning the Second Meeting of Creditors there is potentially a substantial benefit to creditors from a DOCA that will only be possible if the meeting is adjourned for a period not exceeding 45 business days.

If creditors elect at the Second Meeting of Creditors to adjourn the meeting, as recommended, the Administrators will continue to seek expressions of interest for ILH, work with interested parties to develop DOCA proposals capable of acceptance, and compile a supplementary report to creditors.

If the Second Meeting of Creditors is adjourned, the reconvened second meeting of creditors would be held on or before Tuesday, 31 March 2015.

7 Estimated return to creditors Given the quantum of amounts owing to employees for entitlements and the secured creditor under its registered interests, the Administrators do not anticipate a dividend being paid to unsecured creditors if the Company is placed into liquidation due to:

There being minimal assets available for realisation within the Company Anticipated costs of administration/liquidation being greater than anticipated recoveries Limited recoveries anticipated from subsidiaries within the Group.

We are unable to advise at this time what the estimated return to creditors will be under a DOCA proposal as we have not received a proposal capable of acceptance by creditors.

8 Remuneration and disbursements of Administrators In accordance with Section 449E of the Act, the Administrators remuneration report is attached as Appendix 8. We are seeking approval of our remuneration on a time basis in accordance with the KordaMentha Sydney 2015 Schedules of Hourly Rates, which are included in the remuneration report. Also included in the remuneration report are details in relation to disbursements.

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9 Further information Creditors requiring further information regarding the Administration can contact Andrew Hudson on (02) 8257 3023.

Dated: 20 January 2015

Michael Brereton Cliff Rocke Administrator Administrator

Level 5 Chifley Tower, 2 Chifley Square Sydney NSW 2000

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Appendix 1 Declaration of Independence, Relevant Relationships and Indemnities

Sections 436DA, 449CA

Corporations Act 2001

Declaration of independence, relevant relationships and indemnities

ILH Group Limited (Administrators Appointed) ACN 120 394 194 (ILH or the Company)

This declaration requires us as the Practitioners appointed to the Company to make declarations as to:

Our independence generally Relationships, including:

the circumstances of the appointment any relationships with the Company and others within the previous 24 months any prior professional services provided to the Company within the previous 24 months that there are no other relationships to declare.

Any indemnities given, or up-front payments made, to us as the Practitioners.

This declaration is made in respect of us, Michael Brereton and Cliff Rocke, our partners and the KordaMentha Group.

Independence

We, Michael Brereton and Cliff Rocke of KordaMentha, Level 5, 2 Chifley Square, Sydney NSW 2000, have undertaken a proper assessment of the risks to our independence prior to accepting the appointment as Voluntary Administrators of the Company in accordance with the law and applicable professional standards. This assessment identified no real or potential risks to our independence. We are not aware of any reasons that would preclude us from accepting this appointment.

Declaration of relationships

Circumstances of appointment

Michael Brereton, one of the administrators, and members of our team, met with and had a number of calls with David French (Company Director) and Reena Minhas (Company Chief Financial Officer) to prepare for and plan for a voluntary administration appointment on 17 December 2014, which culminated in the appointment as voluntary administrators later that evening. The purpose of the meetings on 17 December 2014 were to clarify and explain the nature and consequences for the Company and its subsidiaries of an insolvency appointment and to provide consents to act.

We did not receive any remuneration in relation to this advice.

In our opinion, these meetings do not affect our independence for the following reasons:

The Courts and the ARITA Code of Professional Practice specifically recognise the need for practitioners and their staff to provide advice to companies and the options available and do not consider that such advice results in a conflict or is an impediment to accepting the appointment.

The nature of the advice provided to the Company is such that it would not be subject to review and challenge during the course of the voluntary administration

The pre-appointment meeting will not influence our ability to be able to fully comply with statutory and fiduciary obligations associated with the voluntary administration of the Company in an objective and impartial manner.

Relevant relationships

We, or a member or an associate of KordaMentha, have or have had over the preceding 24 months a relationship with the following parties:

Secured Creditors

St. George Bank Limited and/or Westpac Banking Corporation Limited provided financial services to the Company.

Nature of the relationship

KordaMentha has had relationships with the above secured creditor, due to the nature of KordaMenthas business. This includes business advisory, consulting services and the appointment of KordaMenthas registered liquidators to companies as a formal insolvency appointment (in some cases by the secured creditor), where the secured creditor has provided banking facilities, loan facilities and/or leasing facilities to insolvent companies.

