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  1. #1
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    Default Bankruptcy Dissolution While in Litigation

    My question involves business law in the state of: Illinois

    Plaintiff – Illinois
    My Company - Pennsylvania

    My company (S –corp) is involved in a lawsuit and the legal costs have basically bankrupted the company. I prefer to Chapter 7 but I can't move or sell my trademark in that situation. Company has a trademark that has value to me worth about 700K sales per year. If I file for Chapter 7 I risk the trustee putting it up for sale otherwise I would do it yesterday and start all over the next day. I can no longer afford the legal expenses and realize the plaintiff will be rewarded some judgment. I have tried to settle numerous times but they want the entire amount they are suing for, 66K, which I do not have. They wouldn't even take a payout plan unless I personally signed for it which I will not do.

    My question is what are the ramifications if I dissolve my company during litigation?

  2. #2
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    Default Re: Dissolution While in Litigation

    Quote Quoting MichaelR
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    My question involves business law in the state of: Illinois

    Plaintiff – Illinois
    My Company - Pennsylvania

    My company (S –corp) is involved in a lawsuit and the legal costs have basically bankrupted the company. I prefer to Chapter 7 but I can't move or sell my trademark in that situation. Company has a trademark that has value to me worth about 700K sales per year. If I file for Chapter 7 I risk the trustee putting it up for sale otherwise I would do it yesterday and start all over the next day. I can no longer afford the legal expenses and realize the plaintiff will be rewarded some judgment. I have tried to settle numerous times but they want the entire amount they are suing for, 66K, which I do not have. They wouldn't even take a payout plan unless I personally signed for it which I will not do.

    My question is what are the ramifications if I dissolve my company during litigation?
    Every asset of your corporation, including its trademark, would be an asset that the bankruptcy trustee can and would sell.

  3. #3
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    Default Re: Dissolution While in Litigation

    Quote Quoting llworking
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    Every asset of your corporation, including its trademark, would be an asset that the bankruptcy trustee can and would sell.
    Should I prepare to dissolve the company and do something with the trademark to protect it?

  4. #4
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    Default Re: Dissolution While in Litigation

    You say the trademark is worth $700k in sales/yr to you. What is it worth to someone else?

    If you put the entity into a Chapter 7 you can buy back all of the entity assets (including its good will). Yes, any sale will be subject to higher and better offers but, is there anyone out there that would be willing to out-bid you in order to obtain those assets? If you are the successful bidder you would be purchasing the assets “free and clear” of any claims of the entity’s creditors. You need to sit down with a bk attny who handles corporate chapter 7s to discuss this further.

    As to dissolving the company, you most likely would have to sell all assets and use the proceeds to pay entity debt. You would need to check state law on how to do that as well as discuss dissolution with a qualified attny. Remember, if you simply try to move assets to a new entity, the creditors of the old one will go after the new entity based on successor liability/alter ego theories.

    Des.

  5. #5
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    Default Re: Dissolution While in Litigation

    Quote Quoting despritfreya
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    You say the trademark is worth $700k in sales/yr to you. What is it worth to someone else?

    If you put the entity into a Chapter 7 you can buy back all of the entity assets (including its good will). Yes, any sale will be subject to higher and better offers but, is there anyone out there that would be willing to out-bid you in order to obtain those assets? If you are the successful bidder you would be purchasing the assets “free and clear” of any claims of the entity’s creditors. You need to sit down with a bk attny who handles corporate chapter 7s to discuss this further.
    How does the sale actually work? The time frame, advertising, etc?




    Quote Quoting despritfreya
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    As to dissolving the company, you most likely would have to sell all assets and use the proceeds to pay entity debt. You would need to check state law on how to do that as well as discuss dissolution with a qualified attny. Remember, if you simply try to move assets to a new entity, the creditors of the old one will go after the new entity based on successor liability/alter ego theories.

    Des.
    If I am not a share holder of the new corp wouldn't they have to come to Pa or any other state the new company incorporates in? I am not sure if Illinois would be the venue for civil litigation on a new company that does not have the same share holder (of old company in current suit) incorporated in lets say Nevada. It isn't illegal to WORK for a start up company, in an industry that is all I know, after my business is dissolved, no?

