Corporate chapter 7 vs. dissolve and wind up outside of court
Posted: Fri Jan 20, 2017 2:03 am
In 12 years of BK practice, I have never filed a corporate chapter 7
because they are generally a bad idea, especially with a closely held corp.
(transfers of assets or payments to principals while insolvent, etc., no
discharge.) I have one I may file though, but I want to run it by you.
The Debtor is current on all its loan payments, and tax obligations, but
business is going down hill fast. We could wind it up outside of BK, but
that requires selling off the inventory, etc. and the Debtor would prefer
to just hand it over to a trustee to liquidate. Liquidation will not pay
off much. There's about $40K in inventory, with a $300K
secured-by-all-assets SBA loan, and two 5 year leases (for premises).
I reviewed the bank records and it appears the principals stopped paying
themselves regular paychecks as soon as there was a sign of trouble, but
did take about $8K in "draws" during the last year and while the business
was starting to go down hill. It has only been owned by these principals
for about 16 months. It had previously been a thriving business (which
these same principals managed for about 15 years) and finally bought in
2015 with the SBA loan. Then the market promptly took a dive.
*Other than transfers to the principals or transfers not in the ordinary
course, what should I be looking for in order to determine whether to file
this as a Chapter 7 BK or wind it up outside of BK?* The principals also
have to file personal BKs because of personal guarantees.
This is in Idaho, and the "out of court" wind up process is to file for
dissolution, shut down, send notice to creditors to put in claims, sell
assets, and pay claims to the extent possible. The inventory is mostly
supplements and health related products. I do not know how long it would
take to sell this type of inventory.
*What are your thoughts re corporate chapter 7 vs. dissolve/wind up under
these facts? *
Holly Roark
Certified Bankruptcy Specialist*
*and Sports Lawyer*
holly@roarklawoffices.com **primary email address**
www.roarklawoffices.com
*Central District of California & District of Idaho* - Consumer Bankruptcy
Attorney
1875 Century Park East, Suite 600 Los Angeles, CA 90067
T (310) 553-2600; F (310) 553-2601
*By State Bar of California Board of Legal Specialization
In 12 years of BK practice, I have never filed a corporate chapter 7 because they are generally a bad idea, especially with a closely held corp. (transfers of assets or payments to principals while insolvent, etc., no discharge.) I have one I may file though, but I want to run it by you.The Debtor is current on all its loan payments, and tax obligations, but business is going down hill fast. We could wind it up outside of BK, but that requires selling off the inventory, etc. and the Debtor would prefer to just hand it over to a trustee to liquidate. Liquidation will not pay off much. There's about $40K in inventory, with a $300K secured-by-all-assets SBA loan, and two 5 year leases (for premises).I reviewed the bank records and it appears the principals stopped paying themselves regular paychecks as soon as there was a sign of trouble, but did take about $8K in "draws" during the last year and while the business was starting to go down hill. It has only been owned by these principals for about 16 months. It had previously been a thriving business (which these same principals managed for about 15 years) and finally bought in 2015 with the SBA loan. Then the market promptly took a dive. Other than transfers to the principals or transfers not in the ordinary course, what should I be looking for in order to determine whether to file this as a Chapter 7 BK or wind it up outside of BK? The principals also have to file personal BKs because of personal guarantees.This is in Idaho, and the "out of court" wind up process is to file for dissolution, shut down, send notice to creditors to put in claims, sell assets, and pay claims to the extent possible. The inventory is mostly supplements and health related products. I do not know how long it would take to sell this type of inventory.What are your thoughts re corporate chapter 7 vs. dissolve/wind up under these facts?
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