Reasons why not an impediment or conflict

In our opinion, this relationship does not result in a conflict of interest or duty as KordaMentha has never undertaken any work for the above secured creditor in respect of the Company. This relationship has not impeded our independence.

Australian Taxation Office (ATO)

Nature of the relationship

KordaMentha undertakes work from time to time on behalf of the ATO and is on a panel of practitioners maintained by the ATO. This includes the appointment of KordaMenthas registered liquidators to companies as a formal appointment where the ATO has asked us to consent to act as liquidators.

Reasons why not an impediment or conflict

In our opinion, this relationship does not result in a conflict of interest or duty as we have not identified any issue in relation to this relationship that would give rise to a conflict in undertaking the administration of the Company. This relationship has not impeded our independence.

Prior professional services to the company

We, or a member of our firm, have provided the following professional services to the Company in the 24 months prior to the acceptance of this appointment.

Nature of the relationship

Prior to our appointment as Voluntary Administrators, ILH engaged 333 Capital Pty Ltd (333 Capital) to undertake a strategic review of ILH as well as undertake services typically provided by a mergers and acquisitions advisory firm. 333 Capital is part of the KordaMentha group.

The 333 Capital engagement commenced on 4 December 2014 and the review was curtailed during the early phase of the strategic review.

333 Capital received an upfront fee of $10,000.00 (exclusive of GST) in relation to the engagement. There is no amount outstanding.

Included as Annexure A is a schedule setting out further details on the 333 Capital engagement including details of meetings and calls with the Company.

Reasons why not an impediment or conflict

In our opinion, this relationship does not result in a conflict of interest as this constitutes an immaterial professional relationship in accordance with the ARITA Code of Professional Practice due to:

The nature of the report provided to ILH is such that it would not be subject to review and challenge during the course of the voluntary administration and any subsequent liquidation. The strategic review engagement will not influence our ability to fully comply with the statutory and fiduciary obligations associated with the voluntary administration and any subsequent liquidation of the Company in an objective and impartial manner.

The review being performed over a short period.

The fee was $10,000.00.

The remuneration is unlikely to be considered to be a preference payment.

Other relevant relationships

Neither we, nor a member or an associate of KordaMentha, have identified any other material relationships within the preceding 24 months with the Company, any associate of the Company, a former insolvency practitioner appointed to the Company or any person or entity that has a charge on the whole or substantially whole of the property of the Company.

While it is likely that some of the Companys professional staff are known to some of the KordaMentha professional staff, given both firms are professional service firms, we have not identified any material relationships that require further disclosure.

Indemnities

We have not been indemnified in relation to this voluntary administration, other than any indemnities that we may be entitled to under statute.

Upfront payments

We have not been provided with any upfront payments in relation to this voluntary administration.

General

As required under the ARITA Code of Professional Practice, if circumstances change, or new information is identified, we will update this declaration and provide a copy to creditors with our next communication as well as table a copy of any replacement declaration at the next meeting of the creditors of the Company.

Dated: 19 December 2014

Michael Brereton Cliff Rocke Voluntary Administrator Voluntary Administrator

Annexure A

333 Capital met with ILH directors prior to our appointment, as follows:

Mr Paul Spottiswood, an Executive Director of 333 Capital was approached by Mr Driscoll, the Chairman of ILH in early November 2014, to provide strategic advice to ILH. Mr Driscoll had been known to Paul for a number of years, but had no previous professional relationship.

333 Capital, met David French, Managing Director of ILH on 13 November 2014 to discuss ILH. 333 Capital was appointed by the board of ILH to act as financial adviser to ILH, which involved a

strategic review of ILH. The mandate also contemplated assets to be sold as part of the review and a possible subsequent capital raising.

The mandate was agreed and signed as at 1 December 2014, and work on the strategic review commenced following an introductory meeting on 4 December 2014.

Since 4 December 2014, 333 Capital have had eight (8) meetings with ILH board members and a number of short phone calls with specific board members.

Appendix 2 Notice of Meeting

Paragraph 5.6.12(2)(a)

Form 529

Corporations Act 2001

Notice of Second Meeting of Creditors of Company under Administration

ILH Group Limited (Administrators Appointed) ACN 120 394 194 (the Company)

Notice is hereby given that the Second Meeting of Creditors of the Company will be held on Wednesday 28 January 2015 at Level 5 Chifley Tower, 2 Chifley Square Sydney NSW 2000. Registration for all creditors and employees will open at 9:30am with the meeting commencing at 10:00am.

