Subordinated debt in a business is being restructured
Discussion
My father invested a significant 6 figure sum in a private business in June 2019. It was structured as unsecured and subordinated debt in the business for which he received a monthly interest payment with the promise of capital repayment after a 5 year period. The details were all setup to comply with a visa scheme and not really relevant for the purpose of this thread.
The plan was to grow the business with his cash injection and return the capital at the end of the 5 year period. Then COVID hit and all the best laid plans went out of the window. The directors of the business have worked their arse off to keep it afloat and succeeded (just barely) by cutting all unnecessary expenses, moving to cheaper premises, bounceback loans, government grants etc etc.
We're now at the point that the business has about 3-6m runway left with the cash reserves they have. The company instructed an insolvency practitioner and one of the options that is being seriously considered is restructuring the debt to take a 66% haircut as they bring in further outside investment.
This is quite a concern and while I believe they're doing it for the right reason, leads him to take a very significant loss.
Who is the best person to speak to as I'd like to get independent specialist advice? Is it an insolvency practitioner or would we need to get specialist solicitors?
The plan was to grow the business with his cash injection and return the capital at the end of the 5 year period. Then COVID hit and all the best laid plans went out of the window. The directors of the business have worked their arse off to keep it afloat and succeeded (just barely) by cutting all unnecessary expenses, moving to cheaper premises, bounceback loans, government grants etc etc.
We're now at the point that the business has about 3-6m runway left with the cash reserves they have. The company instructed an insolvency practitioner and one of the options that is being seriously considered is restructuring the debt to take a 66% haircut as they bring in further outside investment.
This is quite a concern and while I believe they're doing it for the right reason, leads him to take a very significant loss.
Who is the best person to speak to as I'd like to get independent specialist advice? Is it an insolvency practitioner or would we need to get specialist solicitors?
It's a difficult one as you acknowledge that it's unsecured and subordinated, unless there is some allegation of fraud etc and even then unless whoever is behind this has deep pockets, it would seem to have been an investment for income that has not worked out.
I sense from your post that there is at least some dialogue going on and that might be positive but what will a professional gain that you can't if matters are as you state them, it might be the extent of the hair cut as opposed to the hair cut itself that this comes down to. The problem is a Solicitor will do a lot of work, perhaps consider Bar Direct but again it's possible you'll be told what you already know.
I sense from your post that there is at least some dialogue going on and that might be positive but what will a professional gain that you can't if matters are as you state them, it might be the extent of the hair cut as opposed to the hair cut itself that this comes down to. The problem is a Solicitor will do a lot of work, perhaps consider Bar Direct but again it's possible you'll be told what you already know.
DaveA8 said:
It's a difficult one as you acknowledge that it's unsecured and subordinated, unless there is some allegation of fraud etc and even then unless whoever is behind this has deep pockets, it would seem to have been an investment for income that has not worked out.
I sense from your post that there is at least some dialogue going on and that might be positive but what will a professional gain that you can't if matters are as you state them, it might be the extent of the hair cut as opposed to the hair cut itself that this comes down to. The problem is a Solicitor will do a lot of work, perhaps consider Bar Direct but again it's possible you'll be told what you already know.
Thanks for your reply. I'm not alleging fraud though there was movement of cash from one part of the business to pay off a subsidiary and I want to make sure that everything done there was above board. It was an investment for income scheme and we were fully aware of the risks, though it's still quite painful when we look at the sums involved. I sense from your post that there is at least some dialogue going on and that might be positive but what will a professional gain that you can't if matters are as you state them, it might be the extent of the hair cut as opposed to the hair cut itself that this comes down to. The problem is a Solicitor will do a lot of work, perhaps consider Bar Direct but again it's possible you'll be told what you already know.
You're right in the sense that the outcome may be a haircut but I'd like to investigate on my father's behalf on how much influence we have on the level of this. We do wish to keep things cordial with the company but I see no harm in getting independent advice to guide us on the right path forward.
I guess an insolvency practitioner / accountant may be a good starting point - obviously one that is different from the original firm that's acting for the company in question.
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