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Parliamentary Joint Committee on Corporations and Financial Services - 18/11/2015 - Impairment of customer loans

CAVASINNI, Mr Vittorio, Private capacity

Committee met at 09:05

ACTING CHAIR ( Senator O'Neill ): Good morning, everyone, and welcome. I declare open this public hearing of the Parliamentary Joint Committee Corporations and Financial Services. Today the committee is taking evidence as part of the committee's inquiry into impairment of customer loans. This is a public hearing and a Hansard transcript is being made. The committee prefers to hear evidence in public. We may agree to take evidence confidentially if it is relevant. The committee may publish confidential evidence later, but we would try to ask before doing this. It is important that witnesses give the committee notice if they want to give evidence in private. In addition, if the committee has reason to believe that certain evidence may reflect badly on a person, the committee may direct that the evidence be heard in private. I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is against the law for anyone to threaten or disadvantage a witness because of evidence given to a committee. If they did, the action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to the committee. Witnesses should be aware that, if they make adverse comment about another individual or organisation, that individual or organisation will be made aware of the comment and given a reasonable opportunity to respond. If a witness objects to answering a question, the witness should state the grounds of the objection and the committee will determine whether it will insist on an answer.

I thank you all for attending today's hearing. We welcome you, Mr Vittorio Cavasinni.

Mr Cavasinni : Vic Cavasinni is fine.

ACTING CHAIR: The chair has just arrived, in perfect time. Is there any additional information you would like to share with the committee about the capacity in which you appear today?

Mr Cavasinni : I live at 32 Benaud Street, Greystanes. I am here as the Managing Director of Beechwood Homes and the associated companies, and also of the Cavasinni group of companies, which are shared between me and my father.

ACTING CHAIR: Thank you very much. The committee has received your submission, which it has numbered submission No. 103. Would you like to make a short opening statement before the committee asks questions?

Mr Cavasinni : It was a difficult process that we went through with the banks. In short, there were onerous conditions placed by the bank that could not be met in the short period of time that was made available and there was insufficient information to make certain things happen. What I mean by ' make certain things happen' is that the bank imposed a condition of engaging a consultant with their approval. We had no information whatsoever about who that person was until the 18th of the 12th, 2008. That was about when the breach notices came through to us. Also, they insisted on keyman insurance—

Senator WILLIAMS: What was the date, sorry?

Mr Cavasinni : It was 18 December 2008. With that, we had no understanding of what it was that the bank wanted us to do or who this person was. However, in the interim we had engaged somebody that we believed was what we needed to improve our business—a person by the name of John Lawson, who I had met some time before. He was working through. The bank said, 'That is not the person we wanted,' and we started going through the process of understanding who this David Hobart was, the bank's preferred consultant. There were difficulties in his engagement, with costs to the tune of $15,000 a month and no outline whatsoever of what he was going to do that would bring any solid results or milestones to work towards.

Having said that, there was also a requirement that we had to get key man insurance on myself. The difficulty we had with that was that their preferred key man insurer was St Andrew's, which was a company associated with Bankwest. They said it was impossible to get it in the time frame that they wanted. Secondly, the bank wanted key man insurance to cover $3 million worth of business overheads, not key man as such. We struggled with understanding what they wanted to do.

My wife and I and my father had a property. It was five acres of land. It was to build our family home at the time. My father was going to retain 2½ acres of that land and my wife and I were to retain the other half. It had not been subdivided at the time. They wanted my wife to be a guarantor because the property was in her name, and that property had to be subdivided no later than 31 December 2008. The onerous development consent conditions could not be met in the time frame.

There was also an agreement in the sale of Beechwood Homes to myself that Capital Finance, which was also a subsidiary or associated entity of Bankwest, required that we take over the leases on those cars, the utes in particular, and other vehicles. We tried to understand their paperwork. They insisted that we had to pay the arrears, which we said we could not do at all. In short, what happened was that one day, without notice, they rocked up with their semitrailers and took all our utes in our office up north. We had an office down south near Nowra and Sydney. They took all our utes. We scrambled then to hire vehicles at a cost of $2,000 a day to the business. It was extremely difficult to get through and jobs were not going forward. We were trying to complete some 273 homes that were caught in the demise of the previous Beechwood.

