Zilingo co-founders look to management buyout to avoid liquidation

THE founders of embattled startup Zilingo have made an offer to the board of directors for a management buyout and restructuring in an attempt to revive the company’s operations as it faces the prospect of liquidation.

Under the preliminary non-binding proposal, a new entity will be incorporated to acquire assets of Zilingo Pte Ltd while an investor group will commit US$8 million in the new entity, according to a document seen by The Business Times. The amount will be drawn down in tranches by the management to meet needs set out by a yet to be determined 5-year business plan.

It is unclear who else is in the investor group apart from co-founders Dhruv Kapoor and Ankiti Bose. A source told BT a US-based private equity firm has agreed to be part of the group.

The new entity will acquire the business verticals Z Factory, Z Sourcing, Z Connect / Z Digitize, Z Trade and Z Spotlight from Zilingo. Any remaining assets and the old corporate entity will be liquidated to repay outstanding debt to creditor Zorro Assets Limited.

The move will require Zilingo to undergo a scheme of arrangement in court and apply for a debt moratorium that will give the company more time to repay creditors. Zilingo’s financial troubles deepened last month after its lenders decided to recall all of their loans, following the company’s failure to fulfil prior obligations.

The investor group is proposing to acquire all outstanding debt owed to Zorro Assets Limited, subject to a 3-year debt moratorium. Repayments will begin on a quarterly basis when the moratorium lifts.

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Strand Hanson has been appointed as financial advisor for the proposed buyout, a separate source said.

“Given the potential of the business and the value you know this company can achieve, I urge you to consider the (management buyout) as a preferred alternative to voluntary liquidation,” co-founder and director Dhruv Kapoor said in a letter to the board dated Jun 19.

Details of the management takeover were sent by Kapoor to the board of directors on Sunday evening (Jun 19). Bose voiced her support for the plan shortly after.

“I endorse this proposed Management Buyout plan with this Investor Group and encourage all shareholders of Zilingo to see beyond the personal differences here and do what’s right,” Bose said in an email seen by BT.

There are 2 conditions to the buyout plan – a confirmatory due diligence from 7 days of the proposal being accepted, and Zilingo filing a scheme moratorium.

BT has contacted Zilingo for comment.

The startup, which provides digital services for e-commerce merchants, shot to stardom after securing funding from some of the biggest names in venture capital. Its backers included Sequoia and Singapore state investor Temasek.

But the company is now in crisis after alleged financial irregularities surfaced, prompting an investigation by the board into the company’s accounting practices. Bose was fired from her chief executive position in May and has vowed to clear her name.

If a management buyout plan sees light, existing shareholders of Zilingo could still have a say in the company’s future. The investor group has indicated that it is willing to negotiate granting equity to existing investors.

“As founders, it is our ultimate responsibility to make sure that we do whatever it takes to make sure the lights stay on at Zilingo and in the homes of the hundreds of people who are part of it,” Bose said in a statement to BT.

“No matter what our differences may be, at the end of the day we started this company with the same goal. Today, we have come together to fight for that same goal.”