ZILINGO'S board has authorised the repayment of loans demanded by creditors as the troubled startup fights to stave off a liquidity crisis, according to people familiar with the matter.

Weeks after the ouster of Ankiti Bose from her post as chief executive officer, company directors on Wednesday (Jun 8) authorised co-founder Dhruv Kapoor to transfer funds demanded by the creditors behind a US$40 million debt facility with immediate effect, said the people who asked not to be named as the matter is private. Kapoor and Bose started Singapore-based Zilingo together in 2015.

The move puts the embattled fashion startup in a precarious financial position, given its money-losing operations and limited access to fresh capital.

"The board has and continues to evaluate all options for the business," the firm said in an emailed statement. "All significant decisions related to the company are taken collectively with the full involvement and authorisation of the majority of investors."

Since Bose was fired on May 20, investors and top management have debated whether Zilingo can keep operating. Key investors including Sequoia Capital India and Koru Partners have proposed putting the firm into liquidation, clashing with creditors who want to consider other possible financial options, as well as Kapoor who wants to save the company, according to several people.

"I do not believe that liquidation is either necessary or meaningful for the interest of the company and its customers, shareholders, note holders and lenders," Kapoor wrote in an email seen by Bloomberg News, sent on May 31 to shareholders of Zilingo. In the email, Kapoor, who serves as chief technology officer, asked for their support, saying the company needs just US$6 million to US$8 million for next year.

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"While we do have many multiples of this figure in our accounts today, there is a real risk that these monies will be swept away by the lenders," he wrote. He added that he'd been approached by companies expressing interest in a merger or acquisition.

Creditors do not favour the liquidation option partly because that process can take 6 to 9 months in Singapore, a relatively long period for the quick-paced world of startups, and it can be costly, one of the people said.

Zilingo employees, who are facing an uncertain future, are walking out. About 100 workers across Zilingo's 8 offices have departed in recent months, according to a person familiar with the matter. Chief financial officer Ramesh Bafna, a former CFO at fashion e-commerce platform Myntra, left in May, a mere 2 months after joining. Other senior managers including the startup's head of Thailand are also leaving, according to the people.

In May, Zilingo halted some of its operations in Indonesia, the struggling startup's biggest market in South-east Asia, the people said. Some staff in the country, totalling more than 100 before the crisis, have been told by their managers to start looking for jobs elsewhere, one of the people said.

Indies Capital Partners and Varde Partners, the companies behind Zilingo's creditor Zorro Assets, provided the US$40 million mezzanine debt facility in 2021. In March, Varde and Indies told the firm that it was in default of their loan agreement, citing a wide range of documents it had not yet provided, including audited filings from fiscal 2020 and fiscal 2021, ordering it to cease drawing on funds. By May, they decided to recall the loan.

Varde declined to comment and Indies Capital did not respond to requests for comment.

The Zilingo board said on May 13 that it had appointed an independent financial adviser to explore options for the company's future. BLOOMBERG