Our mentors — Lim Soon Hock
“In 2009, following the financial crisis, I was appointed by one of the big 4 auditing firms and 11 banks to save a public listed company from liquidation. It has been profitable for more than 25 years, but because of a US$47m payment default by a major customer, the company ended up with a negative NTA. It was technically insolvent. The default was more than the cumulative profits of the company.
The auditing firm and 11 banks wanted the Chairman and CEO removed. I was to be his replacement. I decided otherwise. Instead, I suggested that the incumbent remains as the Chairman, and in place of the CEO, an Executive Committee (Exco) be formed to manage the day-to-day operations. The Exco comprised 3 members: an Executive Director, an Independent Director and myself, as the Chairman.
The rationale was simple:
1. The gravity of the predicament and my many years of experience, as well as seniority, were sufficient to get the work done. Title is less important.
2. The Chairman had a long and close relationship with suppliers, and in this regard, he had a useful role to play in the restructuring.
3. Tough decisions and hard choices had to be made, and I could depend on the collective wisdom of the Exco. Whatever decision I had to make therefore carried weight, and could be executed expediently and expeditiously, more so in the ensuing crisis.
The following steps were taken to turn the company around:
1. Half of the bank loans were converted into equity; and the remaining debt into revolving credit, when the company was restructured through a planned reverse takeover.
2. Identify a company in a similar industry for the reverse take-over.
Both steps turned the NTA from negative to positive, while doubling the top line and improving the bottom line.
Within the first month of my appointment, I visited the suppliers in USA and Taiwan, who accounted for 80% of the company’s business, together with the Chairman, to share with their Chairman and / or President, the restructuring and turnaround plan. It was tough to convince them not to terminate the existing contracts and to continue to extend credit to the company.
Although the company has US$4m in cash, it was not enough as working capital. We also faced the threat of competitors taking away the contracts from the company, and the loss of customers, especially the major ones.
I asked for a 6 months grace period from the suppliers to get the restructuring plan going, with the promise that if it were not going to happen, I would be the first to alert them. They could then have the discretion to decide what they want to do with the existing contracts.
The restructuring exercise was completed in 2010, after 16 months of close supervision and near perfect execution of the plan. It was successful for the following reasons:
1. The banks agreed to the restructuring of the loans because they had nothing to lose. The alternative would be liquidation under the scheme of arrangement, and they would get back nothing.
2. The agreement from all the major suppliers to give me a second chance to restore the company back to financial health was critical. It makes the all-important difference between keeping the company alive, and folding it up.
3. All employees were given KPIs to achieve the turn-around, with the promise that when completed, and cash flow permits, discretionary performance bonuses would be awarded.
4. I kept all key stakeholders, the auditing firm, the 11 banks, suppliers, customers and employees updated regularly on the progress of the restructuring.
On hindsight, what was seemingly impossible turned out to be possible. Much of it is due to winning trust from all the key stakeholders and willingness to make hard choices, culled from years of experience and knowledge.
My greatest satisfaction was not so much in completing the restructuring and turning it around successfully, but that during the entire process, I did not have to retrench any employee, despite the fact that this was a common practice then, following the 2008 financial crisis.”
Mr. Lim Soon Hock, Founder and Managing Director of PLAN-B ICAG Pte Ltd, FundedHere mentor