What happens if a business goes bankrupt?
If a business that offered term or revenue sharing notes goes bankrupt and defaults on its payments, NextSeed will take commercially reasonable steps on behalf of the investors to collect payment from the defaulting issuer, including hiring outside legal counsel to enforce the debt and, if necessary, file suit. If the business has granted a lien on its assets or the principals have provided personal guarantees, NextSeed, as collateral agent and on behalf of the investors, will also take steps to enforce the lien and guarantees.
If a business that offered equity, convertible notes or SAFEs goes bankrupt, a company’s assets will be liquidated and the money will go toward paying off all the company’s outstanding debts first. If there is any money left over after all creditors have been paid off, NextSeed will take commercially reasonable steps on behalf of the investors to ensure the proper amount is distributed to the investors.
What happens if a business that offered term or revenue sharing notes misses a monthly payment?
If a business misses a payment or makes a lower payment than what is contractually required, it will be charged a late fee and required to make up the payment according to the terms set forth in the note purchase agreement. Investors will be notified if a business is late in making its payment. Late payments are not necessarily an indication of how a business is doing.
If the business is unable to get back on track by the next payment cycle, it may be in default. If a business is in default, then NextSeed will take additional steps on behalf of investors as described below.
What happens if a business defaults on its note?
If a business has an event of default, it will be sent a Notice of Default and investors will be notified at that time. Please note that NextSeed may not be in a position to discuss ongoing negotiations or potential legal action. To the extent possible, investors will be updated along the way with any meaningful milestones that are achieved during the process.
NextSeed, as collateral agent on behalf of investors, will work with the business to determine the course of action likely to result in the most beneficial outcome for investors. This may include delaying formal legal proceedings so the business can get back on track, or providing assistance to the issuer with selling the business or refinancing its debt.
If it is determined that formal legal action must be taken, NextSeed will initiate such action on behalf of investors. Legal proceedings may be lengthy and we will update investors with any substantial progress made during this time.