Singapore-based grocery and food delivery startup Honestbee has made an application to the city-state’s High Court to commence a court-supervised restructuring process, it said in a statement on Friday.
The move intends to propose a scheme of arrangement to the court to restructure its liabilities and to seek a moratorium against enforcement actions and legal proceedings, adding that it is “necessary to ensure that Honestbee has the right structure in place for long-term stability and success”.
“Honestbee has taken this imperative step to protect and preserve the value of its businesses while it restructures its operations across Asia. The court-supervised restructuring process is in the best interest of Honestbee’s stakeholders as the company can focus on re-evaluating the business without interference; streamline operations, increase existing efficiencies and bring down the cost structure,” said the startup.
Honestbee has engaged Oon & Bazul LLP as its legal advisor and DHC Capital Pte Ltd as its independent financial advisor.
The court-supervised restructuring comes shortly after the startup roped in Ong Lay Ann as its new CEO while the last of Honestbee’s co-founder and CTO Jonathan Low resigned last month.
According to a report by The Business Times, the court-supervised process would give Honestbee a six-month reprieve from its creditors which include existing investors Formation Group as well as its former interim CEO and current chairman Brian Koo. The startup is said to owe its creditors over $180 million.
As part of the restructuring, Honestbee will convert all secured and unsecured debt to equity. In addition, Ong said the startup has also laid off 38 employees in Singapore this week.
Honestbee has suspended almost all of its overseas operations – the most recent one in Malaysia. In the past months, it has also halt its services in Hong Kong, Indonesia, Japan, the Philippines and Taiwan.
In Taiwan, Honestbee is said to owe nearly 300 restaurants NT$7.79 million ($250,561) in overdue payments. Its physical store, Habitat by Honestbee and its grocery delivery service in Singapore remain operational so far.
We had earlier reported that Honestbee is looking to raise some S$20 million ($14.5 million) in bridge financing, and is open to raising this capital via convertible loans/warrants at double-digit interest rates for a term of 6-12 months.
The bridge loan will also be personally backed by Koo, who is also the general partner and founder of Silicon Valley-based investment firm Formation 8, which led a $15-million Series A round for Honestbee in 2015.
Will this save Honestbee?
It all goes back to three months ago when TechCrunch broke the story that Honestbee is nearly out of money and has been in talks with ride-hailing startups including Grab and GOJEK for potential acquisition.
An anonymous VC said it is not surprising that Honestbee has chosen to take the court-supervised restructuring process, which may lead to a series of spinoffs of the startup’s smaller business verticals like its recently-suspended laundry service.
As for its food delivery business, Honestbee may continue to search for potential buyers including larger players in the space such as Deliveroo or GrabFood to take over the business, said the VC.
The court-supervised restructuring process is somewhat similar to the case of Hyflux – a global environmental solutions company based in Singapore that went into a major financial trouble last year.
It is said that one of the major reasons that Hyflux has not faced liquidation yet is because of the moratorium granted to them by the court. Like the case of Honestbee, creditors couldn’t collect the money from them during a period of time.
Sonya Van de Graaff, a partner in the Business Restructuring & Insolvency Group of Morrison & Foerster’s London Office said Honestbee will be among the first companies to avail itself of the recent Singapore restructuring process which is an amalgam of the US Chapter 11 and UK Scheme of Arrangement – drawing on the best of the two of them, according to the Singapore authorities.
She said the process is rigorous and court supervised. Any compromise of the creditors’ claims will be in accordance with transparent expert valuation and as per the ‘counter-factual’ waterfall of priority of a liquidation.
“So creditors, whilst undoubtedly wanting representation, will be able to rest assured that the process will be ‘fair’. When the company emerges from the process, it will likely benefit from a deleveraging (e.g. a principal debt reduction and/or a debt/equity swap and/or sale of the business leaving behind various creditors) so that the business can continue in operation with a fresh start.
“However this will only be possible if it is determined that there is a viable business that has simply been overburdened with excess debt. Otherwise the company will be liquidated,” she told DealStreetAsia.
Van de Graff added that such process reflects the philosophy and benefits of rescuing a business and ‘right sizing’ it’s balance sheet – the attitude being that all stakeholders benefit from the business continuing rather than being liquidated.
“The process will likely take several months – I expect the company to already have reached out to creditors to get a sense of their appetite for various restructuring options,” she added.
Honestbee’s six-month reprieve starts today. The clock is ticking.