We did not really get much assistance from Bankwest itself. Things got worse in the takeover of Bankwest by the CBA. We were not in arrears. The Beechwood entity was paying back debt. It was selling display homes and leasing them back. That was going extremely well .We paid some $9 million worth of debt in a short period of time. We were never in arrears.

Senator WILLIAMS: Over what period of time did you pay the $9 million?

Mr Cavasinni : Probably within the first nine to 10 months we were selling these display homes.

Senator WILLIAMS: Did it start in 2009 or mid-2008?

Mr Cavasinni : It was early 2009. At the time of the default we were not in arrears whatsoever. We take this as 'constructive defaults'. We take the view that they were using non-monetary conditions of defaulting as a way to 'do us over'. On 27 November—and this was quite amusing to me; I did not quite get it; I thought it was quite strange—a journalist by the name of Peter Gosnell made a statement in The Daily Telegraph about how the bank had latched on to a new set of fresh assets to recover their debt or the money they had lost from the demise of the previous Beechwood. I did not quite understand what that meant until sometime later.

CHAIR ( Senator Fawcett ): Thank you. In your submission you indicated that the bank approached you to purchase Beechwood Homes. Had you experienced that before? When you went to the bank for a $1.8 million facility for your own business, did they encourage you to buy a property or a business worth considerably more?

Mr Cavasinni : The old Beechwood Homes went into receivership on 13 May 2008. On the same day, I happened to be at a function with my banker at Bankwest, Peter Vickery, who happened to be the banker for the old Beechwood Homes. I asked him if there was anything in there for me and he said, 'No, don't waste your time.' Not long after, an expression of interest came out. I told my father I would like to have a go at it and he said: 'I'm too old for this. If you want to do it, do it, but please leave me out of it.' I said 'not a problem'. After the expression of interest, there is a phase of doing a little bit of due diligence on the company to understand it; and, following that, we made a submission. I had approached the receiver on a couple of occasions asking them how we were travelling. He said that our offer was not substantial enough and they were going with another offer. I said fine.

The offer made by the other party was in the vicinity of $20 million—and there was no chance that we were going to get to that anyway. By chance—and I have no idea how this happened—the gentleman from Deloittes rang me and said he would like to sit down and talk with us further. I said okay. At that stage I had some preliminary discussions with another financier about Beechwood—

Senator WILLIAMS: Was this after Bankwest had suggested that you take over Beechwood Homes?

Mr Cavasinni : No, this was leading up to—

Senator WILLIAMS: So it was your idea originally to look at Beechwood Homes?

Mr Cavasinni : Yes. Straight after that phone call, I received a call from my bank manager at the time, Peter Vickery. He said, 'The bank wants to sit down and meet with you and they're taking you seriously.' I said okay. So we sat with the bank and explained to them how we could revive the company and what our plans were. They were well aware of our financial position—the Cavasinni side of things—because they had just given us a clean bill of health. We had just gone through an annual review and they had no wishes whatsoever. That is why, providing that we could show how we could get through it, they were quite happy to provide us with the funding. We offered $13.5 million to purchase the assets of Beechwood and we got $3 million on top of that for an overdraft facility for Beechwood Homes proper.

CHAIR: What I am struggling to understand is: if your own business had just received a clean bill of health, and you had asked for $1.8 million I think for cash flow and to complete buildings, why was there such a delay on providing that? Why, in the end—given that they approved the purchase of Beechwood—did they not come through with that $1.8 million?

Mr Cavasinni : I do not quite know. I will just backtrack a little bit. After I had made a submission and I was waiting for the receivers to get back to us, leading up to it, we wanted that funding for the industrial building.

CHAIR: I am sorry—that was to do with the land that they wanted subdivided?

Mr Cavasinni : No, no. I beg your pardon. It is known as Lot 91, Cavasinni Place, at Wetherill Park.

CHAIR: I am conscious of time. I am trying to understand this first condition, where you are saying that there were complex planning requirements that held up the subdivision. If they had your clean bill of health and were prepared to loan you $13.5 million plus additional for Beechwood, on what basis did they want this land as a security? If they had not lent you the $1.8 million—I assume that was to do with Beechwood, not your own assets?

