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A Promising Start
Interchem Distribution Europe OÜ, a chemical import/export specialist, had plans to increase its trade volume but lacked capital, so decided to fill the gap with a business loan. The loan conditions were strict, requiring 100% of the company's shares as collateral, plus a personal guarantee from the sole director and owner. This first project was a success, and the company saw a 20% increase in trade volume and a 50% increase in profitability.
The company paid back the money it borrowed plus interest, becoming the first successful high-yield business loan on the platform. Encouraged by this success, Interchem pursued a second round of funding aiming to achieve similar growth and profitability goals, offering investors 18% interest.
Challenges and Adaptations
After Interchem's second fundraising, the geopolitical situation regarding the conflict in Ukraine changed dramatically. Despite the volatile environment, the first months saw promising developments and profitability almost doubled. However, sanctions were soon imposed, making direct trade with Russia impossible. In response, Interchem adapted by switching its trade flows through Turkey.
As the loan's 2023 deadline approached, Interchem requested an extension to repay the loan, citing that the funds were stuck in Turkish banks. Despite these difficulties, Interchem continued to repay the loan and make interest payments, but payments began to slow and become irregular due to banks' AML (anti-money laundering) procedures.
Legal Process and Agreements
After no repayment was made during the summer, and after lengthy negotiations until autumn 2023, Interchem and its directors concluded an agreement to repay the loan within five months. Unfortunately, this agreement was not honoured, as two deadlines passed without any payment being made. As a result, R24 has initiated insolvency proceedings against both Interchem and its director and sole shareholder Alexey Baranov.
Bankruptcy proceedings are notoriously long and complicated, without any guarantee of debt recovery, and opponents tend to avoid fulfilling debt obligations. In parallel with the court negotiations, R24 and Interchem, together with Aleksei Baranov, finally signed a notarized agreement for debt repayment. This improved the situation compared to bankruptcy proceedings and increased the chances of recovering funds. Since the company trades internationally, bankruptcy trustees tend to avoid international litigation, since international litigation is very long, unpredictable and generates huge expenses that creditors must bear before the outcome. According to the signed agreement, the first principal payment is scheduled for September 2024, and the final principal return is scheduled by the end of 2025. These dates are set as border deadlines, which Interchem will pay off its debts if it is able to do so earlier.
Strategic path forward
Although the repayment period is extended, this strategy is considered more advantageous than pursuing bankruptcy, which would halt the company's operations, eliminate cash flow, and require additional funds for legal disputes, which may continue for 2-3 years or more with no guarantee of recovery. Therefore, this notarized repayment agreement is a more realistic approach.
According to the terms of the agreement, the proceeds will first cover legal costs incurred, and the principal proceeds will be distributed equally to all investors at all stages. Investors can expect the first payment by the end of September 2024. In the event that Interchem fails to make payments, the notarized agreement provides for the option of initiating enforcement proceedings without a court order, a much quicker process than bankruptcy.
Understanding the risks
Business loans are inherently risky, as was the case with Interchem. It is important to be aware of the nature of the risks in business loans and how they impact investors.
In conclusion, a notarized contract offers a viable solution for debt repayment. Although the deadlines are extended, the investor’s position in terms of recovery of the invested capital is significantly improved. Other options involve lengthy legal disputes and costs with uncertain outcomes.
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