A client was in trouble.

His business – grown singlehandedly from a small two-person outfit into a multi-million dollar per year enterprise – was facing difficult times during 1997 financial crisis and had to bring a joint-venture (JV) partner in for financial support.

The JV seemed to work initially; his partner was prepared to leave the day-to-day operations to the client. In addition, his JV partner was prepared to provide financial management expertise – an area the client lacked – by way of assigning his Chief Financial Officer (the CFO) to help in the business.

But, as such stories are wont to do, things began to go wrong. For some unknown reason, cashflow became tight again. In the midst of the cash crunch, the CFO’s recommendation was to ask the JV partner to pump in more funding. This time, the funds came with strings attached: the JV partner wanted greater involvement in the business, including a say in which direction the business would take. It was an understandable request since the JV partner needed to protect his investment.

But somehow the outflow of cash did not stop, and the CFO again recommended further cash injection. The JV partner demanded further control in the business which the client was unhappy about. Eventually the relationship broke down and the JV partner sued for the return of his investment.

When the client first came to us, it initially seemed like a lost cause. He had borrowed the JV partner’s money and used it for his business, and the documentation was water-tight. In light of the circumstances, we were prepared to recommend that he negotiate a settlement, albeit from a very weak position.

However, what we were not prepared to do was give up. We started examining the cashflow issue, and in the discovery process, we found something strange: the business actually had sufficient cash in its bank accounts to keep it going – there never really was a need to ask the JV partner for additional cash injection.

Armed with this, we advised the client to defend the lawsuit on the basis that he requested the loan based on a misrepresentation from the CFO, a representative of the Partner.

The case went to trial, and on the first day, the CFO was put on the witness stand. Under our cross-examination, the CFO had to admit that he could not explain why the Business needed further cash injections when there was money in its banks. He said, “There could be special circumstances when a bank account can be both in debit and in credit at the same time.”

When the hearing was over for the day, the JV partner’s lawyers approached us to negotiate a settlement. We advised the client to negotiate; after all, the business had borrowed and used the money. However, the tables had turned; the client was now able to negotiate from a position of strength. The case was resolved and a very long repayment period was agreed to; something that would not put a strain on the cashflow of the business.

Our ‘never-say-die’ persistence in digging through the facts and our knowledge of accounting practices, helped our client identify that one fact to turn the entire case around despite the seeming odds. We helped him negotiate generous terms of settlement and, today, his business is once again successful.

By the way, we never did find out how a bank account can be in debit and in credit at the same time.