Mr Cavasinni : No. If I can clarify, the $1.8 million I referred to in the submission is to do with an industrial property, where we had a 10-year prelease agreement in place. That was already in train before the Beechwood opportunity arose. When I insisted and asked where the submission was to credit for the $1.8 million, they said, 'We will see how this Beechwood thing goes.' This is what Peter Vickery and [inaudible] said to me. I said, 'No. Don't worry about Beechwood,' because at the time it was still up in the air. It was still fluff, if I could refer to it as that. I said: 'No. Leave Beechwood out of it. I am not interested, if it is going to stop the $1.8 million.' Then, in the interim, the Beechwood thing started coming together, and then I had to put some cash flow into the business. I do not understand this bank's strategy, but at the time I was so desperate to put cash flow back in the business that I had to mortgage my home to the tune of $400,000 to put more cash into the business. At that stage, the loan was still having problems getting through, which I did not quite understand. It was Beechwood that was actually funding the cash flow for the construction of that building, because everything had to happen there and then, because we had a tenant ready to move in as a tailor-made building. I hope I have answered the question.

Mr RUDDOCK: Did you take separate legal advice on any of the documentation relating to your first sets of agreements with Bankwest and the Beechwood—

Mr Cavasinni : When you say the first—

Mr RUDDOCK: Presumably you are a Bankwest customer?

Mr Cavasinni : Yes.

Mr RUDDOCK: The conditions under which they impair your loans are under a contract—

Mr Cavasinni : Yes.

Mr RUDDOCK: in which you have certain obligations.

Mr Cavasinni : Yes.

Mr RUDDOCK: I am interested in how you got into that—whether you had separate legal advice, whether you were aware of the implications, or whether you just said, 'Well, that's the bank. I have got to take it as it comes and I have no choice.' Did you try and negotiate the terms of the loan?

Mr Cavasinni : We had no time.

Mr RUDDOCK: No; you were a client of the bank's.

Mr Cavasinni : But the actual conditions on Beechwood at the acquisition were only made available to us the day before settlement, which was on 29 September 2008.

Mr RUDDOCK: So you are saying: they wanted you to take it over—

Mr Cavasinni : Yes.

Mr RUDDOCK: and you were not in a position to examine the terms and conditions of the agreement and satisfy yourself that you were not being unfairly disadvantaged as a result of those arrangements?

Mr Cavasinni : We had actually exchanged on 29 July 2008, and then the conditions came to us on 29 September 2008. We had to settle on 30 September 2008, otherwise penalties would have been imposed by the bank.

Mr RUDDOCK: From what you are telling us, you were asked by the bank to take over Beechwood. That is how I understand it.

Mr Cavasinni : The receivers accepted our offer; the receivers are representing the bank, Bankwest.

Mr RUDDOCK: So the bank said, 'We're dealing with you and you want a loan. You take it on our conditions'?

Mr Cavasinni : Exactly.

Mr RUDDOCK: So you had no separate legal advice in relation to those conditions?

Mr Cavasinni : We did get that independent advice, but we had already been locked into the deal well and truly beforehand. As I said, we exchanged on 29 July and we did not have those documents until 29 September. We did ask for those conditions before exchange, but they were never furnished.

Mr RUDDOCK: When I read the submission, I took it that you had a successful business. It was operating. Bankwest were your bank and they had lent you money—presumably under their normal conditions—and then they came along and said, 'Beechwood is in trouble. We want somebody to buy it. Will you take it over?' And you said, 'Out of the goodness of our hearts, we'll do it for you.'

Mr Cavasinni : It was not quite like that.

Mr RUDDOCK: It was not quite like that. That is what I really want to know. At the end of the day, I have to ask myself: did the bank act unconscionably in relation to you or were you, in your desire to acquire this additional venture, putting yourself in a situation where you were going to find it very difficult to be able to service the loan, complete the buildings and do whatever else you had to do, and therefore the bank says, 'You had a shot at it and it didn't work, now we've got to close you down.'

Mr Cavasinni : It was nothing like that. We had an opportunity, we took the opportunity and we believed that we could make it work. The conditions that were placed on us were: can we manage insurance? Yes; it is not hard to do if you have got to go through the process. Can we obtain a consultant? Yes, we are waiting for the bank to provide us with details about who the consultant was and how to work with him. Can we do the subdivision? Yes, we can do the subdivision. But we did not have control over a lot of these things. If I go back and emphasise the conditions on the subdivision, they were difficult to meet and, as of today, are still difficult to meet.

