Originally Posted by the
(Post 3594088)
OK, here's some things I've seen done and issues I've seen considered. I'm not recommending them, but I've seen it done.
1. With everything guaranteed, a bky isn't going to bail you out. They will ignore the bky carcass and come after each of you individually on the guaranteed debt.
2. Therefore, before a bky is filed, many people find it beneficial if the corporate assets are used in a way that pays down the guaranteed debt. In some order of priority where the largest and/or most aggressive creditors are paid first. (Usually "largest" = "most aggressive"). In a bky, unsecured/unguaranteed creditors have almost no rights and usually just go away. In the event that certain creditors (i.e. those holding guarantees) are paid down before others in a bky, it is best if those payments are made at least 91 days before the bky is filed, as they are outside of the "preference" period. All payments made in the 90 days before the filing will be very carefully analyzed, and if they are not in the "ordinary course" and are large enough, the creditor may be sued by the bky trustee and have to give those payments back (of course, they will then seek recovery of those lost payments from the guarantors).
3. In the event a bky is filed, and the case is administered in any way (in other words, it isn't a simple no asset case - yours probably would be an asset case with a trustee appointed) payments to any company insiders are going to be very carefully analyzed, ESP. payments within a year of the filing of the bky. Payments made to insiders outside a year are outside the "preferential payment" period.
4. The biggest issue is going to be the lease. $70K per year is substantial, and the landlord is going to come after the company for it if you close down, and look to the guarantors if the co. files bky. That's a very difficult issue.
5. While the biz is operational, try not to let on to your creditors that you are having difficulties. That may make them nervous and make them seek legal advice. If they sense there is going to be a run on you, they will want to be the first creditor to strike, while assets are there to pay them. I've seen lots of biz's make this mistake, and it has hastened their demise. Some of your contracts may have "insecurity" provisions, where if they feel insecure because of your condition, they can make demands on you. Or, even if they don't have that in the contract, they can choose to strike fast on any minor default, if they are feeling insecure. Always remember, your creditor are going to look after their interests first, esp. if they talk to a lawyer.
6. If the biz goes down, and creditors start coming after the guarantors, one of the first things they are going to do is a collection analysis. That will determine how hard they come. For instance, if a person has no assets and moved to mexico, a creditor a lot of time would just write the debt off, or get a default judgment and stick it in a drawer. If a person has a $1 million house owned outright, the creditor is going to be on them like glue.
In a collection analysis, the first thing they will do is a real property search. Real property is the easiest to collect on.
The other thing they will look at is the financials you submitted to them. But a lot of creditors find that when a business has been struggling for a couple of years, the owners have had to use up a lot of their assets, and the stuff that was on their financials is unfortunately gone.
If for some reason a guarantor were to transfer their real property to a relative, that is usually a mistake, esp. if it was done while a business was struggling. That is looked at as a fraudulent conveyance, and can be undone by the court. But, sometimes creditors are unlucky, and the guarantor sold the property to a legit third person (a bona fide purchaser) who has nothing to do with the guarantor. Nobody could ever take the property from that person. The only thing the creditor could do is try to track down and recover from the sale proceeds (i.e., the cash). Cash is very often difficult to track down. Most creditors usually find that the guarantor doesn't just have it sitting in a bank account waiting to be levied on. In fact, it is usually gone, used up in living expenses and the costs of running the business.
If the biz goes sideways, and creditors come after the guarantors, the matters are much easier to settle, and creditors pursue less, when there are no assets to come after. Keep in mind that a creditor, esp. one that gets a judgment or a provisional remedy, has a lot of rights, including the right to do debtor examination, which includes subpoening banks for account records, etc.
These are just some of the things I've seen in the past. There are a lot if issues involved, as I'm sure you can begin to see.
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