Funding Succession Planning for Director of Company

Background

Finance was required to buyout a retiring director from a profitable long established service industry business. The funding required a payment to the retiring director of $900,000 (for entitlements and purchase of his equity in the business), to refinance of the existing Bank facilities of $850,000 (to release the mortgage securities over the director’s homes) and additional Working Capital to assist with the expansion of the business. 

Business Summary

Service Industry operating for over 20 years.
Annual turn over $24.00M profitable
Trade debtors $2.00M
Four directors, one over 65 years of age wishing to retire. 

Existing Bank Facilities

Overdraft - $0.600M
Commercial Bills - $0.250M
Total - $0.850M

Secured by

Collateral mortgages over all directors homes
Debenture over business

Funding Needs 
Entitlements to retiring Director - $0.300M
Purchase of  Ret. Directors shares - $0.600M
Additional Working Capital - $0.400M

Total Funding needs - $2.150M

AFNCF Refinance Package Solution

Receivables Finance to 80% of Debtors - $1.600M
Finance remaining directors' homes - $0.550M

Total Refinance Package - $2.150M         

Comments          

1. The receivables facility was secured without using the Directors homes as collateral security.
Security was.
a. Facility Agreement
b. Debenture charge over the company
c. Directors Guarantees 

2. The finance for the remaining directors to purchase the shares was arranged through a different lender - to ensure that the homes /loans were not captured under an all-monies clause of the business finance and were not cross collateralised.