The issue to do with the keyman insurance—I have keyman insurance now and I have not got a problem. I had difficulties in understanding what it was that the bank wanted. The bank wanted keyman insurance to cover $3 million worth of company overhead—not to replace me in the event of my demise, but to cover company debt. They wanted a consultant by the name of David Hobart, who we had no knowledge of, and he made it very clear through the meetings that we had with him when he said, 'The issues aren't with Beechwood. The bank has a moral obligation to help Cavasinni.'

Even when Deloitte came through and did the forensic accounting of our business, they said, 'The bank has hogtied you,' and I said, 'Yes.' They went through it and they made it very clear in their own reports that there were no issues with Beechwood; it was fine. The margins were fine and everything was fine. The issues were on the Cavasinni side. What the bank then did was call in the loan on the Garling Road, Kings Park development, which was substantially finished at the time. I had a linen plan ready to give an indication of how cruel it was. The bank then took away 45 factory units, and would not acknowledge the exchanges that were pending. They sold them when I had exchanges for more than half the development for $9.2 million, and they sold it for $10.4 million.

Senator WILLIAMS: That is crazy.

Mr Cavasinni : They did not go to auction. They went to expression of interest, not auction. They did not go to market.

Mr RUDDOCK: It appears to me that, with Beechwood, there was the bank, which had got a client impaired, and it said to the receivers, 'We want you to try to get the best price for the bank to cover it and perhaps even leave some money over for the other people who are owed money and so on. We're seeking to get the very best price, and we've now got you into this,' and I was waiting for the bank to come and tell me, 'And we wanted to see you succeed and we were happy for you to take this over. We knew you were reasonably sound and we're going to see you through. We're going to help you all the way. We're going to cooperate and discuss with you how you are going to meet your objectives and what your plans are,' and they talked it through with you and said, 'We want to keep you in business. We want to make you succeed,' and you just were not up to it.

Mr Cavasinni : We were up to it. If we were not up to it, we would not be where we are today. Beechwood is now the fourth largest residential building company in New South Wales, and we are doing quite well. I will even go back a little bit further. To tell you how sound our business principles were, it was Bankwest that bought our business from NAB and brought it over. They bought it. They paid $100,000 worth of stamp duty to transfer stamp duty across. They paid for that. They knew that my father and I were strong. We had great, sound business principles and we adopted those same building methods and methodologies into Beechwood. Did the bank twist my arm? No, they did not. But, because of that relationship I had with Bankwest, it has given me confidence. I have had dinners upstairs at Clarence Street—just over the road here—in the board meeting where they told us how good they were going to be and how they were going to help us, and when I see those commercials again today it just irks me.

Senator O'NEILL: A lot of the evidence that we are receiving from individuals tells a story where they have been so compromised they were not able to continue. From your comments just then, I want to acknowledge the fortitude that you must have shown to get through this and the people whose work you have been able to maintain through that process. I have a couple of questions about evidence you have given this morning. Firstly, I will go to the comment that you made around your investigative accountant. Can you explain the process of your engagement with the investigative accountant, who sent that person in and the comment that you made where you said that they had said 'They have hogtied you.' I would like to understand that part of the process and the timing of that.

Mr Cavasinni : We had investigative accountants in twice, and they were appointed by the bank. The first time around, there were no issues. The second time around, we had an open discussion. The name of the gentleman from Deloitte was David Lombe. When I went through with him in a very casual, informal sense what was going on, I said, 'There is nothing wrong here. We're doing what we're doing.' But he interrupted me and said, in his words, 'It sounds like the bank has hogtied you,' and I looked at him and I said, 'That's probably the best way to describe it. I don't know what else to do.'

Senator O'NEILL: On notice, so you do not have to look through now, could you give me the dates of those two separate occasions on which you had those investigative accountancy experiences? It would be helpful if you have any documentation around that. There is another thing I want to ask you about. You spoke about your relationship with the bank manager. I think all of us know that, if you are trying to run a small, medium or large business, a relationship with a bank manager is actually one of the critical factors about enabling you to respond to the changes that are a natural part of life in business. You mentioned a Mr Vickery. I am assuming that, to allow you to have those conversations, at some point in time your interactions with him were very positive.

