Troubled Datalex to raise more cash to keep company afloat
Troubled Irish travel software firm Datalex is to raise more cash to keep it afloat, it said this morning.
It’s also taking legal advice on whether it should take action against former executives in relation to the 2018 dividend payment made by the group.
Datalex said it will need a further $10m (€9m) of funding over the next 12 months in order to ensure it's able to stay in business.
Billionaire financier Dermot Desmond has agreed to participate in the funding round, Datalex confirmed this morning. As part of the $10m funding Datalex needs, Mr Desmond will procure up to $5.5m to enable the group to continue trading over the remainder to the current calendar year.
The company also said this morning that its 2018 dividend payment to shareholders was funded primarily by a $4m dividend payment paid from the group’s principal subsidiary, Datalex (Ireland).
“Management subsequently identified that Datalex Ireland did not in fact have sufficient distributable profits to legally make the dividend payment to the Company under the relevant provisions of the Companies Act 2014,” the company said in its annual report published this morning.
“The amount of $4m received by the company by way of this unlawful distribution has, in accordance with legal advice received, been presented in its financial statements at 31 December 2018 as an intercompany balance repayable due to Datalex Ireland and has been derecognised as dividend income in the company’s statement of profit or loss,” it added.
It said: “The group is considering with its legal advisers whether it would be in the best interests of the group and its stakeholders to take actions against former executives to recover value and will take such action if advised that it is appropriate to do so.”
But Datalex warned in its annual report that “any decision to take such action will require careful consideration, having regard to amongst other things, the chances of success and recovery, the likely form of proceedings and the collateral implications for any regulatory inquiries involving the group”.
The company said it is in a “tight financial position”.
Datalex finally revealed the extent of its losses form 2018 after announcing earlier this year that its first-half accounts for 2018 may have been misstated. An independent review later confirmed that there had been accounting irregularities at the firm.
Releasing its annual report this morning, Datalex said that it made a $50m loss after tax in 2018.
Datalex has also said that a customer has this week terminated its contract with the firm.
“The group strong disputes the legality of this notice and confirms that it is engaged in discussions with the customer concerning resolution of this matter,” it said.
Mr Desmond, already Datalex’s biggest shareholder before he provided a €10m funding package earlier this year, now owns just under 30pc of the software firm. The funding included €4m in equity and a €6m loan.
“The group’s financial results for 2018 reflect the extent of the issues the business faced and the steps that have been taken to allow the business move forward with confidence,” said Datalex acting chairman and interim chief executive Sean Corkery this morning.
“Key to this is the ongoing financial support of our largest shareholder, Mr Dermot Desmond, who has confirmed that he will procure additional funding, subject to a number of conditions and on terms to be agreed, to meet the short-term cash flow needs of the group over the remainder of the calendar year,” Mr Corkery explained.
He added: “The directors intend to arrange an equity fundraising to raise, net of expenses, sufficient proceeds for the repayment of the company’s loans and the funding of the working capital needs of the business in 2020 and beyond.
“Mr Desmond has informed the company that he will support the equity fundraising and procure the participation of IIU Nominees in its pro rata entitlement and will also work with the company to secure underwriting of the equity fundraising,” added Mr Corkery.
“Nevertheless, we appreciate that the successful completion of an equity fundraising remains subject to significant risks,” he said.