Agenda 1. The purpose of the meeting is:

a. To review the Administrators report in connection with the business, property, affairs and financial circumstances of the Company

b. To consider the approval of the Administrators remuneration calculated in accordance with rates charged by KordaMentha for the period of the voluntary administration up to the Second Meeting of Creditors

c. For the creditors of the Company to resolve:

i. That the Second Meeting of Creditors be adjourned for a period of no longer than 45 business days, or

ii. That the Administration should end, or

iii. That the Company be wound up

2. If the creditors of the Company resolve that the Company is to be wound up or the Administration should end, to consider the approval of the Administrators remuneration from the Second Meeting of Creditors to completion of the Voluntary Administration

3. If creditors of the Company resolve that the Company is to be wound up:

i. To consider the approval of the Liquidators remuneration calculated in accordance with rates charged by KordaMentha for the period of the Liquidation

ii. To consider authorising the Liquidators to compromise debts of the Company under Section 477(2A) of the Corporations Act 2001

iii. To consider authorising the Liquidators to enter into agreements that may take longer than three months to complete under Section 477(2B) of the Corporations Act 2001

iv. To consider authorising, subject to obtaining approval from the Australian Investment and Securities Commission, pursuant to Section 542(4) of the Corporations Act 2001, the books and records of the Company be disposed of by the Liquidators six months after the dissolution of the Company

v. To consider the appointment of a committee of Inspection and where desired, appoint members to that committee

4. Any other business properly brought before the meeting.

Creditors wishing to vote at the meeting, who will not be attending in person or are a company, must complete and return a Proxy Form by no later than 4.00pm on the last business day prior to the meeting, by

post to KordaMentha, GPO Box 2523, Sydney NSW 2001 or by facsimile on (02) 8257 3099. A Form 532 of Proxy Appointment is attached.

Dated: 20 January 2015

Michael Brereton Administrator

Appendix 3 Form 532 Appointment of Proxy

Appointment of Proxy Form 532 Regulation 5.6.29 Corporations Act 2001 ILH Group Limited (Administrators Appointed) ACN 120 394 194 (the Company)

1. Insert Full Name and Contact Details (please print)

Given name Surname

Company name Telephone number

Address

2. Appointment of a Proxy (please complete)

I/We, a creditor of the Company, appoint:

............................................................................... of .....................................................................................

as my/our proxy, or in his/her absence __________________________, to vote at the meeting of creditors to be held on Wednesday 28 January 2015 at the Level 5 Chifley Tower, 2 Chifley Square Sydney NSW 2000 at 10:00am or at any adjournment of that meeting.

3. Voting by your Proxy

Option 1: If appointed as a general proxy, as he/she determines on my/our behalf.

and/or

Option 2: If appointed as a special proxy for some or all resolutions, specifically in the manner set out below (please tick).

Resolution (please specify the particular resolution) For Against Abstain General Proxy to Vote

1. That the remuneration of the Administrators for the period 17 December 2014 to 18 January 2015 in the amount of $293,128 (excluding GST and disbursements) calculated on the basis of time at the rates as set out in the schedule titled KordaMentha Rates National FY15, is approved for payment

2. That the remuneration of the Administrators for the period 19 January 2015 to 28 January 2015 in the amount of $66,990 (excluding GST and disbursements) calculated on the basis of time at the rates as set out in the schedule titled KordaMentha Rates National FY15, is approved for payment

3. i. That the Company be wound up; or

ii. That the Administration should end; or

iii. That the Second Meeting of Creditors be adjourned for a period of no longer than 45 business days.

Please select only one for from the available three options in resolution 3.

4. If the creditors of the Company resolve that the Company is to be wound up or that the Administration should end, the remuneration of the Administrators for the period 28 January 2015 to completion of the Voluntary Administration in the amount of $23,975 (excluding GST and disbursements) calculated on the basis of time at the rates as set out in the schedule titled KordaMentha Rates National FY15, is approved for payment

5. If the creditors of the Company resolve the Company be wound up, that the estimated remuneration of the Liquidators for the period 28 January 2015 to completion of the Liquidation in the amount of $70,250 (excluding GST and disbursements) calculated on th