Zylotech creditors will decide whether to liquidate or recapitalise the ASX-listed company (ASX: ZYL) after it fell into administration in August.
The IP security vendor was gripped by scandals and struggled to make ends meet before eventually entering voluntary administration on August 20. A new director and a business restructure – including downsizing - earlier in the year proved futile.
A report released this week by the vendor’s administrator, HLB Mann Judd’s Andrew Needham, cited Zylotech’s inability to generate sufficient sales, failure to secure further funding to meet working capital, and continued expenditure on research and development, as reasons for its demise.
Although the company has raised $4.44 million in share capital since 2007, funds dried up due to trading losses of $2m a year in 2008 and 2009. A revenue drop of 30 per cent this year exacerbated the situation. Amid its struggles, Zylotech also lost its first and sole Australian distributor, Avnet.
While liquidation is on the cards, Needham told ARN Zylotech was salvageable and recommended a company recapitalisation through a deed of company agreement (DOCA). This will allow an organisation to install a business into the ASX-listed entity, as force a restructure of share capital for Zylotech creditors. A process of issuing a prospectus and raising funds will then follow.
Needham said liquidation would likely stifle entitlements for employees and leave unsecured creditors with nothing. He saw a DOCA providing a better financial outcome for all involved members.
Twenty-seven parties have already submitted an expression of interest to purchase Zylotech’s listed shell.
“It was pretty much thinned down to a shortlist of eight parties that I and the committee believed to have sufficient resources to be able to do a deal of this size,” Needham said. “Once we got that list, it was then a matter of which one represented the best value plus the best chance of succeeding.”
The outcome ultimately rests on Zylotech’s employees and creditors, who will vote at a creditors’ meeting this week.