Mr Cavasinni : Yes.

Senator O'NEILL: At what point did they change?

Mr Cavasinni : That is a good question. It appears that it changed when it was out of his hands. He could not do much more himself. When I realised I could not get any further I then talked to his boss. His name was Andrew Tolj?

Senator O'NEILL: Where was Mr Tolj? Where did you see Mr Vickery? Was he a local branch manager?

Mr Cavasinni : He is local.

Senator O'NEILL: And Mr Tolj?

Mr Cavasinni : I do not know his title, but I think he was the boss of all the branch managers. Above him, with whom I thought I had a reasonably good relationship, was Peter Ogilvy. He was the conduit, I believe, between the bank managers and the credit.

Senator O'NEILL: This is my last question. I am interested in understanding the timing of your engagement with Mr Ogilvy, the nature of the meetings that you had with him and the timing around this in terms of what was going on with Bankwest at the same time.

Mr Cavasinni : Ogilvy was involved just prior—my first interaction with him was on the day that I made the final offer to the receivers. We had a one-on-one in one of their board rooms. He was there and a couple of others. Then the receivers wanted to discuss with me how we were going to run the business—if I could simplify it. Straight after that the receivers came through the door. Mr Campbell and another gentleman was there. David Campbell came through the door; we sat down and made them the offer, and we then walked away. We went to the coffee shop downstairs and I knew there and then—even though it had not been accepted—that our offer was going to be accepted. Then we have had lunches together with Peter Ogilvy, and even after the breach notices came about I was interacting through emails backwards and forwards and being ccd in and what not. There is plenty of material that is available if necessary. I am willing to make that available to the committee.

Senator O'NEILL: Thank you.

Mrs SUDMALIS: I have a couple of questions. I am very familiar with Twin Waters because it happens to be in my area. What justification did the bank give you for raising the value of that property up to $7.5 million?

Mr Cavasinni : They put a book value on of $7.5 million which raised my eyebrow. I was not overly concerned because I knew I could work through that and reshuffle the deck chairs later on. They told me that only seconds prior to the exchange. No—it was actually before the settlement. They had to put a book value of $7.5 million. I had difficulties in trying to get that refinanced.

Mrs SUDMALIS: It would not even have got $7.5 million with the development all completed—all the houses on that estate.

Mr Cavasinni : I did a feasibility and I said to the bank, 'Please give me some money to develop one of the stages. There were four stages that were DA approved. I said, 'Give me money for one stage so I can generate income and I will not need any more money after the second, third and fourth stage.' They said 'no' and flatly refused it. I said, 'Let me refinance it. Unless we get $7.5 million, we cannot refinance it.' This is the frustrating part. My feasibility worked at $100,000 a block of land and I was going to retain it. I am buying land there now off the developer. I do not begrudge them whatsoever. I am paying over $200,000 for a block of land there now.

Mrs SUDMALIS: Yes.

Mr Cavasinni : You are familiar with the area.

Mrs SUDMALIS: I am very familiar. Finally, I have a last question on that. You have been dealing with the bank for some time, and presumably they would know that registration of title takes significantly more than three months, and yet they breached you for not being able to register the total within that period of time. What recourse did you have?

Mr Cavasinni : That is right. There was just no chance. We had no time. There was just no time to register that development—no chance.

Mrs SUDMALIS: So it was an impossible request, but you were breached.

Mr Cavasinni : An impossibility.

Mrs SUDMALIS: Thank you.

Mr LAUNDY: Mr Cavasinni, I am just interested in your gearing on the way through, starting with your asking for $1.8 million, which then moved to the purchase of Beechwood. I am interested. The banks would call it loan-to-value ratio, LVR, but you and I are businesspeople. I am interested in your perception of what your net asset position was before asking for the $1.8 million, and then what it became after the acquisition of Beechwood, and then what you think it was when the bank took their ultimate value. I know that is subject to bank valuations versus your gut feeling evaluation, but I would be interested in your perception of it.

Mr Cavasinni : When I moved my business from the NAB to Bankwest, my LVR at the time was 40 per cent.

Mr LAUNDY: And what do you think your net asset position was at that time?

