Centuries ago, if you failed to pay your debt, you’d have to offer yourself up as collateral, or, in the case of multiple creditors, you would be chopped up in proportion to their shares. Now, you can either negotiate your way out or risk losing your company.
Chinese e-learning and tech company Retech (ASX: RTE) has managed to do the former. The Company was taken to court by creditor City Savvy over non-repayment of debts worth $7 million, and it appears that Retech has lost—albeit not officially. Though Retech never disputed the non-payment, it did argue its terms, but City Savvy wasn’t in the mood for a one-on-one face-off.
Citing the non-payment under the convertible note agreement dated November 9, 2017, Retech received a winding up petition from City Savvy on November 28, 2022, saying that the Company would be wound up—kaput, finished—if it didn’t pay the money.
Before the petition, the Company had made multiple chunks of payments. Until Feb 7, 2022, it had paid City Savvy $1.9 million. And then, its cross-border bank account was locked.
Retech had to repay City Savvy entirely by 20 November 2021. Even after the delays, the Company had 21 days to compensate but failed. Annoyed, on November 22, 2022, City Savvy initiated proceedings in the High Court of the Hong Kong Special Administrative Region to have Retech wound up.
In every announcement, the Company has vehemently reiterated that it has the money to pay City Savvy; it has just been unable to do so due to delays from its Chinese bank and Covid impacts. However, it has been years since the payment request.
The winding up petition—wherein the Court considers whether a company’s funds should be liquidated due to lack of financial strength and the company subsequently be dissolved—was heard in the Hong Kong Special Administrative Region High Court on 1 February 2023. Before that, on January 31, 2023—as per Retech’s auditors’ request and in its best interest—the Company negotiated with City Savvy to develop a new repayment agreement.
For one, it paid $180k to City Savvy before February 1, 2023. Secondly, it claims it will pay City Savvy no less than 40% of the balance of outstanding debts before March 31, 2023, and Retech will pay City Savvy the outstanding debts before April 26, 2023.
City Savvy agreed and informed the court about the same. It was also okay to move the Winding Up Petition Hearing from Feb 1, 2023, to April 28, 2023. However, the Court has now agreed to move it to February 22, 2023.
Initially, both parties agreed that the delay in the repayment would result in the default interest of 15% per annum, but Retech disputes the one-off 15% penalty payment with City Savvy.
Currently, the Company is working on getting its China finances in order. Its bank account with Shanghai Pudong Development Bank (SPDB) has been approved to change from an FTN account (Free Trade Non-Resident Account) to an NRA (Non-Resident Account) to pay City Savvy. It’s also opening a backup account with the Bank of China, just in case.
With a market cap of $32.6 million, Retech can indeed pay the debts; however, it claims that Covid, bank closures and such have held it back. In Q4 2022, it received cash receipts of $4.3 million, down 64% on Q4 2021. It still holds $23 million in cash. Due to the ongoing proceedings, the Company has yet to provide a half-year report ending June 2022.
It plans on releasing it on February 17, 2023.
Alinda is a Business Reporter for The Sentiment
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