Monthly Archives: September 2013

Things to consider about business bankruptcy

Bankruptcy is a legal proceeding for a business that is unable to pay outstanding debts. The process begins with a petition filed by the debtor. Once the bankruptcy proceedings are completed the debtor is relieved of the debt obligations incurred prior to the filing for bankruptcy.

Bankruptcy-Court1In the United States, filing of bankruptcy is covered by the several chapters of the bankruptcy code, like Chapter 7 which covers the liquidation of assets, Chapter 11 involves “reorganizations or company or individual” and lastly, Chapter 13 which tackles debt repayment with lowered debt covenants or payment plans.

Before filing a petition for bankruptcy, there are certain things that you need to consider, here is a short list of those things:

1. Assess the Relief Needed

You, as business owner must assess the health and future of the business. First, you need to identify the existing assets and liabilities of the corporation. You need to know if the business will still survive if debts will be restructured. Choose among the mentioned chapters shall be appropriate with the current status of your business.

2. Strategic Planning

You need to be realistic about the benefits of reorganization. Chapter 11 of the Bankruptcy code offers benefits which include the ability to modify pre-existing debts to extend maturity dates or lower interest rates or to reject leases or contracts that are not profitable anymore. In creating a strategic plan for reorganization, business owners must assess what appropriate changes shall take place in the operations, management, or debt structure in order to sustain the running of the business.

3. Keep Accurate Financial Records

You should keep accurate records of your income and expenditure and all other business transactions. Do not let bad financial record keeping become a hindrance to a successful bankruptcy petition. If the company’s records are scarce or inaccurate, some level of pre-bankruptcy planning may be appropriate to begin accurate record keeping and the employment of an accountant may be necessary. Failure to keep up to date information may become a hindrance for you in the successful filing of your bankruptcy petition.

4. Develop a Budget

After the filing of bankruptcy, it will often seek to use some of its cash flow for operations. To the extent that cash constitutes and may sometimes require “cash collateral”. Under the bankruptcy code,  “Cash Collateral” may include business accounts, inventory and other collateral such as post petition proceeds, products, offspring, rents, or profits that are subject to a properly perfected creditor’s lien.  However, “cash collateral’ cannot be used without the creditor’s consent, or the Bankruptcy Court’s permission.

5. Evaluate Personal Finances

You must consider the impact of business bankruptcy on your personal finances. A personal bankruptcy may be appropriate or temporary injunction relief may be an available remedy to the owner while the business reorganizes.

Business Workouts and Restructuring

slide-business-unitsIn situation when a business is losing money and facing a numerous debt and where they are unable to pay them, a business workout or turnaround can help the business to bounce back from this downfall.  A business workout is necessary to review all the assets and liability of a business.

Depending on the situation, a business workout may include one or more of the following:

  • Renegotiation or replacement
  • Request for consents or waivers
  • Forbearance agreement
  • Standstill and tolling agreement
  • Deed in lieu of foreclosure
  • Asset sale
  • Lease assignment or amendment
  • Partnership amendment
  • Corporate restructuring
  • Public or private debt restructuring
  • Asset or business sale

There are other ways in solving financial problems of your company, however workouts are typically the initial option since they do not require a major restructuring or bankruptcy action. If in case the creditors are not willing to work it out with the company, it is best to file a bankruptcy to allow the company to restructure its debt and offers protection to its cash flow and business assets.

Moving on, restructuring is a corporate term that pertains to the reorganization of a company to improve its profitability. Restructuring may occur because of company buy-outs, bankruptcy, or corporate acquisitions. It is in relation to the company’s major business modification.  Some restructurings require an organizational change. This may be the result after a business enters a new market that requires separate business units to share administrative functions or a corporate headquarters to oversee independent divisions. Sometimes a new management team or a small business owner decides to sell part of the business and bring on a new partner or partners.

Lastly, if in case the company can’t meet its capital needs, it might sell stock or take on investors. As a result of which, it allows the business to buy another company, open new locations or add new products to its line. This will also change the financial strategy of the company to increase profit based on its new debt load and long-term financing needs.

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Legal Issues to Consider for Business Contract

Business Law firmIt is important for a person to know the legal implication of every contract he is entering to. A person who doesn’t have enough knowledge about the business contract he’s about to signed shall lead to a very serious problem that may caused the signee to suffer damages. The point here is to review every single line of a business contract you are about to signed and make sure you have read even the littlest detail indicated in the contract. You may start by checking the privacy section of the contract. Often when entering a business contract, the other party will gain access and insight into your business practices and possible trade secrets. If you do not want the other party sharing this information, you should include a clause that binds the other party from disclosing your business information or information included in the contract to other parties.

Second factor you need to consider is the laws of the state where the contact is celebrated.  Contracts can stipulate which state’s laws will govern in the event there’s a dispute. It must be patterned with the laws of the states where the businesses are located. Let’s say that the other party is located in another state, you should indicate that in the contract, a clause which will mentioned the state laws that will govern on the contract. Failure to do so shall result to a dispute that which will cost a lot of money.

Next thing to know is the party to the contract. Be sure that the business you are contracting with is registered to do business in the state in which you operate your business. Should there be a problem later on, it will be much easier to institute a lawsuit as the states maintain addresses for service of process on registered corporations. In addition, if the business is not properly registered in the state, there could be legal issues with your contract. The business should also be licensed in the specific type of business it conducts, if this is required.

Lastly, a business contract must include a mediation and arbitration clause. This is to protect your business in case of a dispute. This will indicate a provision that will require parties to enter mediation or arbitration, or both. This is to avoid spending money for the cause of court process. These settlement, mediation and arbitration, is an outside court resolution for the benefit and advantage of both parties. Both parties must abide by the decision that will come out after the settlement.

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