MARINE SUPPLIES-DISTRIBUTION

THE SITUATION

A 15 year old distributor of marine supplies and accessories had failed to adequately respond to a severely deteriorating market to the point where: About one half of the $ 750,000 inventory appeared out of balance and unsalable; the bank, which was personally guaranteed and appeared to be "under water", had refused to increase the asset based line and had issued a demand for payment in full; the suppliers were still owed about 25% of the amounts shipped during the past year and would not ship for the new season; nearly 20% of the accounts receivable were in bankruptcy and uncollectible. No acquirers, new investors or lenders could be found. The bright spot: The customer base was still relatively intact and loyal.

In order for this company to be saved, the major suppliers (seven companies) would have to agree to take a minimal payment now with an extended payout of the amounts owed and to also agree to ship in goods for the new season. Despite arduous efforts and a workable recovery plan, four of the seven refused: "If we don’t sell the product to this company, we will sell it to the competitors; we will lose nothing by the failure of this relatively small company."

ACTION

The only sensible plan was an orderly wind down. With the cooperation of the bank, which initially allowed 50% of receivable collections to be utilized in the wind down, we implemented this strategy in such a way as to realize maximum dollars on the receivables and the inventory to the extent that the bank was paid in full from the proceeds. The unsecured creditors received only $ .10 on the dollar. This wind down was accomplished without resorting to the bankruptcy courts. And the owner preserved his personal assets intact.

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