@Obi: Impressive! I like you way of thinking! I agree that the cash leakage is everywhere. We stopped production because we could not access credit to buy raw materials. Production will resume once we can access a cash injection.

There are products in the warehouse which continue to be sold. The company's products have demand and are therefore moving. Problem is the terms of sales (30 - 60 days credit). Debt collection has been very slow (Debtors total about 38 million). The company's debtor age analysis consists of about 65% >90 days debts! I have taken steps to reduce the cash-conversion-cycle which will ease the working capital constraints!

I also agree about the receivership issue. Administrative Receivership is not different from a full receivership (at least here in Kenya). My client has already moved in secure the charged assets. It is the employees who now have to go! That is my dilemma!

My client still harbours the hope that the directors will cooperate with us! They have indicated that they are looking for financing and we have given them 30 days from 15 April to get it. In the interim, we will allow them to retain some powers (although not to deal with the charged assets).

To your options: Option a) is already in full swing. We just haven't gone public! No liquidation. If worst comes to worst, we will resume production with a view to selling the company as a going concern. Resuming operations normally proves to the potential buyers that the company is operational and increases the goodwill!

Option b) has worked for me before but that is only where the directors do not commence civil action! That is my biggest concern. They (directors) have indicated that they have no intentions of doing that but you can never trust these Indians!



Immorality: The morality of those who are having a better time!

@albertross: My client has indicated they are willing to inject some cash into the business but only on condition reduce the recurring liabilities, the biggest of which is HR! We have prepared a cash flow forecast for the next 6 months and with the current payroll, we would need an injection of about 100m for that period. The cost-cutting must be implemented before the cash is advanced.

Restructuring the debt would not help at the moment. The company has defaulted in servicing of the loan for 5 months! They have no funds! Restructuring the debt would also mean returning the company to full operation in order to generate money to service the restructured debt! Back to square one! Cut costs!


Immorality: The morality of those who are having a better time!

Thank you albertross! I will keep you informed!

Immorality: The morality of those who are having a better time!

@Gekko: That is in play already! They have stock worth about 15 million which we have adopted a very aggressive sales & marketing strategy to get rid of in 2 months! Of course we are insisting on COD,cheque on delivery or a maximum of 30 days credit for clients who have a good payment record!

Thank you for your advise!


Immorality: The morality of those who are having a better time!

@sasha. I do unconventional turnarounds. Softly,firmly but veeery effectively. Your analysis is purely records based. An indian run business rarely has more than 40% facts recorded. Go outside the box.
1. Are the finished good inventories higher than normal?speak to customers,Big & Med ones. They'll tell you why they stopped buying and what you need to do for them to buy again. They know what went wrong,when,and who caused it. - If anything is wrong at all.
2.Collaborate customers story with visits to suppliers. Big,medium,small. especially those with outstandings. They'll tell you what and when went wrong with prodn and what can be done.
3. Get confidential chats with top,mid,lower mgrs. Follow up with messengers and drivers. They know where and when the rain started beating them-and who caused it.
4. HR has little cash leaks when compared with Board,Sales,banking,or supplier based leaks in that order.
5. If these leaks are minimal/nonexistent,then call all top & mid level managers to brainstorm how to move inventory fastest. As they get busy to save their jobs by selling more,get on with some surgery-if necessary.
5. If you intend to keep it as a going concern,then make sure you retain key people for a while,otherwise restarting could be difficult.
NB: My turnarounds grow sales by more than 50%,create upto 20% more jobs and return a PBIT within 6 months. All the best

Good Ideas are like buses,behold another one comes

Thank you Msasani. This is what I was looking for, someone to give me ideas! Unfortunately, these guys are already preparing to go to court. Some hungry lawyer has convinced them they can win a case against a debenture holder!

To your points:

1. The finished goods inventories are not higher than normal. The sales have been on-going. Problem is the customers paying late or not paying at all! Largest debtor as you can rightly guess is government agencies! We have written to all customers informing them of the situation. We've held meeting with selected customers and recorded their concerns and their conditions to renew business dealings with them.

2. All suppliers have insisted on payment before delivery despite our efforts to persuade them otherwise. Some have insisted on LCs! The largest and most important one has revoked a distributorship agreement as a result of non-payment of royalties for more than 1 year. Right now, I'm preparing for a meeting with my client to inform them that we cannot lose this supplier and revive the company!

3. Chats with employees? That is done daily. I have people on the ground talking to anyone who has an opinion about the company's operations. Very enlightening I must say!

4. Agreed, though at this point, HR is the biggest payable every month. I have no choice but to cut it down by more than 50%.

5. We have retained the entire sales team with instructions to double their sales targets. We have offered commissions as an incentive and so far, they've done a good job. Sales have reached 2.5 million in one week (all COD or current cheques with a few 30 day credits)!

6. Noted! All key staff, other than the Production Manager (I've already identified a competent replacement for him) will be retained.

I wish I could handle this as a turnaround, which would be very interesting and I would need your input greatly. Unfortunately, with the anticipated civil action, I have to change my strategy to asset realisation to repay the outstanding debt to my client! According to my very conservative cash flow forecast, it would take at least 6 months to return the company to profitability (assuming no interferance from directors and all raw materials being available)!

Repayment of the outstanding debt would be a slow and painful process which my client and I are against! Asset realisation within the same 6 months would provide my client with at least 89% recovery on the outstanding debt!


Immorality: The morality of those who are having a better time!

here is an option the main shareholder ought be told about .... actually whsipered. please make sure there is no paper trail leading back to you. this company must be insured. ensure premiums are paid up. hire goons and weka tyre. show up when the blaze has consumed 80% of the co premises. shed many tears when KTN/NTV/Citizen cameras show up. then go file claim. it has been done before and i can bet it shall be done alot more this year. there come a time when.... you cut you looses and flee.... its probably criminal but....like i said,its an option the main shareholder should know about. let him deal with the 'ethical issues' around it.

He who laughs last thinks slowest..

he he Pondi! That is the easy way out! Unfortunately, or fortunately, I'm not allowed to do that!

Immorality: The morality of those who are having a better time!

Pondi wewe noma but amazingly you are extremely ON POINT!!

I also happen to be a roho safi guy................yet I want to drive the Sports Supercharged version. What do I do?

@King! I honestly don't care how he feels! That is water under the bridge for me! Plus I don't think he knows anything about stocks!

Immorality: The morality of those who are having a better time!