Good Morning, What Usually happens once a company defaults on a note? I know it goes to their expense section of their filings but does the lender still have the option of converting the principal amount along with the default amount/interest or is it paid off @ a later time though other means such as non common shares/ cash, etc.. I'm trying to understand the formality of the matter.(Defaulted Notes) Thanks in Advance.
for example
How would one know when this note would convert?
On February 26, 2019, the Company entered into a convertible promissory with a non-related for $53,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $50,000. The note is due on February 20, 2020 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to 37%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. On June 19, 2019, the Company defaulted on the note, resulting in the note becoming immediately convertible and a default penalty of $26,500 added to the principal of the note.
Whenever the lender sees fit then the market would just have to identify it when it starts its conversions and adjust?
or this one..
On June 19, 2019, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $187,924 and resulted in a discount to the note payable of $50,000 and an initial derivative expense of $137,924. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense.
Is it simply just written off until a sale of the company or paid off when the company receives more money? TIA if anyone answers lol
