Working Capital Finance Advisory

Companies Act, 2013: Section 180(1)(c) requires shareholder approval by special resolution before a company's board borrows money — including drawing or enhancing working capital facilities — beyond the aggregate of paid-up share capital, free reserves, and securities premium; the resolution must be filed with the Registrar of Companies in Form MGT-14 within 30 days of being passed. Working capital enhancement requests routinely test this threshold, since working capital limits are sanctioned against turnover and stock/debtor cover rather than net worth, so businesses should verify headroom under Section 180(1)(c) before a facility enhancement is sought. Separately, working capital facilities extended against security (hypothecation of stock/book debts, mortgage of property) fall within the enforcement framework of the SARFAESI Act, 2002 once an account is classified as a non-performing asset: Section 13(2) requires the secured creditor to issue a 60-day demand notice; Section 13(4)(a)-(d) sets out the enforcement measures available thereafter (taking possession of and selling secured assets, appointment of a manager, or assignment of rights); and Section 14(1) allows the lender to seek assistance from the Chief Metropolitan Magistrate or District Magistrate to take physical possession, as affirmed by the Supreme Court in Standard Chartered Bank v. Noble Kumar, (2013) 9 SCC 620. Businesses structuring working capital facilities should understand both the corporate-approval threshold at drawdown and the enforcement consequences of default under this framework.

Working capital finance is the arrangement of the short-term credit that funds a business's operations — the cash credit and the overdraft facilities from the banks against the hypothecation of the stock and the receivables, the bill discounting and the invoice financing, the supply chain finance and the TReDS, and the trade credit. The financing is the structure that bridges the gap between the business's payments and its collections, and its arrangement and its cost decide the business's liquidity.

The working capital finance is the credit that funds the operating cycle — the cash credit against the hypothecated stock and the receivables with the drawing power computed from the stock and the receivable audits, the invoice discounting and the supply chain finance on the receivables, and the trade credit from the suppliers. The financing is arranged with the documentation, the margins and the security the lenders require, and its cost and its structure are the business's liquidity.

The cost of an unmanaged working capital finance is the expensive and the inadequate credit: the cash credit limits that the stock audits could not support, the receivables financed at the high cost, the facilities that the business outgrew — each a cost on the liquidity the business could have managed.

This service is for businesses arranging their working capital finance. We assess the working capital requirements and the eligible security, prepare the applications and the projections for the banks and the NBFCs, structure the facilities — the cash credit, the discounting, the supply chain finance — manage the stock and the receivable audits and the drawing power, and review the facilities so the business's working capital is financed at the right cost and the right structure.