The administrator of Ecofibre has arranged short-term funding to allow the company to keep trading and to save it from liquidation.
Financial consultancy KordaMentha told shareholders that without funding it would have “no option” but to recommend Ecofibre be wound up.
In that scenario there would unlikely to be any return to creditors, the administrator warned.
A first meeting of creditors took place yesterday (Wednesday).
Ecofibre entered voluntary administration on May 2, with KordaMentha appointed to handle its financial affairs.
According to documents lodged with the Australian Securities and Investments Commission (ASIC), the company owes US$13.2 million (A$20.5m) to creditors, the overwhelming majority to related parties.
They include Barry Lambert, whose money established the Lambert Initiative, (US$3.49m) and a company called James 1916 (US$6.5m).
A total of US$5.2m is owed to Ecofibre, all intercompany debts, including US$4.9m owed by Ecofibre USA.
The funding agreement with lender Van Diemans Land Finance will provide Ecofibre with access to A$4.1 million over six weeks from the first drawdown.
Administrator Scott Langdon said it was necessary to “support operations” of the company and to accelerate a sale process.
“We consider it to be in the best interests of creditors to have entered into this funding agreement,” he said in an update. “Based on our review of the company’s books and records and our discussions with management, we are satisfied that if the company did not obtain this short-term funding, then it will not be able to continue operating and we will have no option but to recommend that the company be wound up.
“If the company is wound up, then we expect that the value of the assets will be substantially reduced and correspondingly there will be no or minimal return to creditors.”
The firm has been juggling its finances for a number of quarters, with management feeling it had little option but to enter administration after lodging its Q3 cash flow report with the Australian Securities Exchange (ASX).
Shortly before appointing KordaMentha, Ecofibre admitted to the ASX that it would need to sell one or more of its assets to keep trading and meet its business obligations.
Ecofibre operates a number of businesses including Ananda Health, Ecofibre Genetics and Ecofibre Advanced Technologies.