Mr Cavasinni : I could not guess at this stage. On my LVR at the time when I did the purchase, 78½ per cent was against Beechwood's assets, and the loan-to-value ratio on Cavasinni, from memory, was about 60 or 65 per cent. That was the reason why the bank had given me the additional funds to build the Kings Park development, and I did not quite understand why it was so frustrating to get the $1.8 million for that one development. It was a very small amount of money considering where we were.

Mr LAUNDY: So, if you had just got the extra $1.8 million and finished that development—

Mr Cavasinni : No, Beechwood Homes cash-flowed it. The bank did not refuse to give us the money at that stage. Look at the time line. I was in default in January. The building was underway. I had to hand over the building, and I could not get the money in quickly enough, so I had to fund it through Beechwood.

Senator WILLIAMS: I just want to look at the price your assets were sold for. Was a fair value on Twin Waters $3.2 million?

Mr Cavasinni : It is what I paid the bank, or the receivers—$3.2 million. It then sold at $1.89 million at auction.

Senator WILLIAMS: That is the point I made. What do you think was a fair value for Twin Waters? What did you pay for it?

Mr Cavasinni : $3.2 million.

Senator WILLIAMS: And it was sold for $1.89 million?

Mr Cavasinni : Yes.

Senator WILLIAMS: This is amazing. Do you know who bought it?

Mr Cavasinni : You may know him. Druce was his name.

Mrs SUDMALIS: John Druce bought it?

Mr Cavasinni : He bought it, yes. Good luck to him, I will say.

Mrs SUDMALIS: He is a good lad.

Senator WILLIAMS: Section 420A of the Corporations Act says they have to get maximum sale price when selling up assets. I find that a very cheap sale. You had 45 factory units, for 29 of which you had pending exchange for $9.5 million. That is about $327,000 a unit. If you put that on all 45 factory units, you would have been looking at $14 million or $15 million.

Mr Cavasinni : Which was the debt.

Senator WILLIAMS: Yes, and it was sold in one block for $10.4 million, and you are saying those who bought it realised over $25 million when they split it all up.

Mr Cavasinni : Yes.

Senator WILLIAMS: Why?

CHAIR: What time frame was that? Long after they procured it, did they sell those individual units for $25 million?

Mr Cavasinni : It was right in the middle of the GFC. I am guessing about 12 months. It took time to move them. They had very little work to do there to tidy it up. In fact, the bank had engaged a contractor to finish off the work that we did not finish, and they charged me for it.

Senator WILLIAMS: Did they give you the proceeds of the sale?

Mr Cavasinni : No, obviously not. It was heartbreaking. If I could explain a little more: I had sold, and I had a disk and in fact that disk went to—would you believe—the people that purchased it. I had a disk of the exchanges and their details. I gave it to the receivers. I gave them all that they needed. They handed it—apparently, from what I have heard—to the people that did buy it and to proceed with the sales that they chose to. I will just unwind that a little bit. We had sold it through a process that you might be aware of called the Bartercard or BBX, and the actual industrial development is based on square metre rates from the final price. There was a Bartercard or a rate of X and a cash component of X, and that is why I make it very clear in the submission: it was a cash component that equated to $9½ million. With the rest of it, the bank did not know what to do with what they called the monopoly money—they did not know what to do with the BBX dollars. I said, 'I will take those and I will convert those later on, but I wanted to show you that at least I am covering at least more than half the debt now.' And they said they could not exchange because they did not know what to do with the BBX dollars. That is where I just lost it. I just did not know what to do. It was that bad—

Senator WILLIAMS: Do you own Beechwood Homes today?

Mr Cavasinni : I do.

Senator WILLIAMS: Do you have it up and running well?

Mr Cavasinni : Fantastically well.

Senator WILLIAMS: Well done. To bounce back like you did from what you have been through is a credit to you.

Mr Cavasinni : I have a great team.

Senator WILLIAMS: Sorry?

Senator O'NEILL: I think Mr Cavasinni said that he has a great team, and I am pretty sure that they are very loyal to you, too, Mr Cavasinni. To be able to trade out of that situation is a pretty remarkable achievement.

Senator WILLIAMS: Yes; well done.

CHAIR: Thank you for your submission. Thank you for being prepared to come and give evidence to us today. To any questions that we have asked you to take on notice, could you provide a response by 27 November 2015. Thank you very much for being here today to provide evidence.