In these days of economic distress, the statistics show an ever increasing number of business failures with the prognosis for business bankruptcies reaching ever increasing proportions. These are not easy times to succeed in business. Such is the reality of the economic times.
All too often we hear clients say, "I have to file Bankruptcy."
The decision to file "bankruptcy" is a legal as much as a business decision and should not be made by a client without a thorough discussion with counsel and consultation with an accountant. One does not visit a doctor and say, "I need brain surgery because I have a headache." Neither should the existence of financial difficulties dictate the cure.
The first issue to be determined in the event of financial problems is whether the business, with certain changes, could survive and be profitable. Is management or the owner willing to make the requisite changes and pursue the mechanism to effectuate the changes? Is it worth the cost in time and money? Is it too late? These are difficult decisions.
If the business is beyond salvation, and termination is required, additional decisions must be made.
- What are the potential personal consequences?
- What is the best way to maximize recovery?
- What is the appropriate timing?
- What is the best devise to use to effectuate the established goal?
While the act of filing bankruptcy, a Chapter 7, 11 or even 13 is one possible solution to resolving financial difficulties, there are other, more sophisticated ways to terminate the operation of a business that should be thoroughly considered before embarking on what could well be an ill-conceived decision.
Issues of potential personal liabilities must be expressed and carefully examined. The timing of any action may be critical in dealing with legal issues and the maximizing or recovery.
Properly orchestrated termination of the operation of a business need not be destructive of the personal and financial interests of the individual. Experienced insolvency counsel is equipped to recommend alternative procedures to minimize the adverse affects of bankruptcy. Alternatives to a filing can be:
- An Assignment for the Benefit of Creditors
- A Trust Mortgage
- A negotiated voluntary surrender of collateral to the secured creditor
- Or even an old fashioned work out
A careful, analytical evaluation of the specifics of the situation, whether a reorganization or a liquidation, can be a win-win situation for all parties, rather than an acrimonious process in which everyone loses.
Everyone is better off when experienced, knowledgeable professionals are involved.
by: Eugene B. Berman, Esq.