  6. #6
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    Default Re: Dissolution While in Litigation

    Quote Quoting MichaelR
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    How does the sale actually work? The time frame, advertising, etc?
    Business bankruptcies can be complicated, and their resolution fact-dependent. If you are interested in pursuing a business bankruptcy and then attempting to acquire the assets of the business from the bankruptcy court, you should discuss your strategy with a business bankruptcy lawyer. You should anticipate a significant hourly fee.

  7. #7
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    Default Re: Dissolution While in Litigation

    As to your first inquiry relative to purchasing the assets from the Chapter 7 estate, such is routinely done. Once the case is filed, if the business is not already shut down, the Chapter 7 Trustee will shut it down. You (or more appropriately, the attny) contacts the Trustee to propose an offer to purchase all assets. The Trustee, after investigating the business affairs, will use the offer as an “opening bid” and notice out an auction sale of entity assets. The sale typically takes place at or near the bk court but it could be advertized on a larger scale through various Internet auction sites. The “notice” period is about 30 days. You would be notified of when the auction is to be held and you would make sure you show up just in case there is another bidder. Many times, when dealing with a small business, the only one interested in acquiring the assets is the member or shareholder. However, if there is a real market for the assets or there is a competitor out there that wants to see the business “gone”, watch out - bidding could get expensive.

    Practice pointer: You want to find an attny who knows how the Trustees in your area handle such matters. If your attny and the Trustee have a good working relationship, the Trustee may agree to limit the sale to a location at or near the bk court. Doing this limits the pool of potential bidders.

    As to your second inquiry, I cannot be specific. However, transferring assets without accounting for their value to the creditors of the corporation is a bad idea. Such would leave the recipient of those assets open to suit either as an alter ego (even if you are not an “owner” but the new business is doing exactly the same as the old one) or for fraudulent conveyances. For more info on “fraudulent conveyance” Google the term. We are not talking “criminal fraud”. We are talking about an improper transfer or a transfer “without fair consideration” or an “unequal exchange for value”.

    Again, please discuss both aspects with one or two (or more) qualified attnys.

    Des.

  8. #8
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    Default Re: Dissolution While in Litigation

    Quote Quoting despritfreya
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    You say the trademark is worth $700k in sales/yr to you. What is it worth to someone else?
    That is one of numerous bizarre things in this case. The trademark/patent is something that is basically a dime a dozen and not really worth much to anyone else. When you take into account that the product is manufactured in China, sold to the importer (plaintiff) in Chicago, and then sold to me, I am not understanding the plaintiff or his attorney. I have tried to settle numerous times for what I consider significant amounts and they constantly turn it down. The last on was $40K in a payment plan ($1K per month) and they've rejected it. One of my attorney friends told me to Chapter 7 the company, trademark in China, and just find another importer. If I had the connections and new the culture I could go directly to a Chinese manufacturer.

    Considering I'm incorporated in Pa but live in Ohio, the company will soon have no other assets, what can they do if they get a judgement, can't collect, and the business is basically non-operational?

  9. #9
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    Default Re: Dissolution While in Litigation

    Quote Quoting MichaelR
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    Considering I'm incorporated in Pa but live in Ohio, the company will soon have no other assets, what can they do if they get a judgement, can't collect, and the business is basically non-operational?
    If the business is dead and has no assets, a judgment creditor would be holding a worthless piece of paper. However, if the assets "disappeared" and the creditor was aware of them and had the financial resources, the creditor would simply track the assets down and attempt to recover them. Goes back to the fraudulent transfer concepts and I have seen this happen.

    If there is an issue of fraudulent conveyances that have taken place, the last thing you want to do is put the entity into a Chapter 7. Once in a 7, the creditor no longer has to do anything, including footing the bill for collections. It can sit back, relax and watch the show. The Chapter 7 Trustee will take over and go after the assets and, the 7 Trustee has the full faith and credit of the US government - in other words - very deep pockets. I have seen this happen on more than one occasion.

    Des.

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