Multicoin Pte Ltd (Multicoin) is a private company established in 1976 by Yohan Le Mesurier and Stephen Chung. The two had previously worked for large financial institutions and then decided to establish their own company to develop and sell financial products.
The company has the following directors and senior officers:
Yohan Le Mesurier Chairperson
Stephen Chung: Managing director
Li Ma: Chief Financial Officer
Suren Chandra: Sales and marketing director
Victoria Moser: Product Development Director
Yohan, Stephen, and Li have asked for the meeting because they have the following issues, they would like advice on.
Issue 1:
The company since early 2021 has been losing money on due to the volatility in the financial markets, raising interest rates and lack of investor confidence.
The draft financial statements for Multicoin prepared by Li show that this would result in the company for the year ended 31 December 2022 making a trading loss of $7,200,000.
Other factors attributing to the loss were staff costs, operating expenses, and the cost of funding the development of new IT infrastructure to comply with MAS guidelines.
The company currently has retained earnings as at 1 January 2022 of $15,864,372 and after the estimated trading losses of $7,200,000 for 31 December 2022, this would decrease to $8,664,372.
The directors are mindful of the need to retain funds for working capital and estimate the company needs working capital of at least $6,500,000.
Issue they seek advice on:
Is there a profit from which the directors can pay a dividend to the shareholders?
Does the company have a profit, and should the directors exercise their discretion and pay out the dividend of 15% to the shareholders?
If you recommend the directors pay a dividend how much would you recommend?
Issue 2:
The company has its own constitution (previously a memorandum and articles of association). In the constitution it stated that the A class preference shareholders were entitled to a dividend of 6.5% each year. The directors would like to reduce this rate to 2.25% given the current financial position of the company and propose replacing the existing rule with a new rule reducing the dividend to 2.25%.
Issue they seek advice on:
Can the A class preference shareholders prevent the company from changing the constitution to reduce the dividend rate?
Issue 3:
During the current financial year Suren was looking for new markets to sell Multicoin’s products. A large financial planning organisation in Indonesia was happy to promote Multicoin’s products. Suren entered negotiations with the Indonesian organisation and signed a contract with them that Multicoin would develop new financial products and provide training for the financial planning organisation staff. The fees payable to the financial planning organisation in Indonesia was .85% of the value of the products sold.
Under Suren’s contract of employment he was only entitled to enter contacts up to .5% of the value of the products sold.
If the amount of the contract was greater than this, then under Multicoin’s internal processes he was to get Stephen’s approval. Suren did not do so as Stephen was on holidays at the time.
Issue they seek advice on:
Is Multicoin bound to pay the commission rate of .85%?
Issue 4:
Victoria the product development director employed Natasha Fernandez as a senior product manager.
Natasha had only been working for 2 years as a junior product manager in another firm. Natasha does not have much managerial or experience in senior roles. Victoria is aware of this but still employed her because Natasha’s father is the managing director of Iron Shark Ltd an investment bank that could help Multicoin raise funds and find new clients.
Issue they seek advice on:
Natasha has made several errors that has cost Multicoin $95,000 in additional expenses. Who can Multicoin recover this money from?
Issue 5:
Given the downturn in the financial markets around the world, financial institutions like Multicoin are suffering from severe cash burn.
Li has indicated that Multicoin only has sufficient cash at bank to fund 6 months of operations. Yohan, Stephen and Li are looking at various financing options and are considering:
A rights issue
Private placement
The shareholders of the company are:
Employees: 5%
Stephen:12%
Chung:5.5%
Li: 2.5%
Tiger Investments Ltd 30% (an investment bank based in New York, USA)
Paradise Merchant Bank Ltd: 25% (a venture capitalist) based in Melbourne Australia.
The 20% (42 shareholders on the register)
There are 18,000,000 shares on issue. The current market price is $10.50 which represents a decrease of 30% since the beginning of the year.
Ah Chee advises the directors that the price of a rights issue should be at a 30% discount to current market price.
Issue they seek advice on:
How much could Multicoin raise by way of the rights issue? In setting the price of then rights issue what are the risks to Multicoin given the current economic and financial markets turmoil?
Can they just do a rights issue to Tiger Investments Ltd and Paradise Merchant Bank Ltd and not the public shareholders and themselves?
Li has heard of crowd sourced funding. Would this be easier and better for Multicoin to raise the money?
