Partner and Head of Restructuring and Insolvency Justin Chia comments in The Business Times article titled "honestbee chairman Brian Koo looms large in startup's revamp bid"

Eversheds Harry Elias Partner and Head of Restructuring and Insolvency Justin Chia comments in The Business Times article titled "Honestbee chairman Brian Koo looms large in startup's revamp bid". The article was first published on 13 September 2019.

honestbee chairman Brian Koo looms large in startup's revamp bid

AS HONESTBEE seeks court protection to restructure some US$209 million worth of debt, questions remain about whether its key backer and chairman Brian Koo holds all the cards, or if minority creditors will have more of a say in the outcome.

The grocery delivery startup had taken US$4 million in loans from two funds under Mr Koo's venture firm Formation Group this year that were secured by charges over all of honestbee's assets.

While the sum is small relative to honestbee's total liabilities, the loan makes the Formation Group funds honestbee's only secured creditors, with seniority over all of the startup's other financial and trade creditors.

Below is an excerpt from the article which features comments from Justin:

What's a dissenting creditor to do?

Singapore's restructuring rules require that schemes of arrangement be approved by at least a majority, in number, of creditors in each class who represent at least 75 per cent of the debt value within the class.

This may mean that although Mr Koo and his related entities hold enough of honestbee's debt to cross the value hurdle, they might still require support from more creditors to obtain a majority by number. Unless a "cram-down" mechanism is specifically invoked and granted, this might be the best way for minority creditors to block schemes they do not want.

Whether Mr Koo and his affiliates will have an outsized influence in the voting process may also depend on how exactly the creditors are divided into the various classes.

Justin Chia, head of restructuring and insolvency at Eversheds Harry Elias, noted that in such proceedings, broadly speaking, unsecured creditors' interests may be better represented if they come together. "This may help the company to better understand their concerns, and to consider if the terms of the proposed restructuring plan may be adjusted to take into account such concerns," he said.

A liquidation scenario might be worse for minority creditors, because it is not clear what might be left after Formation collects on its senior US$4 million secured claim.

According to regulatory filings, honestbee had US$10.8 million in assets as of end-2015, including US$6.4 million in cash, US$2.2 million in property and equipment and a house in Hokkaido, Japan worth US$1.29 million. Much of honestbee's assets, especially cash, may have been depleted. In 2015 alone, honestbee burnt through US$6.78 million in cash. honestbee has not provided an update on its financials.

"If honestbee's assets are insufficient to satisfy the debts of such creditors ranking above the unsecured creditors, the unsecured creditors are not likely to be able to recover anything at all," Mr Chia explained.

Full article can be found here.

Source: The Business Times

Author: Sharanya Pillai