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It was a story that start-ups dream of – brilliant minds dream up a revolutionary idea and their business gets off to a roaring start. In due course, they seek a more sizeable chunk of capital and make a deal with a publicly-listed company for an undreamt-of amount of money.
The start-up was StretchSense – the brainchild of three Auckland-based men who invented wearable motion-capture technology with multiple applications.
The company hailed from overseas and it invested millions in StretchSense with consideration to full future ownership. It funded suitable machinery, underwrote an expensive lease and put in a massive order for suits with sensors that measured body size, giving perfect body measurements for online clothes shopping. It was an ambitious mass-manufacturing project beyond scope. When the suits weren’t made on time, the investors retracted their order and future financial backing, and StretchSense was left with an expensive lease, idle equipment and a gaping financial deficiency.
Its accountants advised voluntary administration and Baker Tilly Staples Rodway was called in.
The human cost of a failed business
The stakes are high in big business and a collapse is never pretty. It’s a fraught time for all involved and as always, the various parties have their own accounts of what happened.
In any voluntary administration or liquidation, stress, fear, fury, betrayal and guilt are the human by-product of lost income, broken trust and soaring debts, as the fallout rains over everyone with a stake in the company.
Baker Tilly Staples Rodway Auckland Specialist Services director Tony Maginness says it’s why we prefer to help turn businesses around at the first sign of trouble, rather than be the ambulance at the bottom of the cliff. “Don’t run out of working capital,” he advises those whose business is faltering. “Do these restructures while there are funds and the ability to save the business.”
StretchSense wasn’t terminal – there was still money in its account – but it was close to its last gasp. It had scaled back to a more manageable size but the company had massive monthly lease commitments for a building it didn’t need. It was obvious to the directors that the business would soon be insolvent.
Picking up the pieces
Tony and Baker Tilly Staples Rodway Auckland Specialist Services director Jared Booth ring-fenced the business, kept the company trading, and retained intellectual property and as many skilled staff as possible under the circumstances. They cut costs and did deals for suppliers and landlords.
It gave them time to sell the business before it was placed in liquidation, which enabled some of its debts to be paid off, says Jared. “The liquidators made a 30c in the dollar of distribution to the creditors. As a result of the voluntary administration, creditors received a much better result than they would have had if the company had gone straight into liquidation.
“During the course of the liquidation we've had to deal with contingent claims, disputes between creditors over priorities and so on. That process can take a while, and it has, but it didn’t hold up the sale of a business.”
Tony says while paying off all debts is the best-case scenario, voluntary administration gave them by far the best outcome under the circumstances as it allowed the administrators to trade the business while running an international marketing campaign to sell the business as a “going concern”.
If the business had been shut down and the staff made redundant, most of the company’s Intellectual Property (IP) would have been lost and the recovery would have been the scrap value of the plant and equipment.
As for StretchSense, it’s on its second life, having sold in late 2019 after strong interest from national and international buyers. “It's changed direction and is making interactive gloves for gaming, movies, animation – a lot of different things,” says Tony. “We sold it and it lives the fight another day. As far as voluntary administrations go, it was a real success. It’s exactly what the legislation's meant to do – the business was saved.
“It’s going to go onto much bigger and better things when the technology could have died with the business if we weren’t able to sell it as a going concern, and sometime in the future, I’m sure a big international corporation will come along and want to buy it.”
DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.
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